UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE
13a-16
OR 15d-16 OF THESECURITIES EXCHANGE ACT OF 1934
For the month of December 2022
Commission file number
001-34919
SUMITOMO MITSUI FINANCIAL GROUP, INC.
(Translation of registrant’s name into English)
1-2,
Marunouchi1-chome,
Chiyoda-ku,
Tokyo100-0005,
Japan(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form
20-F
orForm 40-F: Form
20-F ☒ or Form
40-F ☐
Indicate by check mark if the registrant is submitting the Form
6-K
in paper as permitted by RegulationS-T
Rule 101(b)(1): ☐Indicate by check mark if the registrant is submitting the Form
6-K
in paper as permitted by RegulationS-T
Rule 101(b)(7): ☐Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule
12g3-2(b)
under the Securities Exchange Act of 1934. Yes ☐ No ☒* | If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- |
THIS REPORT ON FORM
6-K
SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE INTO THE PROSPECTUS FORMING A PART OF SUMITOMO MITSUI FINANCIAL GROUP, INC.’S REGISTRATION STATEMENT ON FORMF-3
(FILE NO.333-261754)
AND TO BE A PART OF SUCH PROSPECTUS FROM THE DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.EXHIBITS
Exhibit number | ||
101. INS | Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
101. SCH | Inline XBRL Taxonomy Extension Schema | |
101. CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |
101. DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
101. LAB | Inline XBRL Taxonomy Extension Label Linkbase | |
101. PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
104 | The cover page for the Company’s Interim Report on Form 6-K for the six months ended September 30, 2022, has been formatted in Inline XBRL |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Sumitomo Mitsui Financial Group, Inc. | ||
By: | /s/ Toru Nakashima | |
Name: Toru Nakashima | ||
Title: Senior Managing Corporate Executive Officer Group Chief Financial Officer |
Date: December 20, 2022
This document contains a review of our financial condition and results of operations for the six months ended September 30, 2022.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements” (as defined in the U.S. Private Securities Litigation Reform Act of 1995), regarding the intent, belief or current expectations of Sumitomo Mitsui Financial Group, Inc. (the “Company”) and its management with respect to the Company’s future financial condition and results of operations. In many cases but not all, these statements contain words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “probability,” “risk,” “project,” “should,” “seek,” “target,” “will,” and similar expressions. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ from those expressed in or implied by such forward-looking statements contained or deemed to be contained herein. The risks and uncertainties which may affect future performance include: deterioration of Japanese and global economic conditions and financial markets; declines in the value of the Company’s securities portfolio; incurrence of significant credit-related costs; the Company’s ability to successfully implement its business strategy through its subsidiaries, affiliates and alliance partners; and exposure to new risks as the Company expands the scope of its business. Given these and other risks and uncertainties, you should not place undue reliance on forward-looking statements, which speak only as of the date of this document. The Company undertakes no obligation to update or revise any forward-looking statements. Please refer to the Company’s most recent disclosure documents such as its annual report on
Form 20-F
and other documents submitted to the U.S. Securities and Exchange Commission, as well as its earnings press releases, for a more detailed description of the risks and uncertainties that may affect its financial conditions, its operating results, and investors’ decisions.1
FINANCIAL REVIEW
Sumitomo Mitsui Financial Group, Inc. (“we,” “us,” “our,” the “Company” or “SMFG”) is a holding company for Sumitomo Mitsui Banking Corporation (“SMBC”), SMBC Trust Bank Ltd. (“SMBC Trust Bank”), Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”), SMBC Nikko Securities Inc. (“SMBC Nikko Securities”), Sumitomo Mitsui Card Company, Limited (“Sumitomo Mitsui Card”), SMBC Finance Service Co., Ltd. (“SMBC Finance Service”), 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. Through our subsidiaries and affiliates, we offer a diverse range of financial services, including commercial banking, leasing, securities, consumer finance and other services. References to the “SMBC Group” are to us and our subsidiaries and affiliates taken as a whole.
RECENT DEVELOPMENTS
Operating Environment
Economic Environment
Our results of operations and financial condition are significantly affected by developments in Japan as well as the global economy.
The Japanese economy, as a whole, showed signs of recovery in the six months ended September 30, 2022. This was primarily due to a gradual increase in economic activity reflecting the easing of the restrictions related to
COVID-19.
However, the pace of its recovery slowed in the latter half of the period, primarily due to the spread of the Omicron variant ofCOVID-19
in Japan and sustained high commodity prices largely caused by Russia’s aggression against Ukraine.The following table presents thegrowth rates of Japanese gross domestic product (“GDP”) from the third quarter ended December 31, 2020 for the fiscal year ended March 31, 2021 through the second quarter ended September 30, 2022 for the fiscal year ending March 31, 2023, based on data published in December 2022 by the Cabinet Office of the Government of Japan.
quarter-on-quarter
For the fiscal year ended/ending March 31, | ||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||
3Q | 4Q | 1Q | 2Q | 3Q | 4Q | 1Q | 2Q | |||||||||||||||||||||||||
Japanese GDP | 1.9% | (0.1%) | 0.3% | (0.5%) | 1.2% | (0.5%) | 1.1% | (0.2%) |
Japanese GDP increased by 1.1% on abasis for the first quarter ended June 30, 2022, primarily due to an increase in private consumption reflecting the easing of the restrictions related to
quarter-on-quarter
COVID-19.
However, it decreased by 0.2% for the second quarter ended September 30, 2022. This was primarily due to increases in imports of services, the declining growth in private consumption reflecting the spread of the Omicron variant ofCOVID-19
in Japan and sustained high commodity prices.The employment situation was relatively weak. The active jobratio published by the Ministry of Health, Labour and Welfare of Japan slightly increased for the six months ended September 30, 2022. The unemployment rate in September 2022 was 2.6%, the same as inbasis, by 0.3% and 0.2%, respectively.
openings-to-applicants
March 2022, based on the data published in October 2022 by the Statistics Bureau of Japan. Further, for the first quarter ended June 30, 2022 and the second quarter ended September 30, 2022, the compensation of employees decreased, on a
quarter-on-quarter
According to Teikoku Databank, a research institution in Japan, there were approximately 3,100 corporate bankruptcies in Japan for the six months ended September 30, 2022, an increase of 6.3% from the same period in the previous year, involving approximately ¥1.8 trillion in total liabilities, an increase of 205.3% from the same period in the previous year.
2
Interest rates in Japanese financial and capital markets are affected by the monetary policy measures of the Bank of Japan (“BOJ”). In January 2016, in addition to the existing provision of ample funds, the BOJ announced the introduction of “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 the
10-year
Japanese government bonds would be close to around 0% to control long-term interest rates. In July 2018, the BOJ decided to introduce forward guidance for policy rates with a view to persistently continuing with powerful monetary easing. Further, in October 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. In March 2020, the BOJ announced “enhancement of monetary easing in light of the impact of the outbreak ofCOVID-19.”
Thereafter, in April and May 2020, the BOJ decided to further enhance monetary easing and introduce measures to support corporate financing. Moreover, in March 2021, the BOJ announced the establishment of a scheme to apply interest rates, which would be linked to the short-term policy interest rate, as an incentive to a certain amount of financial institutions’ current account balances, based on the recognition of the importance of continuing with monetary easing in a sustainable manner and making nimble and effective responses to counter changes in developments in economic activity and prices, as well as in financial conditions. In addition, the BOJ made clear that the range of the10-year
Japanese government bonds yield fluctuations would be between around plus and minus 0.25% from the target level. Under such circumstances, the uncollateralized overnight call rate, which is the benchmark for short-term interest rates, remained negative for the six months ended September 30, 2022. The yield on newly issued Japanese government bonds with a maturity of 10 years, which is the benchmark for long-term interest rates, was around 0.2% for the same period, and was 0.24% at September 30, 2022. This is close to the BOJ’s upper limit target of yield fluctuations.The yen depreciated against the U.S. dollar from ¥121.64 at March 31, 2022 to ¥144.32 at September 30, 2022, 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, fell from ¥27,821.43 at March 31, 2022 to ¥25,937.21 at September 30, 2022.
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 0.1% and 0.5%, respectively, from July 1, 2021 to July 1, 2022.
For the six months ended September 30, 2022, the global economy, as a whole, recovered gradually, primarily due to an increase in private consumption reflecting the easing of restrictions related to
COVID-19.
However, the pace of its recovery was slow primarily due to downward pressure on the global economy affected by higher commodity prices and the continuous global monetary tightening. The U.S. economy slightly shrank in the first half of the six months ended September 30, 2022, primarily due to a decrease in private residential investments and changes in private inventories. Although increasing inflation and the subsequent monetary tightening put downward pressure on the U.S. economy, it recovered gradually in the latter half of the period, primarily due to an increase in private consumption supported by the good employment situation. The European economy recovered gradually in the first half of the six months ended September 30, 2022, primarily due to an increase in private consumption reflecting the easing of restrictions related toCOVID-19.
However, the pace of its recovery was relatively weak in the latter half of the period, primarily due to downward pressure on the European economy, which has experienced higher energy prices caused by Russia’s aggression against Ukraine. In Asia, the Chinese economy slowed down in the first half of the six months ended September 30, 2022, due to thezero-COVID
policy, which includes restrictions such as the restraint on movement. However, it showed signs of picking up in the latter half of the six months ended September 30, 2022, primarily due to an increase in3
private consumption reflecting the easing of restrictions related to
COVID-19.
Asian economies other than China, as a whole, recovered gradually, primarily due to the resumption of economic activity reflecting the easing of restrictions related toCOVID-19
for the six months ended September 30, 2022.On December 8, 2022, Fitch Ratings Japan Limited (“Fitch”) downgraded the long-term issuer default ratings of SMFG and SMBC to
“A-”
from “A,” primarily due to our weakened capitalization. For more information about our credit ratings, see “Operating Results and Financial Condition—Liquidity.”Regulatory Environment
In addition to economic factors and conditions, we expect that our results of operations and financial condition will be significantly affected by regulatory trends.
Capital Adequacy Requirements
Each year, the Financial Stability Board (“FSB”) publishes a list of global financial institutions that it has identified as Global Systemically Important Banks
(“G-SIBs”)
based on the methodology issued by the Basel Committee on Banking Supervision (“BCBS”).G-SIBs
included on the list are required to maintain an amount of Common Equity Tier 1 (“CET1”) capital above the Basel III minimum requirement and applicable capital conservation buffer to discourage such financial institutions from becoming even more systemically important. This is commonly known as theG-SIB
capital surcharge.The
G-SIB
capital surcharge ranges from 1% to 2.5% of additional CET1 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.We have been included in the list of
G-SIBs
each year since the initial list was published in November 2011 and were included on the list published in November 2022. Based on that list, the additional CET1 capital as a percentage of risk-weighted assets we are currently required to maintain is 1%.On July 15, 2022 and November 11, 2022, the Financial Services Agency of Japan (“FSA”) published amendments to its guidelines for the leverage ratio. For further details, see “—Operating Results and Financial Condition—Capital Management.”
Developments Related to Our Business
Regulatory and Legal Developments
On October 7, 2022, the FSA announced administrative actions against SMBC Nikko Securities, SMBC and SMFG in relation to findings by the Securities and Exchange Surveillance Commission of Japan (“SESC”) of multiple violations of the Financial Instruments and Exchange Act (“FIEA”). The violations identified by the SESC included, among others, improper stabilization activity and related deficiencies in transaction monitoring and business practices by SMBC Nikko Securities in connection with a series of “block offer” transactions in publicly listed securities (collectively, the “market manipulation conduct”). Separately from the market manipulation conduct, the SESC found that SMBC Nikko Securities committed violations of the
so-called
“firewall regulations” of the FIEA, in connection with impermissible sharing of customer information between SMBC Nikko Securities and SMBC.The FSA’s administrative actions consist of:
• | SMBC Nikko business suspension order |
4
• | SMBC Nikko business improvement order |
• | SMFG improvement measures order |
• | SMFG and SMBC reporting orders |
Refer to our reports on Form
6-K
dated October 7, 2022 for more information about the FSA’s administrative actions.The SMBC Group takes these administrative actions seriously and has been cooperating with the FSA to formulate, submit and implement business improvement plans within the required timeframes. Specifically, on November 4, 2022, SMFG, SMBC and SMBC Nikko Securities timely submitted plans and/or reports to the FSA as required by the respective orders. Each is further required to provide periodic status reports to the FSA on the implementation of the measures detailed therein. In addition, SMFG, SMBC and SMBC Nikko Securities announced reductions in the remuneration of certain executives, among other internal disciplinary actions. Refer to our reports on Form
6-K
dated November 4, 2022 for more information about the SMBC Group’s submissions to the FSA. With regard to the business suspension order issued to SMBC Nikko Securities, SMBC Nikko Securities intends to continue its full compliance with the three-month suspension of any new block offer business. Although we, SMBC and SMBC Nikko Securities are striving to implement remediation measures that address the concerns identified in the FSA orders, there is no guarantee that the FSA will consider the proposed measures and our implementation progress to be satisfactory, or that additional deficiencies will not be uncovered in the process, and it is possible that additional sanctions may be imposed on us or our group companies in the future.As previously disclosed, a criminal proceeding is ongoing before the Tokyo District Court, in which SMBC Nikko Securities and several of its former and current officers and employees have been prosecuted for alleged FIEA violations arising out of the market manipulation conduct referred to in the FSA’s administrative actions mentioned above. The first hearing in the trial was conducted on October 28, 2022, at which SMBC Nikko Securities admitted culpability with respect to the charges. The final outcome of the ongoing criminal proceeding, including any penalties that may be imposed by the Tokyo District Court, remains uncertain. We and our group companies have experienced and may continue to experience reputational harm as a result of this criminal proceeding and the administrative actions of the FSA, which have resulted and may continue to result in reduced business opportunities with current and prospective clients.
See “Item 3.D. Risk Factors—Risks Related to Our Business—Adverse regulatory developments or changes in government policies could have a negative impact on our results of operations,” “—Fraud, misconduct or other unlawful behavior by directors, officers and employees or third parties could subject us to losses and regulatory sanctions,” “—Our business could be adversely affected by litigation and regulatory proceedings globally,” “—Damage to our reputation may have an adverse effect on our business and results of operations” and “Item 4.B. Business Overview—Regulations in Japan—Other Regulations Related to Our Business—Financial Instruments and Exchange Act of Japan” in our most recent annual report on Form
20-F
for a description of the potential impact of such developments on our business, results of operations and financial condition.5
Repurchase and Cancellation of Own Shares
On November 14, 2022, we announced the progress of the repurchase of our own shares pursuant to the resolution of our board of directors held on November 12, 2021. The resolution authorized the repurchase of up to the lesser of (i) an aggregate of 33,000,000 shares of our common stock and (ii) an aggregate of ¥100 billion between November 15, 2021 and November 11, 2022. However, our share repurchases were suspended during periods in which we may have been deemed to hold material
non-public
information. As a result, the repurchase period beginning November 15, 2021 ended without any repurchase of shares.Simultaneously, 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 61,000,000 shares of our common stock and (ii) an aggregate of ¥200 billion between November 15, 2022 and May 31, 2023. The cancellation of the repurchased shares is scheduled on June 20, 2023. During November 2022, we entered into contracts to repurchase 4,593,700 shares of common stock for ¥21 billion in aggregate.
Accounting Changes
See Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this report.
6
OPERATING RESULTS AND FINANCIAL CONDITION
The figures in our operating results and financial condition presented below are prepared in accordance with IFRS as issued by the International Accounting Standards Board, 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 accounting principles generally accepted in Japan (“Japanese GAAP”), and expressed in Japanese yen, unless otherwise stated or the context otherwise requires.
Executive Summary
Under the economic and financial circumstances described in “Recent Developments—Operating Environment,” we made a profit through our business activities including commercial banking and other financial services businesses. Our total operating income increased by ¥656,455 million from ¥1,506,179 million for the six months ended September 30, 2021 to ¥2,162,634 million for the six months ended September 30, 2022, primarily due to increases in net interest income and net trading income. Our net profit increased by ¥408,800 million from ¥368,594 million for the six months ended September 30, 2021 to ¥777,394 million for the six months ended September 30, 2022, primarily due to the increase in total operating income described above, which was partially offset by increases in operating expenses and income tax expense.
Our total assets increased by ¥12,104,205 million from ¥248,160,847 million at March 31, 2022 to ¥260,265,052 million at September 30, 2022, primarily due to an increase in loans and advances.
Our total liabilities increased by ¥11,256,363 million from ¥235,379,155 million at March 31, 2022 to ¥246,635,518 million at September 30, 2022, primarily due to increases in deposits and derivative financial instruments, which was partially offset by a decrease in borrowings.
Our total equity increased by ¥847,842 million from ¥12,781,692 million at March 31, 2022 to ¥13,629,534 million at September 30, 2022, primarily due to an increase in retained earnings.
7
Operating Results
The following table presents information as to our income, expenses and net profit for the six months ended September 30, 2022 and 2021.
For the six months ended September 30, | ||||||||
2022 | 2021 | |||||||
(In millions, except per share data) | ||||||||
Interest income | ¥ | 1,424,087 | ¥ | 843,712 | ||||
Interest expense | 573,910 | 139,973 | ||||||
Net interest income | 850,177 | 703,739 | ||||||
Fee and commission income | 607,546 | 608,157 | ||||||
Fee and commission expense | 112,737 | 113,484 | ||||||
Net fee and commission income | 494,809 | 494,673 | ||||||
Net trading income | 565,037 | 94,980 | ||||||
Net income from financial assets and liabilities at fair value through profit or loss | 171,708 | 97,643 | ||||||
Net investment income (loss) | (4,915 | ) | 62,549 | |||||
Other income | 85,818 | 52,595 | ||||||
Total operating income | 2,162,634 | 1,506,179 | ||||||
Impairment charges on financial assets | 88,025 | 18,770 | ||||||
Net operating income | 2,074,609 | 1,487,409 | ||||||
General and administrative expenses | 948,612 | 879,731 | ||||||
Other expenses | 162,686 | 126,224 | ||||||
Operating expenses | 1,111,298 | 1,005,955 | ||||||
Share of post-tax profit of associates and joint ventures | 61,241 | 27,899 | ||||||
Profit before tax | 1,024,552 | 509,353 | ||||||
Income tax expense | 247,158 | 140,759 | ||||||
Net profit | ¥ | 777,394 | ¥ | 368,594 | ||||
Profit attributable to: | ||||||||
Shareholders of Sumitomo Mitsui Financial Group, Inc. | ¥ | 762,185 | ¥ | 361,393 | ||||
Non-controlling interests | 9,603 | 1,836 | ||||||
Other equity instruments holders | 5,606 | 5,365 | ||||||
Earnings per share: | ||||||||
Basic | ¥ | 555.91 | ¥ | 263.66 | ||||
Diluted | 555.72 | 263.55 |
Total operating income increased by ¥656,455 million, or 44%, from ¥1,506,179 million for the six months ended September 30, 2021 to ¥2,162,634 million for the six months ended September 30, 2022, primarily due to increases in net interest income and net trading income. Although impairment charges on financial assets increased, net operating income also increased by ¥587,200 million from ¥1,487,409 million for the six months ended September 30, 2021, to ¥2,074,609 million for the six months ended September 30, 2022.
Net profit increased by ¥408,800 million from ¥368,594 million for the six months ended September 30, 2021 to ¥777,394 million for the six months ended September 30, 2022, as a result of the increase in net operating income described above, which was partially offset by increases in general and administrative expenses and income tax expense.
8
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 annualized interest rates for the six months ended September 30, 2022 and 2021.
For the six months ended September 30, | ||||||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||
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 | ¥ | 844,795 | ¥ | 2,371 | 0.56% | ¥ | 913,488 | ¥ | 1,093 | 0.24% | ||||||||||||||
Foreign offices | 11,158,056 | 86,580 | 1.55% | 6,550,680 | 7,026 | 0.21% | ||||||||||||||||||
Total | 12,002,851 | 88,951 | 1.48% | 7,464,168 | 8,119 | 0.22% | ||||||||||||||||||
Call loans and bills bought, reverse repurchase agreements and cash collateral on securities borrowed: | ||||||||||||||||||||||||
Domestic offices | 9,949,229 | 3,817 | 0.08% | 10,293,325 | (2,110 | ) | (0.04% | ) | ||||||||||||||||
Foreign offices | 4,569,739 | 25,855 | 1.13% | 3,739,481 | 10,637 | 0.57% | ||||||||||||||||||
Total | 14,518,968 | 29,672 | 0.41% | 14,032,806 | 8,527 | 0.12% | ||||||||||||||||||
Investment securities (1) : | ||||||||||||||||||||||||
Domestic offices | 21,184,849 | 37,279 | 0.35% | 19,729,366 | 21,161 | 0.21% | ||||||||||||||||||
Foreign offices | 6,147,879 | 55,133 | 1.79% | 5,335,167 | 37,595 | 1.41% | ||||||||||||||||||
Total | 27,332,728 | 92,412 | 0.68% | 25,064,533 | 58,756 | 0.47% | ||||||||||||||||||
Loans and advances (2) : | ||||||||||||||||||||||||
Domestic offices | 65,974,666 | 465,097 | 1.41% | 62,891,663 | 414,167 | 1.32% | ||||||||||||||||||
Foreign offices | 45,378,263 | 747,955 | 3.30% | 33,980,939 | 354,143 | 2.08% | ||||||||||||||||||
Total | 111,352,929 | 1,213,052 | 2.18% | 96,872,602 | 768,310 | 1.59% | ||||||||||||||||||
Total interest-earning assets: | ||||||||||||||||||||||||
Domestic offices | 97,953,539 | 508,564 | 1.04% | 93,827,842 | 434,311 | 0.93% | ||||||||||||||||||
Foreign offices | 67,253,937 | 915,523 | 2.72% | 49,606,267 | 409,401 | 1.65% | ||||||||||||||||||
Total | ¥ | 165,207,476 | ¥ | 1,424,087 | 1.72% | ¥ | 143,434,109 | ¥ | 843,712 | 1.18% | ||||||||||||||
9
For the six months ended September 30, | ||||||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||
Average balance (3) | Interest expense | Average rate | Average balance (3) | Interest expense | Average rate | |||||||||||||||||||
(In millions, except percentages) | ||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||
Domestic offices | ¥ | 100,678,351 | ¥ | 25,551 | 0.05% | ¥ | 96,524,376 | ¥ | 4,483 | 0.01% | ||||||||||||||
Foreign offices | 35,785,345 | 261,739 | 1.46% | 30,240,244 | 44,367 | 0.29% | ||||||||||||||||||
Total | 136,463,696 | 287,290 | 0.42% | 126,764,620 | 48,850 | 0.08% | ||||||||||||||||||
Call money and bills sold, repurchase agreements and cash collateral on securities lent: | ||||||||||||||||||||||||
Domestic offices | 10,968,681 | 34,093 | 0.62% | 10,955,227 | (975 | ) | (0.02% | ) | ||||||||||||||||
Foreign offices | 8,290,399 | 53,582 | 1.29% | 6,088,101 | 1,941 | 0.06% | ||||||||||||||||||
Total | 19,259,080 | 87,675 | 0.91% | 17,043,328 | 966 | 0.01% | ||||||||||||||||||
Borrowings and other interest-bearing liabilities: | ||||||||||||||||||||||||
Domestic offices | 19,392,604 | 27,754 | 0.29% | 19,111,918 | 15,091 | 0.16% | ||||||||||||||||||
Foreign offices | 818,075 | 31,299 | 7.65% | 831,375 | 8,182 | 1.97% | ||||||||||||||||||
Total | 20,210,679 | 59,053 | 0.58% | 19,943,293 | 23,273 | 0.23% | ||||||||||||||||||
Debt securities in issue: | ||||||||||||||||||||||||
Domestic offices | 8,160,989 | 112,072 | 2.75% | 9,161,443 | 45,983 | 1.00% | ||||||||||||||||||
Foreign offices | 2,278,082 | 16,667 | 1.46% | 2,113,310 | 2,034 | 0.19% | ||||||||||||||||||
Total | 10,439,071 | 128,739 | 2.47% | 11,274,753 | 48,017 | 0.85% | ||||||||||||||||||
Premiums for deposit insurance: | ||||||||||||||||||||||||
Domestic offices | — | 10,074 | — | — | 18,020 | — | ||||||||||||||||||
Foreign offices | — | 1,079 | — | — | 847 | — | ||||||||||||||||||
Total | — | 11,153 | — | — | 18,867 | — | ||||||||||||||||||
Total interest-bearing liabilities: | ||||||||||||||||||||||||
Domestic offices | 139,200,625 | 209,544 | 0.30% | 135,752,964 | 82,602 | 0.12% | ||||||||||||||||||
Foreign offices | 47,171,901 | 364,366 | 1.54% | 39,273,030 | 57,371 | 0.29% | ||||||||||||||||||
Total | ¥ | 186,372,526 | ¥ | 573,910 | 0.62% | ¥ | 175,025,994 | ¥ | 139,973 | 0.16% | ||||||||||||||
Net interest income and interest rate spread | ¥ | 850,177 | 1.10% | ¥ | 703,739 | 1.02% | ||||||||||||||||||
(1) | Taxable investment securities and non-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. |
10
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 six months ended September 30, 2022 compared to the six months ended September 30, 2021.
Six months ended September 30, 2022 compared to six months ended September 30, 2021 Increase / (decrease) | ||||||||||||
Volume | Rate | Net change | ||||||||||
(In millions) | ||||||||||||
Interest income: | ||||||||||||
Interest-earning deposits with other banks: | ||||||||||||
Domestic offices | ¥ | (88 | ) | ¥ | 1,366 | ¥ | 1,278 | |||||
Foreign offices | 7,903 | 71,651 | 79,554 | |||||||||
Total | 7,815 | 73,017 | 80,832 | |||||||||
Call loans and bills bought, reverse repurchase agreements and cash collateral on securities borrowed: | ||||||||||||
Domestic offices | 67 | 5,860 | 5,927 | |||||||||
Foreign offices | 2,795 | 12,423 | 15,218 | |||||||||
Total | 2,862 | 18,283 | 21,145 | |||||||||
Investment securities: | ||||||||||||
Domestic offices | 1,630 | 14,488 | 16,118 | |||||||||
Foreign offices | 6,287 | 11,251 | 17,538 | |||||||||
Total | 7,917 | 25,739 | 33,656 | |||||||||
Loans and advances: | ||||||||||||
Domestic offices | 20,928 | 30,002 | 50,930 | |||||||||
Foreign offices | 143,825 | 249,987 | 393,812 | |||||||||
Total | 164,753 | 279,989 | 444,742 | |||||||||
Total interest income: | ||||||||||||
Domestic offices | 22,537 | 51,716 | 74,253 | |||||||||
Foreign offices | 160,810 | 345,312 | 506,122 | |||||||||
Total | ¥ | 183,347 | ¥ | 397,028 | ¥ | 580,375 | ||||||
11
Six months ended September 30, 2022 compared to six months ended September 30, 2021 Increase / (decrease) | ||||||||||||
Volume | Rate | Net change | ||||||||||
(In millions) | ||||||||||||
Interest expense: | ||||||||||||
Deposits: | ||||||||||||
Domestic offices | ¥ | 217 | ¥ | 20,851 | ¥ | 21,068 | ||||||
Foreign offices | 9,451 | 207,921 | 217,372 | |||||||||
Total | 9,668 | 228,772 | 238,440 | |||||||||
Call money and bills sold, repurchase agreements and cash collateral on securities lent: | ||||||||||||
Domestic offices | (1 | ) | 35,069 | 35,068 | ||||||||
Foreign offices | 896 | 50,745 | 51,641 | |||||||||
Total | 895 | 85,814 | 86,709 | |||||||||
Borrowings and other interest-bearing liabilities: | ||||||||||||
Domestic offices | 228 | 12,435 | 12,663 | |||||||||
Foreign offices | (133 | ) | 23,250 | 23,117 | ||||||||
Total | 95 | 35,685 | 35,780 | |||||||||
Debt securities in issue: | ||||||||||||
Domestic offices | (5,649 | ) | 71,738 | 66,089 | ||||||||
Foreign offices | 5,011 | 9,622 | 14,633 | |||||||||
Total | (638 | ) | 81,360 | 80,722 | ||||||||
Premiums for deposit insurance: | ||||||||||||
Domestic offices | (7,946 | ) | — | (7,946 | ) | |||||||
Foreign offices | 232 | — | 232 | |||||||||
Total | (7,714 | ) | — | (7,714 | ) | |||||||
Total interest expense: | ||||||||||||
Domestic offices | (13,151 | ) | 140,093 | 126,942 | ||||||||
Foreign offices | 15,457 | 291,538 | 306,995 | |||||||||
Total | ¥ | 2,306 | ¥ | 431,631 | ¥ | 433,937 | ||||||
Net interest income: | ||||||||||||
Domestic offices | ¥ | 35,688 | ¥ | (88,377 | ) | ¥ | (52,689 | ) | ||||
Foreign offices | 145,353 | 53,774 | 199,127 | |||||||||
Total | ¥ | 181,041 | ¥ | (34,603 | ) | ¥ | 146,438 | |||||
Interest Income
Our interest income increased by ¥580,375 million, or 69%, from ¥843,712 million for the six months ended September 30, 2021 to ¥1,424,087 million for the six months ended September 30, 2022. This increase was primarily due to an increase in interest income on loans and advances of ¥444,742 million, or 58%. Interest income on loans and advances increased by ¥50,930 million, or 12% at domestic offices and by ¥393,812 million, or 111% at foreign offices. The increases were primarily due to an increase in the average rate of loans at foreign offices, reflecting an increase in the market interest rate, and partially due to an increase in the average balance of loans to domestic corporate customers as a result of our responses to their financing needs arising from higher commodity prices.
12
Interest Expense
Our interest expense increased by ¥433,937 million, or 310%, from ¥139,973 million for the six months ended September 30, 2021 to ¥573,910 million for the six months ended September 30, 2022, primarily due to an increase in interest expense on deposits. Our interest expense on deposits increased by ¥238,440 million, or 488%, from ¥48,850 million for the six months ended September 30, 2021 to ¥287,290 million for the six months ended September 30, 2022, primarily due to an increase in the average rate of deposit, reflecting an increase in the market interest rate.
Net Interest Income
Our net interest income increased by ¥146,438 million, or 21%, from ¥703,739 million for the six months ended September 30, 2021 to ¥850,177 million for the six months ended September 30, 2022. This was primarily due to an increase in the average rate of interest-earning assets, primarily loans and advances.
From the six months ended September 30, 2021 to the six months ended September 30, 2022, the average rate on loans and advances at domestic offices increased by 0.09 percentage points from 1.32% to 1.41%. The average rate on loans and advances at foreign offices increased by 1.22 percentage points from 2.08% to 3.30%, resulting in the total for loans and advances increasing by 0.59 percentage points from 1.59% to 2.18%. On the other hand, the average rate on deposits increased by 0.34 percentage points from 0.08% to 0.42%, primarily due to an increase in the average rate on deposits at foreign offices of 1.17 percentage points from 0.29% to 1.46%.
Net Fee and Commission Income
The following table sets forth our net fee and commission income for the six months ended September 30, 2022 and 2021.
For the six months ended September 30, | ||||||||
2022 | 2021 | |||||||
(In millions) | ||||||||
Fee and commission income from: | ||||||||
Loans | ¥ | 68,340 | ¥ | 60,585 | ||||
Credit card business | 181,965 | 160,119 | ||||||
Guarantees | 35,386 | 32,579 | ||||||
Securities-related business | 55,537 | 84,673 | ||||||
Deposits | 8,560 | 8,300 | ||||||
Remittances and transfers | 73,526 | 72,036 | ||||||
Safe deposits | 2,051 | 2,021 | ||||||
Trust fees | 3,044 | 2,631 | ||||||
Investment trusts | 74,220 | 93,860 | ||||||
Agency | 4,630 | 4,574 | ||||||
Others | 100,287 | 86,779 | ||||||
Total fee and commission income | 607,546 | 608,157 | ||||||
Fee and commission expense from: | ||||||||
Remittances and transfers | 14,309 | 20,988 | ||||||
Others | 98,428 | 92,496 | ||||||
Total fee and commission expense | 112,737 | 113,484 | ||||||
Net fee and commission income | ¥ | 494,809 | ¥ | 494,673 | ||||
Fee and commission income decreased by ¥611 million from ¥608,157 million for the six months ended September 30, 2021 to ¥607,546 million for the six months ended September 30, 2022. Primary sources of fee
13
and commission income are fees obtained through our credit card business, fees and commissions obtained through investment trusts, remittance and transfer fees, loan transaction fees, and fees and commissions obtained through securities-related business. The decrease in fee and commission income was primarily due to decreases in fees and commissions obtained through securities-related business and fees and commissions obtained through investment trusts reflecting the lower investment appetite in the wealth management businesses, which were partially offset by an increase in income from the credit card business reflecting the increase in cashless payments.
Fee and commission expense decreased by ¥747 million, or 1%, from ¥113,484 million for the six months ended September 30, 2021 to ¥112,737 million for the six months ended September 30, 2022.
As a result, net fee and commission income increased by ¥136 million from ¥494,673 million for the six months ended September 30, 2021 to ¥494,809 million for the six months ended September 30, 2022.
Net Income from Trading, Financial Assets and Liabilities at Fair Value Through Profit or Loss, and Investment Securities
The following table sets forth our net income from trading, financial assets and liabilities at fair value through profit or loss, and investment securities for the six months ended September 30, 2022 and 2021.
For the six months ended September 30, | ||||||||
2022 | 2021 | |||||||
(In millions) | ||||||||
Net trading income: | ||||||||
Interest rate | ¥ | 284,254 | ¥ | 77,974 | ||||
Foreign exchange | 335,488 | (19,312 | ) | |||||
Equity | (56,203 | ) | 37,542 | |||||
Credit | 830 | (1,119 | ) | |||||
Others | 668 | (105 | ) | |||||
Total net trading income | ¥ | 565,037 | ¥ | 94,980 | ||||
Net income from financial assets and liabilities at fair value through profit or loss: | ||||||||
Net income from financial assets at fair value through profit or loss: | ||||||||
Net income from debt instruments | ¥ | 102,831 | ¥ | 99,650 | ||||
Net income from equity instruments | 464 | 1,355 | ||||||
Net income (loss) from financial liabilities designated at fair value through profit or loss | 68,413 | (3,362 | ) | |||||
Total net income from financial assets and liabilities at fair value through profit or loss | ¥ | 171,708 | ¥ | 97,643 | ||||
Net investment income (loss): | ||||||||
Net gain (loss) from disposal of debt instruments | ¥ | (54,143 | ) | ¥ | 21,134 | |||
Dividend income | 49,228 | 41,415 | ||||||
Total net investment income (loss) | ¥ | (4,915 | ) | ¥ | 62,549 | |||
Net trading income, which includes income and losses from trading assets and liabilities and derivative financial instruments, increased by ¥470,057 million from ¥94,980 million for the six months ended September 30, 2021 to ¥565,037 million for the six months ended September 30, 2022. The increase was primarily due to an increase in net trading income from foreign exchange transactions and interest rate related transactions, which was partially offset by a decrease in net trading income from equity related transactions.
14
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.
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 from financial assets and liabilities at fair value through profit or loss increased by ¥74,065 million from ¥97,643 million for the six months ended September 30, 2021 to ¥171,708 million for the six months ended September 30, 2022. This was primarily due to an increase in net gains from changes in the fair value of debt securities in issue designated at fair value through profit or loss.
Net investment income (loss) decreased by ¥67,464 million from a net income of ¥62,549 million for the six months ended September 30, 2021 to a net loss of ¥4,915 million for the six months ended September 30, 2022. This was primarily due to an increase in losses from sales of foreign bonds.
Impairment Charges on Financial Assets
The following table sets forth our impairment charges (reversals) on financial assets for the six months ended September 30, 2022 and 2021.
For the six months ended September 30, | ||||||||
2022 | 2021 | |||||||
(In millions) | ||||||||
Loans and advances | ¥ | 86,989 | ¥ | 13,855 | ||||
Loan commitments | (7,429 | ) | 7,694 | |||||
Financial guarantees | 8,465 | (2,779 | ) | |||||
Total impairment charges on financial assets | ¥ | 88,025 | ¥ | 18,770 | ||||
Our impairment charges on financial assets consist of losses relating to loans and advances, loan commitments and financial guarantee contracts. Impairment charges on these financial assets are mainly affected by the economic environment and financial conditions of borrowers.
Impairment charges on financial assets increased by ¥69,255 million from ¥18,770 million for the six months ended September 30, 2021 to ¥88,025 million for the six months ended September 30, 2022, primarily due to an increase in impairment charges on loans and advances. The increase was primarily due to an increase in the provision for loan losses related to some large borrowers. For detailed information on provision for loan losses, see “—Financial Condition—Allowance for Loan Losses.”
15
General and Administrative Expenses
The following table sets forth our general and administrative expenses for the six months ended September 30, 2022 and 2021.
For the six months ended September 30, | ||||||||
2022 | 2021 | |||||||
(In millions) | ||||||||
Personnel expenses | ¥ | 449,445 | ¥ | 409,435 | ||||
Depreciation and amortization | 129,388 | 131,234 | ||||||
Building and maintenance expenses | 3,460 | 4,502 | ||||||
Supplies expenses | 7,002 | 7,766 | ||||||
Communication expenses | 15,101 | 15,972 | ||||||
Publicity and advertising expenses | 64,179 | 58,117 | ||||||
Taxes and dues | 43,988 | 42,861 | ||||||
Outsourcing expenses | 59,456 | 54,021 | ||||||
Office equipment expenses | 34,737 | 30,258 | ||||||
Others | 141,856 | 125,565 | ||||||
Total general and administrative expenses | ¥ | 948,612 | ¥ | 879,731 | ||||
General and administrative expenses increased by ¥68,881 million, or 8%, from ¥879,731 million for the six months ended September 30, 2021 to ¥948,612 million for the six months ended September 30, 2022. The increase was primarily due to the combined general and administrative expenses of Fullerton India, which became our subsidiary in November 2021, the higher marketing costs in our credit card business which is successfully increasing new customers, and the effects of changes in foreign exchange rates resulting from the depreciation of the yen.
Share of
Post-tax
Profit of Associates and Joint VenturesShare of
post-tax
profit of associates and joint ventures increased by ¥33,342 million from ¥27,899 million for the six months ended September 30, 2021 to ¥61,241 million for the six months ended September 30, 2022, primarily due to an increase in share of the profit of associates and joint ventures engaged in leasing business.Income Tax Expense
Income tax expense increased by ¥106,399 million from ¥140,759 million for the six months ended September 30, 2021 to ¥247,158 million for the six months ended September 30, 2022. The increase was primarily due to an increase in deferred tax expense resulting from an increase in taxable temporary differences attributable to 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 Global Business Unit and the Global Markets Business Unit, with the remaining operations recorded in Head office account and others.
Since figures reported to management are prepared under Japanese GAAP, the segment information does not agree to the 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 report.
16
Description of Business Segments
Wholesale Business Unit
The Wholesale Business Unit provides comprehensive solutions primarily for corporate clients in Japan that respond to wide-ranging client needs in relation to financing, investment management, risk hedging, settlement, M&A and other advisory services, digital services and leasing services. This business unit mainly consists of the wholesale businesses of SMBC, SMBC Trust Bank, SMFL, SMBC Nikko Securities, Sumitomo Mitsui Card and SMBC Finance Service.
Retail Business Unit
The Retail Business Unit provides financial services to consumers residing in Japan and mainly consists of the retail businesses of SMBC, SMBC Trust Bank, SMBC Nikko Securities, Sumitomo Mitsui Card, SMBC Finance Service and SMBC Consumer Finance. This business unit offers a wide range of products and services for consumers, including wealth management services, settlement services, consumer finance and housing loans, in order to address the financial needs of all individual customers.
Global Business Unit
The Global 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 services, underwriting activities, Japanese stock brokerage and M&A advisory services. This business unit mainly consists of the global 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 Global 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 and SMDAM. It also includes the elimination items related to internal transactions between the Group companies.
Segmental Results of Operations
The following tables show our results of operations by business segment for the six months ended September 30, 2022 and 2021.
17
For the six months ended September 30, 2022:
Wholesale Business Unit | Retail Business Unit | Global Business Unit | Global Markets Business Unit | Head office account and others | Total | |||||||||||||||||||
(In billions) | ||||||||||||||||||||||||
Consolidated gross profit (1) | ¥ | 367.4 | ¥ | 553.8 | ¥ | 601.1 | ¥ | 266.0 | ¥ | (155.9 | ) | ¥ | 1,632.4 | |||||||||||
General and administrative expenses | (145.5 | ) | (456.2 | ) | (314.7 | ) | (56.7 | ) | 10.5 | (962.6 | ) | |||||||||||||
Others (2) | 37.3 | 2.1 | 46.0 | 15.4 | (48.7 | ) | 52.1 | |||||||||||||||||
Consolidated net business profit | ¥ | 259.2 | ¥ | 99.7 | ¥ | 332.4 | ¥ | 224.7 | ¥ | (194.1 | ) | ¥ | 721.9 | |||||||||||
For the six months ended September 30, 2021:
Wholesale Business Unit | Retail Business Unit | Global Business Unit | Global Markets Business Unit | Head office account and others | Total | |||||||||||||||||||
(In billions) | ||||||||||||||||||||||||
Consolidated gross profit (1) | ¥ | 329.5 | ¥ | 568.1 | ¥ | 394.5 | ¥ | 250.9 | ¥ | (111.7 | ) | ¥ | 1,431.3 | |||||||||||
General and administrative expenses | (148.9 | ) | (464.9 | ) | (213.9 | ) | (43.0 | ) | (5.2 | ) | (875.9 | ) | ||||||||||||
Others (2) | 30.3 | 0.8 | 25.1 | 17.6 | (43.1 | ) | 30.7 | |||||||||||||||||
Consolidated net business profit | ¥ | 210.9 | ¥ | 104.0 | ¥ | 205.7 | ¥ | 225.5 | ¥ | (160.0 | ) | ¥ | 586.1 | |||||||||||
(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 counted within our business segments in the managerial accounting. |
The following are explanations of our results of operations by business segment for the six months ended September 30, 2022. It also includes the changes from the same period in the previous 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 six months ended September 30, 2022 was ¥367.4 billion and increased by ¥18.6 billion on an adjusted basis compared to the six months ended September 30, 2021. This was primarily due to increases in interest income on loans and foreign exchange fees of SMBC.
General and administrative expenses for the six months ended September 30, 2022 was ¥145.5 billion and decreased by ¥4.5 billion on an adjusted basis compared to the six months ended September 30, 2021.
Others for the six months ended September 30, 2022 was ¥37.3 billion.
As a result, consolidated net business profit for the six months ended September 30, 2022 was ¥259.2 billion and increased by ¥30.3 billion on an adjusted basis compared to the six months ended September 30, 2021.
Retail Business Unit
Consolidated gross profit for the six months ended September 30, 2022 was ¥553.8 billion and decreased by ¥18.3 billion on an adjusted basis compared to the six months ended September 30, 2021. This was primarily due to a decrease in income from the wealth management businesses reflecting lower investment appetite, which was partially offset by an increase in income from the payment businesses.
General and administrative expenses for the six months ended September 30, 2022 was ¥456.2 billion and decreased by ¥5.2 billion on an adjusted basis compared to the six months ended September 30, 2021.
Others for the six months ended September 30, 2022 was ¥2.1 billion.
18
As a result, consolidated net business profit for the six months ended September 30, 2022 was ¥99.7 billion and decreased by ¥11.8 billion on an adjusted basis compared to the six months ended September 30, 2021.
Global Business Unit
Consolidated gross profit for the six months ended September 30, 2022 was ¥601.1 billion and increased by ¥77.5 billion on an adjusted basis compared to the six months ended September 30, 2021. This was primarily due to an increase in income from the lending businesses of SMBC and its foreign subsidiaries.
General and administrative expenses for the six months ended September 30, 2022 was ¥314.7 billion and increased by ¥33.1 billion on an adjusted basis compared to the six months ended September 30, 2021. This was primarily due to increases in expenses related to overseas business development as well as enhancement of the governance system.
Others for the six months ended September 30, 2022 was ¥46.0 billion and increased by ¥27.1 billion on an adjusted basis compared to the six months ended September 30, 2021. This was primarily due to an increase in gains on change in equity of The Bank of East Asia, Limited.
As a result, consolidated net business profit for the six months ended September 30, 2022 was ¥332.4 billion and increased by ¥71.5 billion on an adjusted basis compared to the six months ended September 30, 2021.
Global Markets Business Unit
Consolidated gross profit for the six months ended September 30, 2022 was ¥266.0 billion and increased by ¥8.6 billion on an adjusted basis compared to the six months ended September 30, 2021. This was primarily due to nimble portfolio management in the volatile market environment.
General and administrative expenses for the six months ended September 30, 2022 was ¥56.7 billion and increased by ¥4.4 billion on an adjusted basis compared to the six months ended September 30, 2021.
Others for the six months ended September 30, 2022 was ¥15.4 billion.
As a result, consolidated net business profit for the six months ended September 30, 2022 was ¥224.7 billion and increased by ¥6.5 billion on an adjusted basis compared to the six months ended September 30, 2021.
Revenues by Region
The following table sets forth the percentage of our total operating income under IFRS for each indicated period, 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 six months ended September 30, | ||||||||
2022 | 2021 | |||||||
Region: | ||||||||
Japan | 51 | % | 66 | % | ||||
Foreign: | ||||||||
Americas | 21 | % | 13 | % | ||||
Europe and Middle East | 9 | % | 8 | % | ||||
Asia and Oceania (excluding Japan) | 19 | % | 13 | % | ||||
Total | 100 | % | 100 | % | ||||
19
Financial Condition
Assets
Our total assets increased by ¥12,104,205 million from ¥248,160,847 million at March 31, 2022 to ¥260,265,052 million at September 30, 2022. The increase was primarily due to an increase in loans and advances.
Our assets at September 30, 2022 and March 31, 2022 were as follows:
At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Cash and deposits with banks | ¥ | 71,496,806 | ¥ | 75,697,521 | ||||
Call loans and bills bought | 6,968,074 | 1,965,135 | ||||||
Reverse repurchase agreements and cash collateral on securities borrowed | 10,325,747 | 11,303,930 | ||||||
Trading assets | 4,006,350 | 3,736,296 | ||||||
Derivative financial instruments | 13,268,003 | 6,443,748 | ||||||
Financial assets at fair value through profit or loss | 1,015,046 | 1,695,585 | ||||||
Investment securities | 26,995,630 | 32,749,405 | ||||||
Loans and advances | 115,535,519 | 104,635,815 | ||||||
Investments in associates and joint ventures | 1,123,339 | 1,009,738 | ||||||
Property, plant and equipment | 1,840,944 | 1,762,996 | ||||||
Intangible assets | 1,033,020 | 992,849 | ||||||
Other assets | 6,521,290 | 6,063,907 | ||||||
Current tax assets | 44,671 | 44,941 | ||||||
Deferred tax assets | 90,613 | 58,981 | ||||||
Total assets | ¥ | 260,265,052 | ¥ | 248,160,847 | ||||
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 customers in foreign countries.
At September 30, 2022, our loans and advances were ¥115,535,519 million, or 44% of total assets, representing an increase of ¥10,899,704 million, or 10%, from ¥104,635,815 million at March 31, 2022. The increase in loans and advances was primarily due to an increase in those to foreign customers, reflecting the increase in demand for corporate loans, project financing and subscription financing in the United States and European countries, and the effects of changes in foreign exchange rates resulting from the depreciation of the yen.
20
Domestic
Through SMBC and other banking and
non-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 September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Manufacturing | ¥ | 10,174,746 | ¥ | 10,105,370 | ||||
Agriculture, forestry, fisheries and mining | 479,358 | 378,366 | ||||||
Construction | 913,580 | 847,805 | ||||||
Transportation, communications and public enterprises | 6,488,241 | 6,210,330 | ||||||
Wholesale and retail | 6,120,993 | 5,903,439 | ||||||
Finance and insurance | 3,738,244 | 3,549,762 | ||||||
Real estate and goods rental and leasing | 14,620,611 | 14,314,582 | ||||||
Services | 4,856,856 | 4,860,235 | ||||||
Municipalities | 588,166 | 600,759 | ||||||
Lease financing | 15,594 | 18,476 | ||||||
Consumer (1) | 15,649,775 | 15,506,486 | ||||||
Others (2) | 1,973,131 | 1,893,474 | ||||||
Total domestic | ¥ | 65,619,295 | ¥ | 64,189,084 | ||||
(1) | The balance in Consumer mainly consists of housing loans. The housing loan balances amounted to ¥10,641,047 million and ¥10,676,967 million at September 30, 2022 and March 31, 2022, 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, unamortized
premiums-net
and deferred loanfees-net
at the dates indicated.At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Public sector | ¥ | 501,074 | ¥ | 440,236 | ||||
Financial institutions | 10,421,340 | 8,311,518 | ||||||
Commerce and industry | 33,965,086 | 28,838,245 | ||||||
Lease financing | 303,674 | 290,097 | ||||||
Others | 6,106,399 | 3,884,519 | ||||||
Total foreign | ¥ | 51,297,573 | ¥ | 41,764,615 | ||||
Allowance for Loan Losses
We calculate the allowance for loan losses under the expected credit losses (“ECL”) model using the latest obligor grades (our internal credit rating) and supplementary data such as the borrowers’ operating cash flows, realizable value of collateral and recent economic conditions. We incorporate forward-looking information into the ECL measurement by obligor grading, macroeconomic factors and additional adjustments if the current circumstances, events or conditions at the relevant portfolio level are not fully reflected in the ECL model.
Although we understand that there is significant uncertainty in predicting the severity and duration of Russia’s aggression against Ukraine, the timing of the economic recovery from the
COVID-19
pandemic and its21
future impact on the Japanese and global economy, we assumed that the Japanese and global economy will recover moderately from the
COVID-19
pandemic during the fiscal year ending March 31, 2023 and continue to recover during the fiscal year ending March 31, 2024, which will be to some extent affected by rising commodity prices and downward pressure on the global economy from the continuous global monetary tightening. This assumption was considered in determining the base scenario. The following table shows the growth rates of Japanese and global GDP, which are the key factors of the macroeconomic scenarios, under the base scenario.For the fiscal year ending March 31, | ||||||||
2023 | 2024 | |||||||
(%) | ||||||||
Japanese GDP | 2.0 | 2.0 | ||||||
Global GDP | 2.9 | 2.9 |
In determining the need for making additional ECL adjustments, we considered whether there is an increase in the credit risk for some portfolios which had a material adverse impact resulting from the sanctions imposed in connection with Russia’s aggression against Ukraine or from the
COVID-19
pandemic and whether the increased risk, if any, was not fully incorporated in the ECL model. For the Russian exposure, we evaluated the forward-looking impact on credit risks and losses based on factors such as the possibility that payment of principal or interest would be delayed or the request for loan restructuring would be made due to the prolonged impact of sanctions targeting Russia imposed by the Japanese government and authorities in several other jurisdictions, Russia’s measures to defend its economy and mitigate the effect of sanctions, and a deterioration of credit condition of Russia. At September 30, 2022, our credit risk exposure to Russian borrowers was approximately ¥352 billion and the ECL for that exposure was ¥65 billion. For theCOVID-19
pandemic, additional ECL adjustments included the consideration of the temporary impact on probability of default of various measures taken by governments. We evaluated the forward-looking impact on credit risks and losses of certain industry-related portfolios selected based on changes in factors such as the market conditions and bankruptcy trends as a result of the reduction in economic activity by requests for voluntary restraint on movement and business closure requests to commercial facilities. As a consequence, we decided to maintain ECL adjustments for the above portfolios affected by the situation in Russia and Ukraine and theCOVID-19
pandemic.For the six months ended September 30, 2022, the allowance for loan losses slightly decreased by ¥2,886 million from ¥993,054 million at the beginning of the period to ¥990,168 million at end of period. 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 ¥86,989 million and charge-offs of ¥142,198 million for the six months ended September 30, 2022, the charge-offs exceeded provision for loan losses and the overall allowance for loan losses decreased.
The provision for loan losses increased by ¥73,134 million from ¥13,855 million for the six months ended September 30, 2021 to ¥86,989 million for the six months ended September 30, 2022, primarily due to an increase in the provision for loan losses related to some large borrowers. Charge-offs increased by ¥69,249 million from ¥72,949 million to ¥142,198 million for the six months ended September 30, 2022, primarily due to those related to some other large borrowers.
22
The following tables show the analysis of our allowance for loan losses for the six months ended September 30, 2022 and 2021.
At September 30, 2022 | ||||||||||||||||
12-month ECL | Lifetime ECL not credit- impaired | Lifetime ECL credit-impaired | Total | |||||||||||||
(In millions) | ||||||||||||||||
Allowance for loan losses: | ||||||||||||||||
Balance at April 1, 2022 | ¥ | 162,919 | ¥ | 247,020 | ¥ | 583,115 | ¥ | 993,054 | ||||||||
Net transfers between stages | (7,616 | ) | (8,529 | ) | 16,145 | — | ||||||||||
Provision for loan losses | 12,104 | 5,737 | 69,148 | 86,989 | ||||||||||||
Charge-offs (1) | — | — | 142,198 | 142,198 | ||||||||||||
Recoveries | — | — | 10,467 | 10,467 | ||||||||||||
Net charge-offs | — | — | 131,731 | 131,731 | ||||||||||||
Others (2) | 7,882 | 14,052 | 19,922 | 41,856 | ||||||||||||
Balance at September 30, 2022 | ¥ | 175,289 | ¥ | 258,280 | ¥ | 556,599 | ¥ | 990,168 | ||||||||
At September 30, 2021 | ||||||||||||||||
12-month ECL | Lifetime ECL not credit- impaired | Lifetime ECL credit-impaired | Total | |||||||||||||
(In millions) | ||||||||||||||||
Allowance for loan losses: | ||||||||||||||||
Balance at April 1, 2021 | ¥ | 170,156 | ¥ | 255,909 | ¥ | 423,222 | ¥ | 849,287 | ||||||||
Net transfers between stages | (8,713 | ) | (1,465 | ) | 10,178 | — | ||||||||||
Provision (credit) for loan losses | (2,382 | ) | (14,193 | ) | 30,430 | 13,855 | ||||||||||
Charge-offs (1) | — | — | 72,949 | 72,949 | ||||||||||||
Recoveries | — | — | 7,032 | 7,032 | ||||||||||||
Net charge-offs | — | — | 65,917 | 65,917 | ||||||||||||
Others (2) | 828 | 1,131 | 824 | 2,783 | ||||||||||||
Balance at September 30, 2021 | ¥ | 159,889 | ¥ | 241,382 | ¥ | 398,737 | ¥ | 800,008 | ||||||||
(1) | Charge-offs consist of the reduction of the allowance through the sales of loans and write-offs. |
(2) | Others mainly include foreign exchange translations for the six months ended September 30, 2022 and 2021. |
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, virtually 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, virtually bankrupt and bankrupt (loans and advances)” comprise loans and advances to borrowers that are perceived to have a high risk of falling into bankruptcy, may not have been legally or formally declared bankrupt but are essentially bankrupt, or have been legally or formally declared bankrupt.
Loans classified as “past due three months or more (loans)” represent those loans that are three months or more past due as to principal or interest, which are not included in “potentially bankrupt, virtually bankrupt and bankrupt (loans and advances).”
23
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, virtually bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” or “restructured (loans),” but for which information about credit problems causes management to classify them as impaired loans and advances.
24
The following table shows the distribution of impaired loans and advances by “potentially bankrupt, virtually bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” “restructured (loans)” and “other impaired (loans and advances)” at September 30, 2022 and March 31, 2022 by domicile and type of industry of the borrowers. At September 30, 2022, gross impaired loans and advances were ¥1,391,224 million, a decrease of ¥14,870 million from ¥1,406,094 million at March 31, 2022. 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, unamortized
premiums-net
and deferred loanfees-net
was 1.2% at September 30, 2022, a decrease of 0.1 percentage points from 1.3% at March 31, 2022.At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Potentially bankrupt, virtually bankrupt and bankrupt (loans and advances): | ||||||||
Domestic: | ||||||||
Manufacturing | ¥ | 229,261 | ¥ | 223,198 | ||||
Agriculture, forestry, fisheries and mining | 2,002 | 2,503 | ||||||
Construction | 7,324 | 7,366 | ||||||
Transportation, communications and public enterprises | 60,170 | 48,614 | ||||||
Wholesale and retail | 65,854 | 72,999 | ||||||
Finance and insurance | 2,557 | 2,784 | ||||||
Real estate and goods rental and leasing | 31,560 | 36,628 | ||||||
Services | 87,289 | 83,384 | ||||||
Consumer | 133,137 | 131,220 | ||||||
Others | 5,988 | 8,172 | ||||||
Total domestic | 625,142 | 616,868 | ||||||
Foreign: | ||||||||
Financial institutions | 14,505 | 10,647 | ||||||
Commerce and industry | 310,489 | 239,659 | ||||||
Others | 31,076 | 26,547 | ||||||
Total foreign | 356,070 | 276,853 | ||||||
Total | 981,212 | 893,721 | ||||||
Past due three months or more (loans): | ||||||||
Domestic | 30,420 | 36,593 | ||||||
Foreign | 2 | — | ||||||
Total | 30,422 | 36,593 | ||||||
Restructured (loans): | ||||||||
Domestic | 175,476 | 238,824 | ||||||
Foreign | 144,028 | 113,166 | ||||||
Total | 319,504 | 351,990 | ||||||
Other impaired (loans and advances): | ||||||||
Domestic | 52,269 | 32,534 | ||||||
Foreign | 7,817 | 91,256 | ||||||
Total | 60,086 | 123,790 | ||||||
Gross impaired loans and advances | 1,391,224 | 1,406,094 | ||||||
Less: Allowance for loan losses for impaired loans and advances | (556,599 | ) | (583,115 | ) | ||||
Net impaired loans and advances | ¥ | 834,625 | ¥ | 822,979 | ||||
25
Investment Securities
Our investment securities, consisting 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, totaled ¥26,995,630 million at September 30, 2022, a decrease of ¥5,753,775 million, or 18%, from ¥32,749,405 million at March 31, 2022. The decrease in our investment securities was primarily due to a decrease in our holdings of Japanese government bonds.
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 ¥178,466 million at September 30, 2022, an increase of ¥94,512 million, or 113%, from ¥83,954 million at March 31, 2022, primarily due to increases in our holdings of Japanese government bonds and Japanese municipal bonds.
Domestic debt instruments at fair value through other comprehensive income amounted to ¥12,151,336 million at September 30, 2022, a decrease of ¥5,717,660 million, or 32%, from ¥17,868,996 million at March 31, 2022. The decrease was primarily due to a decrease in our holdings of Japanese government bonds. As for our foreign debt instruments at fair value through other comprehensive income, we had ¥10,323,256 million of foreign debt instruments at September 30, 2022, which was an increase of ¥125,286 million, or 1%, from ¥10,197,970 million at March 31, 2022. 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.
We had ¥3,453,106 million of domestic equity instruments and ¥889,466 million of foreign equity instruments at September 30, 2022, for which we made an irrevocable election at initial recognition to present subsequent changes in fair value in other comprehensive income under IFRS 9 “Financial Instruments.” Our domestic equity instruments, which consisted principally of publicly traded Japanese stocks and included common and preferred stocks issued by our customers, decreased by ¥205,485 million, or 6%, from ¥3,658,591 million at March 31, 2022. Net unrealized gains on our domestic equity instruments decreased by ¥254,452 million, or 11%, from ¥2,341,267 million at March 31, 2022 to ¥2,086,815 million at September 30, 2022. The decrease was primarily due to a decrease in the fair value of publicly traded Japanese stocks. Net unrealized gains on our foreign equity instruments decreased by ¥50,450 million, or 7%, from ¥675,390 million at March 31, 2022 to ¥624,940 million at September 30, 2022, mainly reflecting unfavorable conditions in overseas stock markets.
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.
26
The following tables show the amortized cost, gross unrealized gains and losses, and fair value of our investment securities, which were 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 September 30, 2022 and March 31, 2022.
At September 30, 2022 | ||||||||||||||||
Amortized cost (1) | Gross unrealized gains | Gross unrealized losses | Fair value | |||||||||||||
(In millions) | ||||||||||||||||
Debt instruments at amortized cost: | ||||||||||||||||
Domestic: | ||||||||||||||||
Japanese government bonds | ¥ | 72,543 | ¥ | — | ¥ | 118 | ¥ | 72,425 | ||||||||
Japanese municipal bonds | 43,706 | — | 441 | 43,265 | ||||||||||||
Total domestic | 116,249 | — | 559 | 115,690 | ||||||||||||
Foreign: | ||||||||||||||||
Bonds issued by other governments and official institutions (2) | 60,802 | 351 | 36 | 61,117 | ||||||||||||
Other debt instruments | 1,415 | 29 | — | 1,444 | ||||||||||||
Total foreign | 62,217 | 380 | 36 | 62,561 | ||||||||||||
Total | ¥ | 178,466 | ¥ | 380 | ¥ | 595 | ¥ | 178,251 | ||||||||
Debt instruments at fair value through other comprehensive income: | ||||||||||||||||
Domestic: | ||||||||||||||||
Japanese government bonds | ¥ | 10,035,719 | ¥ | 837 | ¥ | 48,456 | ¥ | 9,988,100 | ||||||||
Japanese municipal bonds | 1,101,395 | 8 | 15,685 | 1,085,718 | ||||||||||||
Japanese corporate bonds | 1,090,683 | 227 | 13,703 | 1,077,207 | ||||||||||||
Other debt instruments | 311 | — | — | 311 | ||||||||||||
Total domestic | 12,228,108 | 1,072 | 77,844 | 12,151,336 | ||||||||||||
Foreign: | ||||||||||||||||
U.S. Treasury and other U.S. government agency bonds | 6,362,793 | 221 | 725,560 | 5,637,454 | ||||||||||||
Bonds issued by other governments and official institutions (2) | 3,117,453 | 744 | 130,884 | 2,987,313 | ||||||||||||
Mortgage-backed securities | 1,345,135 | 206 | 184,294 | 1,161,047 | ||||||||||||
Other debt instruments | 540,120 | 1,175 | 3,853 | 537,442 | ||||||||||||
Total foreign | 11,365,501 | 2,346 | 1,044,591 | 10,323,256 | ||||||||||||
Total | ¥ | 23,593,609 | ¥ | 3,418 | ¥ | 1,122,435 | ¥ | 22,474,592 | ||||||||
Equity instruments at fair value through other comprehensive income: | ||||||||||||||||
Domestic | ¥ | 1,366,291 | ¥ | 2,160,784 | ¥ | 73,969 | ¥ | 3,453,106 | ||||||||
Foreign | 264,526 | 634,472 | 9,532 | 889,466 | ||||||||||||
Total | ¥ | 1,630,817 | ¥ | 2,795,256 | ¥ | 83,501 | ¥ | 4,342,572 | ||||||||
27
At March 31, 2022 | ||||||||||||||||
Amortized cost (1) | Gross unrealized gains | Gross unrealized losses | Fair value | |||||||||||||
(In millions) | ||||||||||||||||
Debt instruments at amortized cost: | ||||||||||||||||
Domestic: | ||||||||||||||||
Japanese municipal bonds | ¥ | 25,741 | ¥ | — | ¥ | 219 | ¥ | 25,522 | ||||||||
Total domestic | 25,741 | — | 219 | 25,522 | ||||||||||||
Foreign: | ||||||||||||||||
Bonds issued by other governments and official institutions (2) | 56,400 | 221 | 26 | 56,595 | ||||||||||||
Other debt instruments | 1,813 | 35 | — | 1,848 | ||||||||||||
Total foreign | 58,213 | 256 | 26 | 58,443 | ||||||||||||
Total | ¥ | 83,954 | ¥ | 256 | ¥ | 245 | ¥ | 83,965 | ||||||||
Debt instruments at fair value through other comprehensive income: | ||||||||||||||||
Domestic: | ||||||||||||||||
Japanese government bonds | ¥ | 15,819,486 | ¥ | 271 | ¥ | 45,560 | ¥ | 15,774,197 | ||||||||
Japanese municipal bonds | 1,154,542 | 71 | 9,117 | 1,145,496 | ||||||||||||
Japanese corporate bonds | 956,320 | 498 | 7,826 | 948,992 | ||||||||||||
Other debt instruments | 311 | — | — | 311 | ||||||||||||
Total domestic | 17,930,659 | 840 | 62,503 | 17,868,996 | ||||||||||||
Foreign: | ||||||||||||||||
U.S. Treasury and other U.S. government agency bonds | 6,027,640 | 4,719 | 350,570 | 5,681,789 | ||||||||||||
Bonds issued by other governments and official institutions (2) | 3,056,974 | 2,363 | 61,749 | 2,997,588 | ||||||||||||
Mortgage-backed securities | 1,058,908 | 893 | 53,750 | 1,006,051 | ||||||||||||
Other debt instruments | 513,186 | 808 | 1,452 | 512,542 | ||||||||||||
Total foreign | 10,656,708 | 8,783 | 467,521 | 10,197,970 | ||||||||||||
Total | ¥ | 28,587,367 | ¥ | 9,623 | ¥ | 530,024 | ¥ | 28,066,966 | ||||||||
Equity instruments at fair value through other comprehensive income: | ||||||||||||||||
Domestic | ¥ | 1,317,324 | ¥ | 2,401,838 | ¥ | 60,571 | ¥ | 3,658,591 | ||||||||
Foreign | 264,504 | 683,463 | 8,073 | 939,894 | ||||||||||||
Total | ¥ | 1,581,828 | ¥ | 3,085,301 | ¥ | 68,644 | ¥ | 4,598,485 | ||||||||
(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. |
(2) | Bonds issued by governments and official institutions excluding U.S. Treasury and other U.S. government agencies. |
28
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 September 30, 2022 and March 31, 2022.
At September 30, 2022 | ||||||||||||||||||||||||
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 | ¥ | 72,425 | ¥ | 118 | ¥ | — | ¥ | — | ¥ | 72,425 | ¥ | 118 | ||||||||||||
Japanese municipal bonds | 27,837 | 169 | 15,428 | 272 | 43,265 | 441 | ||||||||||||||||||
Total domestic | 100,262 | 287 | 15,428 | 272 | 115,690 | 559 | ||||||||||||||||||
Foreign: | ||||||||||||||||||||||||
Bonds issued by other governments and official institutions (1) | 5,880 | 36 | — | — | 5,880 | 36 | ||||||||||||||||||
Other debt instruments | — | — | — | — | — | — | ||||||||||||||||||
Total foreign | 5,880 | 36 | — | — | 5,880 | 36 | ||||||||||||||||||
Total | ¥ | 106,142 | ¥ | 323 | ¥ | 15,428 | ¥ | 272 | ¥ | 121,570 | ¥ | 595 | ||||||||||||
Debt instruments at fair value through other comprehensive income: | ||||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||||
Japanese government bonds | ¥ | 1,603,723 | ¥ | 10,435 | ¥ | 2,088,446 | ¥ | 38,021 | ¥ | 3,692,169 | ¥ | 48,456 | ||||||||||||
Japanese municipal bonds | 662,019 | 10,084 | 406,211 | 5,601 | 1,068,230 | 15,685 | ||||||||||||||||||
Japanese corporate bonds | 476,730 | 6,994 | 316,604 | 6,709 | 793,334 | 13,703 | ||||||||||||||||||
Other debt instruments | — | — | — | — | — | — | ||||||||||||||||||
Total domestic | 2,742,472 | 27,513 | 2,811,261 | 50,331 | 5,553,733 | 77,844 | ||||||||||||||||||
Foreign: | ||||||||||||||||||||||||
U.S. Treasury and other U.S. government agency bonds | 3,381,150 | 307,911 | 2,214,087 | 417,649 | 5,595,237 | 725,560 | ||||||||||||||||||
Bonds issued by other governments and official institutions (1) | 2,251,768 | 13,411 | 452,058 | 117,473 | 2,703,826 | 130,884 | ||||||||||||||||||
Mortgage-backed securities | 538,562 | 72,487 | 476,945 | 111,807 | 1,015,507 | 184,294 | ||||||||||||||||||
Other debt instruments | 259,104 | 3,851 | 628 | 2 | 259,732 | 3,853 | ||||||||||||||||||
Total foreign | 6,430,584 | 397,660 | 3,143,718 | 646,931 | 9,574,302 | 1,044,591 | ||||||||||||||||||
Total | ¥ | 9,173,056 | ¥ | 425,173 | ¥ | 5,954,979 | ¥ | 697,262 | ¥ | 15,128,035 | ¥ | 1,122,435 | ||||||||||||
Equity instruments at fair value through other comprehensive income: | ||||||||||||||||||||||||
Domestic | ¥ | 172,782 | ¥ | 22,735 | ¥ | 107,440 | ¥ | 51,234 | ¥ | 280,222 | ¥ | 73,969 | ||||||||||||
Foreign | 47,083 | 6,024 | 7,510 | 3,508 | 54,593 | 9,532 | ||||||||||||||||||
Total | ¥ | 219,865 | ¥ | 28,759 | ¥ | 114,950 | ¥ | 54,742 | ¥ | 334,815 | ¥ | 83,501 | ||||||||||||
29
At March 31, 2022 | ||||||||||||||||||||||||
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 municipal bonds | ¥ | 9,987 | ¥ | 55 | ¥ | 15,535 | ¥ | 164 | ¥ | 25,522 | ¥ | 219 | ||||||||||||
Total domestic | 9,987 | 55 | 15,535 | 164 | 25,522 | 219 | ||||||||||||||||||
Foreign: | ||||||||||||||||||||||||
Bonds issued by other governments and official institutions (1) | 4,437 | 26 | — | — | 4,437 | 26 | ||||||||||||||||||
Other debt instruments | — | — | — | — | — | — | ||||||||||||||||||
Total foreign | 4,437 | 26 | — | — | 4,437 | 26 | ||||||||||||||||||
Total | ¥ | 14,424 | ¥ | 81 | ¥ | 15,535 | ¥ | 164 | ¥ | 29,959 | ¥ | 245 | ||||||||||||
Debt instruments at fair value through other comprehensive income: | ||||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||||
Japanese government bonds | ¥ | 8,580,932 | ¥ | 26,384 | ¥ | 4,867,170 | ¥ | 19,176 | ¥ | 13,448,102 | ¥ | 45,560 | ||||||||||||
Japanese municipal bonds | 832,211 | 7,429 | 267,449 | 1,688 | 1,099,660 | 9,117 | ||||||||||||||||||
Japanese corporate bonds | 497,623 | 3,965 | 269,460 | 3,861 | 767,083 | 7,826 | ||||||||||||||||||
Other debt instruments | — | — | — | — | — | — | ||||||||||||||||||
Total domestic | 9,910,766 | 37,778 | 5,404,079 | 24,725 | 15,314,845 | 62,503 | ||||||||||||||||||
Foreign: | ||||||||||||||||||||||||
U.S. Treasury and other U.S. government agency bonds | 3,372,465 | 197,844 | 1,468,597 | 152,726 | 4,841,062 | 350,570 | ||||||||||||||||||
Bonds issued by other governments and official institutions (1) | 1,783,823 | 5,865 | 587,846 | 55,884 | 2,371,669 | 61,749 | ||||||||||||||||||
Mortgage-backed securities | 631,780 | 27,826 | 293,412 | 25,924 | 925,192 | 53,750 | ||||||||||||||||||
Other debt instruments | 223,464 | 1,450 | 1,071 | 2 | 224,535 | 1,452 | ||||||||||||||||||
Total foreign | 6,011,532 | 232,985 | 2,350,926 | 234,536 | 8,362,458 | 467,521 | ||||||||||||||||||
Total | ¥ | 15,922,298 | ¥ | 270,763 | ¥ | 7,755,005 | ¥ | 259,261 | ¥ | 23,677,303 | ¥ | 530,024 | ||||||||||||
Equity instruments at fair value through other comprehensive income: | ||||||||||||||||||||||||
Domestic | ¥ | 82,040 | ¥ | 8,396 | ¥ | 128,728 | ¥ | 52,175 | ¥ | 210,768 | ¥ | 60,571 | ||||||||||||
Foreign | 42,261 | 4,519 | 10,268 | 3,554 | 52,529 | 8,073 | ||||||||||||||||||
Total | ¥ | 124,301 | ¥ | 12,915 | ¥ | 138,996 | ¥ | 55,729 | ¥ | 263,297 | ¥ | 68,644 | ||||||||||||
(1) | Bonds issued by governments and official institutions excluding U.S. Treasury and other U.S. government agencies. |
30
Trading Assets
The following table shows our trading assets at September 30, 2022 and March 31, 2022. Our trading assets were ¥4,006,350 million at September 30, 2022, an increase of ¥270,054 million from ¥3,736,296 million at March 31, 2022. The increase was primarily due to an increase in our holdings of U.S. Treasury and other U.S. government agency bonds.
At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Debt instruments | ¥ | 3,916,236 | ¥ | 3,489,258 | ||||
Equity instruments | 90,114 | 247,038 | ||||||
Total trading assets | ¥ | 4,006,350 | ¥ | 3,736,296 | ||||
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 September 30, 2022 and March 31, 2022. The fair value was ¥1,015,046 million at September 30, 2022, a decrease of ¥680,539 million from ¥1,695,585 million at March 31, 2022. The decrease was primarily due to a decrease in our holdings of investment funds.
At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Debt instruments | ¥ | 973,394 | ¥ | 1,657,206 | ||||
Equity instruments | 41,652 | 38,379 | ||||||
Total financial assets at fair value through profit or loss | ¥ | 1,015,046 | ¥ | 1,695,585 | ||||
Liabilities
Our total liabilities increased by ¥11,256,363 million from ¥235,379,155 million at March 31, 2022 to ¥246,635,518 million at September 30, 2022, primarily due to increases in deposits and derivative financial instruments, which was partially offset by a decrease in borrowings.
The following table shows our liabilities at September 30, 2022 and March 31, 2022.
At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Deposits | ¥ | 172,728,298 | ¥ | 162,593,492 | ||||
Call money and bills sold | 1,157,519 | 1,130,000 | ||||||
Repurchase agreements and cash collateral on securities lent | 17,962,121 | 20,113,162 | ||||||
Trading liabilities | 2,980,561 | 3,181,992 | ||||||
Derivative financial instruments | 15,366,589 | 6,966,336 | ||||||
Financial liabilities designated at fair value through profit or loss | 422,729 | 455,734 | ||||||
Borrowings | 13,806,074 | 20,584,651 | ||||||
Debt securities in issue | 11,948,252 | 11,428,437 | ||||||
Provisions | 203,791 | 227,784 | ||||||
Other liabilities | 9,796,648 | 8,386,774 | ||||||
Current tax liabilities | 87,737 | 51,513 | ||||||
Deferred tax liabilities | 175,199 | 259,280 | ||||||
Total liabilities | ¥ | 246,635,518 | ¥ | 235,379,155 | ||||
31
Deposits
We offer a wide range of standard banking accounts through the offices of our banking subsidiaries in Japan, including
non-interest-bearing
demand deposits, interest-bearing demand deposits, deposits at notice, time deposits and negotiable certificates of deposit. Domestic deposits, approximately 75% 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.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 September 30, 2022 were ¥172,728,298 million, an increase of ¥10,134,806 million from ¥162,593,492 million at March 31, 2022. The increase was primarily due to an increase in deposits at foreign offices, reflecting our efforts to expand our stable foreign currency funding sources and the effects of changes in foreign exchange rates resulting from the depreciation of the yen.
The following table shows a breakdown of our domestic and foreign offices’ deposits at September 30, 2022 and March 31, 2022.
At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Domestic offices: | ||||||||
Non-interest-bearing demand deposits | ¥ | 29,612,064 | ¥ | 28,633,073 | ||||
Interest-bearing demand deposits | 67,902,316 | 67,287,154 | ||||||
Deposits at notice | 665,899 | 691,249 | ||||||
Time deposits | 17,455,023 | 17,624,597 | ||||||
Negotiable certificates of deposit | 4,192,019 | 5,059,074 | ||||||
Others | 10,417,073 | 9,625,768 | ||||||
Total domestic offices | 130,244,394 | 128,920,915 | ||||||
Foreign offices: | ||||||||
Non-interest-bearing demand deposits | 2,803,143 | 2,334,805 | ||||||
Interest-bearing demand deposits | 4,956,330 | 4,221,047 | ||||||
Deposits at notice | 14,021,985 | 11,345,294 | ||||||
Time deposits | 10,104,866 | 7,513,141 | ||||||
Negotiable certificates of deposit | 10,321,048 | 8,010,723 | ||||||
Others | 276,532 | 247,567 | ||||||
Total foreign offices | 42,483,904 | 33,672,577 | ||||||
Total deposits | ¥ | 172,728,298 | ¥ | 162,593,492 | ||||
Borrowings
Borrowings include unsubordinated borrowings, subordinated borrowings, liabilities associated with securitization transactions of our own assets, and lease liabilities. At September 30, 2022, our borrowings were ¥13,806,074 million, a decrease of ¥6,778,577 million, or 33%, from ¥20,584,651 million at March 31, 2022, primarily due to a decrease in unsubordinated borrowings.
32
The following table shows the balances with respect to our borrowings at September 30, 2022 and March 31, 2022.
At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Unsubordinated borrowings | ¥ | 12,029,633 | ¥ | 18,766,117 | ||||
Subordinated borrowings | 219,210 | 234,680 | ||||||
Liabilities associated with securitization transactions | 1,178,378 | 1,200,147 | ||||||
Lease liabilities | 378,853 | 383,707 | ||||||
Total borrowings | ¥ | 13,806,074 | ¥ | 20,584,651 | ||||
Debt Securities in Issue
Debt securities in issue at September 30, 2022 were ¥11,948,252 million, an increase of ¥519,815 million, or 5%, from ¥11,428,437 million at March 31, 2022, primarily due to an increase in unsubordinated bonds.
At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Commercial paper | ¥ | 2,588,279 | ¥ | 2,424,579 | ||||
Unsubordinated bonds | 8,316,555 | 8,000,837 | ||||||
Subordinated bonds | 1,043,418 | 1,003,021 | ||||||
Total debt securities in issue | ¥ | 11,948,252 | ¥ | 11,428,437 | ||||
Total Equity
Our total equity increased by ¥847,842 million from ¥12,781,692 million at March 31, 2022 to ¥13,629,534 million at September 30, 2022, primarily due to an increase in retained earnings. The increase in retained earnings mainly reflected our net profit.
At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Capital stock | ¥ | 2,342,537 | ¥ | 2,341,878 | ||||
Capital surplus | 645,584 | 645,382 | ||||||
Retained earnings | 7,143,778 | 6,434,605 | ||||||
Treasury stock | (13,117 | ) | (13,403 | ) | ||||
Equity excluding other reserves | 10,118,782 | 9,408,462 | ||||||
Other reserves | 2,669,330 | 2,546,294 | ||||||
Equity attributable to shareholders of Sumitomo Mitsui Financial Group, Inc. | 12,788,112 | 11,954,756 | ||||||
Non-controlling interests | 106,809 | 93,325 | ||||||
Equity attributable to other equity instruments holders | 734,613 | 733,611 | ||||||
Total equity | ¥ | 13,629,534 | ¥ | 12,781,692 | ||||
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
33
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 ¥10,134,806 million from ¥162,593,492 million at March 31, 2022 to ¥172,728,298 million at September 30, 2022. The balance of deposits at September 30, 2022 exceeded the balance of loans and advances by ¥57,192,779 million, primarily due to the stable deposit base in Japan. Ourratio (total loans and advances divided by total deposits) in the same period was 67%, which contributed greatly to the reduction of our liquidity risk. Our balances of large-denomination domestic yen time deposits are stable due to the historically high rollover rate of our corporate customers and individual depositors.
loan-to-deposit
At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Loans and advances | ¥ | 115,535,519 | ¥ | 104,635,815 | ||||
Deposits | 172,728,298 | 162,593,492 |
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.
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.
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 Japan K.K., (“Moody’s”), S&P Global Ratings Japan Inc. (“S&P”) and Fitch at December 9, 2022.
At December 9, 2022 | ||||||||||||||||
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- | S | F1 |
34
The following table shows credit ratings assigned to SMBC by Moody’s, S&P and Fitch at December 9, 2022.
At December 9, 2022 | ||||||||||||||||
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- | S | F1 |
We are assigned credit ratings by major domestic and international credit rating agencies. Credit ratings do not constitute recommendations to purchase, sell or hold a security, and rating agencies may review or indicate an intention to review ratings at any time. While the methodology and rating system vary among rating agencies, credit ratings are generally based on information provided by us or independent sources, and can be influenced by the credit ratings of Japanese government bonds and broader views of the Japanese financial system. Any downgrade in or withdrawal of these credit ratings, or any adverse change in these ratings relative to other financial institutions, could increase our borrowing costs, reduce our access to the capital markets and otherwise negatively affect our ability to raise funds, which in turn could have a negative impact on our liquidity position.
The guidelines published by the Financial Services Agency of Japan (“FSA”) for liquidity coverage ratio (“LCR”) and net stable funding ratio (“NSFR”) applicable to banks and bank holding companies with international operations are based on the full text of the LCR and NSFR standard issued by the Basel Committee on Banking Supervision (“BCBS”) in January 2013 and October 2014, respectively. Under these guidelines, banks and bank holding companies with international operations must maintain LCRs and NSFRs of at least 100% on both a consolidated basis and a nonconsolidated basis. The following tables show the Company’s and SMBC’s LCRs for the three months ended September 30, 2022 and NSFRs at September 30, 2022. Each figure is calculated based on our financial statements prepared in accordance with Japanese GAAP, as required by the FSA’s LCR and NSFR guidelines.
Liquidity coverage ratio:
For the three months ended September 30, 2022 (1) | ||||
SMFG (consolidated) | 130.2 | % | ||
SMBC (consolidated) | 133.7 | % | ||
SMBC (nonconsolidated) | 135.1 | % |
(1) | Under the FSA’s LCR guidelines, the LCR for the three months ended September 30, 2022 is set as the three-month average of daily LCRs for the same three months, 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. |
Net stable funding ratio:
At September 30, 2022 (1) | ||||
SMFG (consolidated) | 120.4 | % | ||
SMBC (consolidated) | 127.7 | % | ||
SMBC (nonconsolidated) | 124.9 | % |
(1) | Under the FSA’s NSFR guidelines, the NSFR is calculated by dividing the available amount of stable funding by the required amount of stable funding. |
For further information, see “Item 4.B. Business Overview—Regulations in Japan—Regulations Regarding Capital Adequacy and Liquidity—Liquidity Requirement” of our annual report on Form
20-F
for the fiscal year ended March 31, 2022.35
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, the foundation internal rating-based (“IRB”) approach and the advanced IRB approach for credit risk, and the basic indicator approach, 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 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 2009 and the AMA since March 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 the
build-up
of capital that can be drawn down in periods of stress, and the introduction of two global liquidity standards. The main measures of the minimum capital requirements in the Basel III framework began in January 2013 and have been fully applied from 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. 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 as
G-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 applies to us based on the FSB’s determination is 1%. The FSB updates its list ofG-SIBs
on an annual basis.To reflect the Basel III framework, the FSA changed its capital adequacy guidelines. The minimum Common Equity Tier 1 capital requirement, Tier 1 capital requirement and total capital requirement have been 4.5%, 6% and 8%, respectively, since March 2015. The capital conservation buffer, countercyclical buffer and the
G-SIB
capital surcharge started to be phased in from March 2016 and have been fully applied from March 2019 under the FSA capital adequacy guidelines.In December 2017, the Group of Central Bank Governors and Heads of Supervision 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” of our annual report on Form
20-F
for the fiscal year ended March 31, 2022.36
In March 2015, the FSA published its leverage ratio guidelines, which have been applied from March 2015, to help ensure broad and adequate capture of both
on-
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.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 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.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 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. In June 2020, in light of the increasing impact of the
COVID-19
pandemic, the FSA published amendments to its guidelines for the leverage ratio, which mainly exclude deposits with the BOJ from the denominator for the calculation of the leverage ratio in order to maintain harmonization with the monetary policy implemented by the BOJ and the prudential regulations for banks and other financial institutions. These amendments came into effect in June 2020 and were scheduled to expire in March 2021, but the expiry date of these amendments was extended to March 2022, and extended again until March 31, 2024. On July 15, 2022, the FSA published amendments to its guidelines for the leverage ratio. According to the amendments, the leverage ratio buffer requirement forG-SIBs
in Japan will take effect from March 31, 2023, while the finalized definition of the leverage ratio exposure measure will take effect from March 31, 2024, except for banks that have notified the FSA that they wish to apply amended requirements earlier. Furthermore, on November 11, 2022, the FSA published amendments to its guidelines for the leverage ratio, which provide that from April 1, 2024 onward the minimum leverage ratio will be increased from 3% to 3.15%, the minimum leverage-based Total Loss-Absorbing Capacity ratio will be increased from 6.75% to 7.10% and the leverage buffer applicable toG-SIBs
will be increased by 0.05%, while excluding amounts of deposits to the BOJ from the total exposure, taking into account exceptional macroeconomic conditions and other circumstances.37
The table below presents our risk-weighted capital ratios, total capital, risk-weighted assets and leverage ratio under Japanese GAAP at September 30, 2022 and March 31, 2022, based on the Basel III rules.
At September 30, 2022 | At March 31, 2022 | |||||||
(In billions, except percentages) | ||||||||
SMFG Consolidated: | ||||||||
Total risk-weighted capital ratio | 15.63 | % | 16.56 | % | ||||
Tier 1 risk-weighted capital ratio | 14.64 | % | 15.46 | % | ||||
Common Equity Tier 1 risk-weighted capital ratio | 13.69 | % | 14.45 | % | ||||
Total capital (Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital) | ¥ | 12,193.5 | ¥ | 11,983.8 | ||||
Tier 1 capital (Common Equity Tier 1 capital + Additional Tier 1 capital) | 11,415.4 | 11,186.2 | ||||||
Common Equity Tier 1 capital | 10,681.8 | 10,458.4 | ||||||
Risk-weighted assets | 77,971.4 | 72,350.1 | ||||||
The amount of minimum total capital requirements (1) | 6,237.7 | 5,788.0 | ||||||
Leverage ratio | 4.83 | % | 5.17 | % |
(1) | The amount of minimum total capital requirements is calculated by multiplying risk-weighted assets by 8%. |
Common Equity Tier 1 capital consists primarily of capital stock, capital surplus and retained earnings relating to common shares, and
non-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 thenon-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 perpetual subordinated bonds.
Tier 2 capital consists primarily of subordinated debt securities.
Capital instruments such as 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 the
phase-out
period beginning March 31, 2013. The remaining balance of thosenon-qualifying
capital instruments recognized as Additional Tier 1 or Tier 2 capital were reduced in annual 10% increments and were fully phased out in March 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. In March 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 2014 by increments of 20% and have been fully counted as Common Equity Tier 1 capital since March 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.
38
Set forth below is a table of risk-weighted capital ratios, total capital, risk-weighted assets and leverage ratio of SMBC at September 30, 2022 and March 31, 2022 on a consolidated and nonconsolidated basis.
At September 30, 2022 | At March 31, 2022 | |||||||
(In billions, except percentages) | ||||||||
SMBC Consolidated: | ||||||||
Total risk-weighted capital ratio | 14.36 | % | 15.78 | % | ||||
Tier 1 risk-weighted capital ratio | 13.31 | % | 14.53 | % | ||||
Common Equity Tier 1 risk-weighted capital ratio | 11.61 | % | 12.67 | % | ||||
Total capital (Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital) | ¥ | 10,385.0 | ¥ | 10,437.1 | ||||
Tier 1 capital (Common Equity Tier 1 capital + Additional Tier 1 capital) | 9,621.4 | 9,612.8 | ||||||
Common Equity Tier 1 capital | 8,393.0 | 8,382.7 | ||||||
Risk-weighted assets | 72,286.5 | 66,120.5 | ||||||
The amount of minimum total capital requirements (1) | 5,782.9 | 5,289.6 | ||||||
Leverage ratio | 4.34 | % | 4.82 | % | ||||
SMBC Nonconsolidated: | ||||||||
Total risk-weighted capital ratio | 12.73 | % | 14.77 | % | ||||
Tier 1 risk-weighted capital ratio | 11.53 | % | 13.49 | % | ||||
Common Equity Tier 1 risk-weighted capital ratio | 9.73 | % | 11.53 | % | ||||
Total capital (Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital) | ¥ | 8,544.5 | ¥ | 9,143.5 | ||||
Tier 1 capital (Common Equity Tier 1 capital + Additional Tier 1 capital) | 7,741.0 | 8,351.0 | ||||||
Common Equity Tier 1 capital | 6,531.5 | 7,141.6 | ||||||
Risk-weighted assets | 67,080.5 | 61,895.3 | ||||||
The amount of minimum total capital requirements (1) | 5,366.4 | 4,951.6 |
(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 Financial Instruments and Exchange Act of Japan. At September 30, 2022, the capital adequacy ratio was 345.4% 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.
39
FINANCIAL RISK MANAGEMENT
Risk Management System
Our risk management system is described in the “Quantitative and Qualitative Information about Risk Management” section within Item 11, “Quantitative and Qualitative Disclosures about Credit, Market and Other Risk,” of our annual report on Form
20-F
for the fiscal year ended March 31, 2022. There were no material changes in our risk management system for the six months ended September 30, 2022.Credit Risk
Our credit risk management system is described in the “Credit Risk” section within Item 11 of our annual report on Form
20-F
for the fiscal year ended March 31, 2022. There were no material changes in our credit risk management system for the six months ended September 30, 2022.Market Risk
Our market risk management system is described in the “Market Risk and Liquidity Risk” section within Item 11 of our annual report on Form
20-F
for the fiscal year ended March 31, 2022.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 value at risk (“VaR”) method as well as supplemental indicators suitable for managing each risk, such as the basis point value (“BPV”).
VaR is the largest predicted loss that is possible given a fixed confidence interval. For example, our VaR indicates the largest loss that is possible for a holding period of one day and a confidence interval of 99.0%. BPV is the amount of change in assessed value as a result of a
one-basis-point
(0.01%) movement in interest rates.The principal SMBC Group companies’ internal VaR model makes use of historical data to prepare scenarios for market fluctuations and, by conducting simulations of gains and losses on a net position basis, the model estimates the maximum losses that may occur. The VaR calculation method we employ for both trading and
non-trading
activities is based mainly on the following:• | the historical simulation method; |
• | a one-sided confidence interval of 99.0%; |
• | a one-day holding period (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.
VaR Summary
The following tables set forth our VaR for trading activities and
non-trading
activities by risk categories for the six months ended September 30, 2022.40
VaR for Trading Activities
Interest rate risk | Foreign exchange risk | Equities and commodities risk | Others | Total (1) | ||||||||||||||||
(In billions) | ||||||||||||||||||||
For the six months ended September 30, 2022: | ||||||||||||||||||||
SMBC Consolidated | ||||||||||||||||||||
Maximum | ¥ | 75.3 | ¥ | 73.7 | ¥ | 1.2 | ¥ | 9.5 | ¥ | 15.3 | ||||||||||
Minimum | 44.9 | 40.9 | 0.3 | 6.9 | 10.5 | |||||||||||||||
Daily average | 55.6 | 51.3 | 0.6 | 8.0 | 12.5 | |||||||||||||||
At September 30, 2022 | 54.5 | 55.0 | 0.4 | 7.0 | 12.9 | |||||||||||||||
At March 31, 2022 | 49.1 | 41.9 | 0.2 | 6.9 | 10.2 | |||||||||||||||
SMFG Consolidated | ||||||||||||||||||||
Maximum | ¥ | 84.4 | ¥ | 75.1 | ¥ | 7.1 | ¥ | 9.5 | ¥ | 31.8 | ||||||||||
Minimum | 54.3 | 42.0 | 4.3 | 6.9 | 26.2 | |||||||||||||||
Daily average | 64.9 | 52.7 | 6.1 | 8.0 | 28.4 | |||||||||||||||
At September 30, 2022 | 63.6 | 56.5 | 6.1 | 7.0 | 28.8 | |||||||||||||||
At March 31, 2022 | 59.0 | 42.7 | 5.5 | 6.9 | 25.9 |
(1) | Total for “Maximum,” “Minimum” and “Daily average” represent the maximum, minimum and daily average of the total of the trading book. For certain subsidiaries, we employ the standardized method and/or the historical simulation method for the VaR calculation method. |
VaR for
Non-Trading
Activities• Banking
Interest rate risk | Foreign exchange risk | Equities and commodities risk | Others | Total (1) | ||||||||||||||||
(In billions) | ||||||||||||||||||||
For the six months ended September 30, 2022: | ||||||||||||||||||||
SMBC Consolidated | ||||||||||||||||||||
Maximum | ¥ | 67.3 | ¥ | 0.7 | ¥ | 18.3 | ¥ | 0.0 | ¥ | 73.4 | ||||||||||
Minimum | 45.6 | 0.0 | 3.9 | 0.0 | 50.3 | |||||||||||||||
Daily average | 55.0 | 0.3 | 10.7 | 0.0 | 58.9 | |||||||||||||||
At September 30, 2022 | 52.5 | 0.5 | 5.1 | 0.0 | 55.3 | |||||||||||||||
At March 31, 2022 | 58.7 | 0.0 | 17.1 | 0.0 | 61.9 | |||||||||||||||
SMFG Consolidated | ||||||||||||||||||||
Maximum | ¥ | 68.0 | ¥ | 0.7 | ¥ | 18.3 | ¥ | 0.0 | ¥ | 74.0 | ||||||||||
Minimum | 46.6 | 0.0 | 3.9 | 0.0 | 51.2 | |||||||||||||||
Daily average | 55.8 | 0.3 | 10.7 | 0.0 | 59.7 | |||||||||||||||
At September 30, 2022 | 53.2 | 0.5 | 5.1 | 0.0 | 56.1 | |||||||||||||||
At March 31, 2022 | 59.4 | 0.0 | 17.1 | 0.0 | 62.6 |
(1) | Total for “Maximum,” “Minimum” and “Daily average” represent the maximum, minimum and daily average of the total of the banking book. |
41
• Strategic Shareholding Investment
Equities risk | ||||
(In billions) | ||||
For the six months ended September 30, 2022: | ||||
SMBC Consolidated | ||||
Maximum | ¥ | 1,047.4 | ||
Minimum | 886.2 | |||
Daily average | 968.1 | |||
At September 30, 2022 | 888.8 | |||
At March 31, 2022 | 1,043.5 | |||
SMFG Consolidated | ||||
Maximum | ¥ | 1,241.1 | ||
Minimum | 1,067.2 | |||
Daily average | 1,160.9 | |||
At September 30, 2022 | 1,070.7 | |||
At March 31, 2022 | 1,226.4 |
Back-testing
The relationship between the VaR calculated with the model and the profit and loss data is back-tested periodically. There were no significant excess losses in the back-testing results including the trading accounts.
Stress Tests
To prepare for unexpected market swings, we perform stress tests on a monthly basis based on various scenarios.
Interest Rate Risk
To supplement the above limitations of VaR methodologies, the SMBC Group adopts various indices to measure and monitor the sensitivity of interest rates, including delta, gamma and vega risks. The SMBC Group considers BPV as one of the most significant indices to manage interest rate risk. BPV is the amount of change in the value to the banking and trading book as a result of a
one-basis-point
(0.01%) movement in interest rates. The principal SMBC Group companies use BPV to monitor interest rate risk, not only on a net basis, but also by term to prevent the concentration of interest rate risk in a specific period. 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 (“ΔEVE”) and changes in net interest income (“ΔNII”) in the banking book as a result of interest rate shocks have been applied from March 31, 2018. The tables below present ΔEVE and ΔNII of SMBC and SMFG on a consolidated basis at September 30, 2022 and March 31, 2022, respectively.
42
ΔEVE 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 of ΔEVE 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 September 30, 2022 and March 31, 2022 were 1.2% and 4.6%, respectively and those for SMFG on a consolidated basis at September 30, 2022 and March 31, 2022 were 1.0% and 4.0%, respectively.
ΔNII is defined as a decline in interest income over a
12-month
period as a result of an interest rate shock. It is calculated assuming a constant balance sheet over a forward-looking12-month
period.At September 30, 2022 | At March 31, 2022 | |||||||||||||||
Δ EVE | Δ NII | Δ EVE | Δ NII | |||||||||||||
(In billions) | ||||||||||||||||
SMBC Consolidated | ||||||||||||||||
Parallel shock up | ¥ | 115.0 | ¥ | (346.4 | ) | ¥ | 446.1 | ¥ | (339.4 | ) | ||||||
Parallel shock down | 4.5 | 544.9 | 3.3 | 546.6 | ||||||||||||
Steepener shock | 99.9 | — | 256.6 | — | ||||||||||||
Flattener shock | 43.3 | — | 133.2 | — | ||||||||||||
Short rate shock up | 74.3 | — | 201.2 | — | ||||||||||||
Short rate shock down | 54.1 | — | 50.9 | — | ||||||||||||
Maximum | 115.0 | 544.9 | 446.1 | 546.6 | ||||||||||||
At September 30, 2022 | At March 31, 2022 | |||||||||||||||
(In billions) | ||||||||||||||||
Tier 1 Capital | ¥ | 9,621.4 | ¥ | 9,612.8 | ||||||||||||
At September 30, 2022 | At March 31, 2022 | |||||||||||||||
Δ EVE | Δ NII | Δ EVE | Δ NII | |||||||||||||
(In billions) | ||||||||||||||||
SMFG Consolidated | ||||||||||||||||
Parallel shock up | ¥ | 115.0 | ¥ | (346.4 | ) | ¥ | 446.1 | ¥ | (339.4 | ) | ||||||
Parallel shock down | 4.5 | 544.9 | 3.3 | 546.6 | ||||||||||||
Steepener shock | 99.9 | — | 256.6 | — | ||||||||||||
Flattener shock | 43.3 | — | 133.2 | — | ||||||||||||
Short rate shock up | 74.3 | — | 201.2 | — | ||||||||||||
Short rate shock down | 54.1 | — | 50.9 | — | ||||||||||||
Maximum | 115.0 | 544.9 | 446.1 | 546.6 | ||||||||||||
At September 30, 2022 | At March 31, 2022 | |||||||||||||||
(In billions) | ||||||||||||||||
Tier 1 Capital | ¥ | 11,415.4 | ¥ | 11,186.2 |
Note: | ΔEVE and ΔNII are calculated by currency at the SMBC consolidated level and the results are aggregated across the various currencies. For ΔNII, 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. |
43
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page | ||||||
F-2 | ||||||
F-3 | ||||||
F-4 | ||||||
F-5 | ||||||
F-6 | ||||||
F-7 | ||||||
1 | General Information | F-7 | ||||
2 | Summary of Significant Accounting Policies | F-7 | ||||
3 | Critical Accounting Estimates and Judgments | F-9 | ||||
4 | Segment Analysis | F-9 | ||||
5 | Derivative Financial Instruments and Hedge Accounting | F-12 | ||||
6 | Investment Securities | F-16 | ||||
7 | Loans and Advances | F-17 | ||||
8 | Borrowings | F-19 | ||||
9 | Debt Securities in Issue | F-19 | ||||
10 | Provisions | F-20 | ||||
11 | Shareholders’ Equity | F-21 | ||||
12 | Equity Attributable to Other Equity Instruments Holders | F-21 | ||||
13 | Fee and Commission Income | F-22 | ||||
14 | Impairment Charges on Financial Assets | F-23 | ||||
15 | Earnings Per Share | F-23 | ||||
16 | Dividends Per Share | F-23 | ||||
17 | Contingency and Capital Commitments | F-24 | ||||
18 | Fair Value of Financial Assets and Liabilities | F-25 | ||||
19 | Interest Rate Benchmark Reform | F-35 | ||||
20 | Events after the Statement of Financial Position Date | F-35 |
F-1
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Position (Unaudited)
Note | At September 30, 2022 | At March 31, 2022 | ||||||||||
(In millions) | ||||||||||||
Assets: | ||||||||||||
Cash and deposits with banks | ¥ | 71,496,806 | ¥ | 75,697,521 | ||||||||
Call loans and bills bought | 6,968,074 | 1,965,135 | ||||||||||
Reverse repurchase agreements and cash collateral on securities borrowed | 10,325,747 | 11,303,930 | ||||||||||
Trading assets | 4,006,350 | 3,736,296 | ||||||||||
Derivative financial instruments | 5 | 13,268,003 | 6,443,748 | |||||||||
Financial assets at fair value through profit or loss | 1,015,046 | 1,695,585 | ||||||||||
Investment securities | 6 | 26,995,630 | 32,749,405 | |||||||||
Loans and advances | 7 | 115,535,519 | 104,635,815 | |||||||||
Investments in associates and joint ventures | 1,123,339 | 1,009,738 | ||||||||||
Property, plant and equipment | 1,840,944 | 1,762,996 | ||||||||||
Intangible assets | 1,033,020 | 992,849 | ||||||||||
Other assets | 6,521,290 | 6,063,907 | ||||||||||
Current tax assets | 44,671 | 44,941 | ||||||||||
Deferred tax assets | 90,613 | 58,981 | ||||||||||
Total assets | ¥ | 260,265,052 | ¥ | 248,160,847 | ||||||||
Liabilities: | ||||||||||||
Deposits | ¥ | 172,728,298 | ¥ | 162,593,492 | ||||||||
Call money and bills sold | 1,157,519 | 1,130,000 | ||||||||||
Repurchase agreements and cash collateral on securities lent | 17,962,121 | 20,113,162 | ||||||||||
Trading liabilities | 2,980,561 | 3,181,992 | ||||||||||
Derivative financial instruments | 5 | 15,366,589 | 6,966,336 | |||||||||
Financial liabilities designated at fair value through profit or loss | 422,729 | 455,734 | ||||||||||
Borrowings | 8 | 13,806,074 | 20,584,651 | |||||||||
Debt securities in issue | 9 | 11,948,252 | 11,428,437 | |||||||||
Provisions | 10 | 203,791 | 227,784 | |||||||||
Other liabilities | 9,796,648 | 8,386,774 | ||||||||||
Current tax liabilities | 87,737 | 51,513 | ||||||||||
Deferred tax liabilities | 175,199 | 259,280 | ||||||||||
Total liabilities | 246,635,518 | 235,379,155 | ||||||||||
Equity: | ||||||||||||
Capital stock | 11 | 2,342,537 | 2,341,878 | |||||||||
Capital surplus | 645,584 | 645,382 | ||||||||||
Retained earnings | 7,143,778 | 6,434,605 | ||||||||||
Treasury stock | 11 | (13,117 | ) | (13,403 | ) | |||||||
Equity excluding other reserves | 10,118,782 | 9,408,462 | ||||||||||
Other reserves | 2,669,330 | 2,546,294 | ||||||||||
Equity attributable to shareholders of Sumitomo Mitsui Financial Group, Inc. | 12,788,112 | 11,954,756 | ||||||||||
Non-controlling interests | 106,809 | 93,325 | ||||||||||
Equity attributable to other equity instruments holders | 12 | 734,613 | 733,611 | |||||||||
Total equity | 13,629,534 | 12,781,692 | ||||||||||
Total equity and liabilities | ¥ | 260,265,052 | ¥ | 248,160,847 | ||||||||
The accompanying notes are an integral part of the Consolidated Financial Statements.
F-2
Consolidated Income Statements (Unaudited)
For the six months ended September 30, | ||||||||||||
Note | 2022 | 2021 | ||||||||||
(In millions, except per share data) | ||||||||||||
Interest income | ¥ | 1,424,087 | ¥ | 843,712 | ||||||||
Interest expense | 573,910 | 139,973 | ||||||||||
Net interest income | 850,177 | 703,739 | ||||||||||
Fee and commission income | 13 | 607,546 | 608,157 | |||||||||
Fee and commission expense | 112,737 | 113,484 | ||||||||||
Net fee and commission income | 494,809 | 494,673 | ||||||||||
Net trading income | 565,037 | 94,980 | ||||||||||
Net income from financial assets and liabilities at fair value through profit or loss | 171,708 | 97,643 | ||||||||||
Net investment income (loss) | (4,915 | ) | 62,549 | |||||||||
Other income | 85,818 | 52,595 | ||||||||||
Total operating income | 2,162,634 | 1,506,179 | ||||||||||
Impairment charges on financial assets | 14 | 88,025 | 18,770 | |||||||||
Net operating income | 2,074,609 | 1,487,409 | ||||||||||
General and administrative expenses | 948,612 | 879,731 | ||||||||||
Other expenses | 162,686 | 126,224 | ||||||||||
Operating expenses | 1,111,298 | 1,005,955 | ||||||||||
Share of post-tax profit of associates and joint ventures | 61,241 | 27,899 | ||||||||||
Profit before tax | 1,024,552 | 509,353 | ||||||||||
Income tax expense | 247,158 | 140,759 | ||||||||||
Net profit | ¥ | 777,394 | ¥ | 368,594 | ||||||||
Profit attributable to: | ||||||||||||
Shareholders of Sumitomo Mitsui Financial Group, Inc. | ¥ | 762,185 | ¥ | 361,393 | ||||||||
Non-controlling interests | 9,603 | 1,836 | ||||||||||
Other equity instruments holders | 5,606 | 5,365 | ||||||||||
Earnings per share: | ||||||||||||
Basic | 15 | ¥ | 555.91 | ¥ | 263.66 | |||||||
Diluted | 15 | 555.72 | 263.55 |
The accompanying notes are an integral part of the Consolidated Financial Statements.
F-3
Consolidated Statements of Comprehensive Income (Unaudited)
For the six months ended September 30, | ||||||||||||
2022 | 2021 | |||||||||||
(In millions) | ||||||||||||
Net profit | ¥ | 777,394 | ¥ | 368,594 | ||||||||
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 | 15,329 | 75,974 | ||||||||||
Equity instruments at fair value through other comprehensive income: | ||||||||||||
Gains (losses) arising during the period, before tax | (219,566 | ) | 271,338 | |||||||||
Own credit on financial liabilities designated at fair value through profit or loss: | ||||||||||||
Gains (losses) arising during the period, before tax | 1,035 | 1,349 | ||||||||||
Share of other comprehensive income (loss) of associates and joint ventures | 12,073 | 1,335 | ||||||||||
Income tax relating to items that will not be reclassified | 62,244 | (106,638 | ) | |||||||||
Total items that will not be reclassified to profit or loss, net of tax | (128,885 | ) | 243,358 | |||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||
Debt instruments at fair value through other comprehensive income: | ||||||||||||
Gains (losses) arising during the period, before tax | (652,810 | ) | 10,756 | |||||||||
Reclassification adjustments for (gains) losses included in net profit, before tax | 157,216 | (14,535 | ) | |||||||||
Exchange differences on translating foreign operations: | ||||||||||||
Gains (losses) arising during the period, before tax | 655,317 | 70,685 | ||||||||||
Reclassification adjustments for (gains) losses included in net profit, before tax | 193 | — | ||||||||||
Share of other comprehensive income (loss) of associates and joint ventures | 38,125 | 18,268 | ||||||||||
Income tax relating to items that may be reclassified | 147,427 | 886 | ||||||||||
Total items that may be reclassified subsequently to profit or loss, net of tax | 345,468 | 86,060 | ||||||||||
Other comprehensive income, net of tax | 216,583 | 329,418 | ||||||||||
Total comprehensive income | ¥ | 993,977 | ¥ | 698,012 | ||||||||
Total comprehensive income attributable to: | ||||||||||||
Shareholders of Sumitomo Mitsui Financial Group, Inc. | ¥ | 976,191 | ¥ | 690,879 | ||||||||
Non-controlling interests | 12,180 | 1,768 | ||||||||||
Other equity instruments holders | 5,606 | 5,365 |
The accompanying notes are an integral part of the Consolidated Financial Statements.
F-4
Consolidated Statements of Changes in Equity (Unaudited)
Equity excluding other reserves | Other reserves | |||||||||||||||||||||||||||||||||||||||||||||||
Capital stock | Capital surplus | Retained earnings | Treasury stock | Remeasure- ments of defined benefit plans reserve | Financial instruments at fair value through other comprehensive income reserve | Own credit on financial liabilities designated at fair value through profit or loss reserve | Exchange differences on translating foreign operations reserve | Equity attributable to SMFG’s shareholders | Non- controlling interests | Equity attributable to other equity instruments holders | Total equity | |||||||||||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2021 | ¥ | 2,341,274 | ¥ | 722,595 | ¥ | 6,078,208 | ¥ | (13,699 | ) | ¥ | 214,411 | ¥ | 2,106,255 | ¥ | (3,455 | ) | ¥ | 113,646 | ¥ | 11,559,235 | ¥ | 68,379 | ¥ | 648,536 | ¥ | 12,276,150 | ||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net profit | — | — | 361,393 | — | — | — | — | — | 361,393 | 1,836 | 5,365 | 368,594 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | 52,823 | 187,649 | 936 | 88,078 | 329,486 | (68 | ) | — | 329,418 | |||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | 361,393 | — | 52,823 | 187,649 | 936 | 88,078 | 690,879 | 1,768 | 5,365 | 698,012 | ||||||||||||||||||||||||||||||||||||
Issuance of shares under share-based payment transactions | 604 | 604 | — | — | — | — | — | — | 1,208 | — | — | 1,208 | ||||||||||||||||||||||||||||||||||||
Acquisition and disposal of subsidiaries and | — | — | — | — | — | — | — | — | — | 66 | — | 66 | ||||||||||||||||||||||||||||||||||||
Transaction with non-controlling interest shareholders | — | (195 | ) | — | — | — | — | — | — | (195 | ) | 240 | — | 45 | ||||||||||||||||||||||||||||||||||
Share of changes in capital surplus of associates and joint ventures | — | 5,097 | — | — | — | — | — | — | 5,097 | — | — | 5,097 | ||||||||||||||||||||||||||||||||||||
Dividends to shareholders | — | — | (130,190 | ) | — | — | — | — | — | (130,190 | ) | (727 | ) | — | (130,917 | ) | ||||||||||||||||||||||||||||||||
Coupons on other equity instruments | — | — | — | — | — | — | — | — | — | — | (5,365 | ) | (5,365 | ) | ||||||||||||||||||||||||||||||||||
Purchases of other equity instruments and sales of other equity instruments-net | — | — | — | — | — | — | — | — | — | — | 3,338 | 3,338 | ||||||||||||||||||||||||||||||||||||
Purchases of treasury stock | — | — | — | (37 | ) | — | — | — | — | (37 | ) | — | — | (37 | ) | |||||||||||||||||||||||||||||||||
Sales of treasury stock | — | — | — | 327 | — | — | — | — | 327 | — | — | 327 | ||||||||||||||||||||||||||||||||||||
Loss on sales of treasury stock | — | — | (31 | ) | — | — | — | — | — | (31 | ) | — | — | (31 | ) | |||||||||||||||||||||||||||||||||
Share-based payment transactions | — | (187 | ) | — | — | — | — | — | — | (187 | ) | — | — | (187 | ) | |||||||||||||||||||||||||||||||||
Transfer from other reserves to retained earnings | — | — | 36,453 | — | (20,548 | ) | (15,905 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Others | — | — | — | — | — | — | — | — | — | 248 | — | 248 | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | ¥ | 2,341,878 | ¥ | 727,914 | ¥ | 6,345,833 | ¥ | (13,409 | ) | ¥ | 246,686 | ¥ | 2,277,999 | ¥ | (2,519 | ) | ¥ | 201,724 | ¥ | 12,126,106 | ¥ | 69,974 | ¥ | 651,874 | ¥ | 12,847,954 | ||||||||||||||||||||||
Balance at April 1, 2022 | ¥ | 2,341,878 | ¥ | 645,382 | ¥ | 6,434,605 | ¥ | (13,403 | ) | ¥ | 197,310 | ¥ | 1,808,222 | ¥ | 520 | ¥ | 540,242 | ¥ | 11,954,756 | ¥ | 93,325 | ¥ | 733,611 | ¥ | 12,781,692 | |||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net profit | — | — | 762,185 | — | — | — | — | — | 762,185 | 9,603 | 5,606 | 777,394 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | 10,641 | (499,964 | ) | 718 | 702,611 | 214,006 | 2,577 | — | 216,583 | |||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | 762,185 | — | 10,641 | (499,964 | ) | 718 | 702,611 | 976,191 | 12,180 | 5,606 | 993,977 | |||||||||||||||||||||||||||||||||||
Issuance of shares under share-based payment transactions | 659 | 659 | — | — | — | — | — | — | 1,318 | — | — | 1,318 | ||||||||||||||||||||||||||||||||||||
Transaction with non-controlling interest shareholders | — | (395 | ) | — | — | — | — | — | — | (395 | ) | 1,294 | — | 899 | ||||||||||||||||||||||||||||||||||
Dividends to shareholders | — | — | (143,936 | ) | — | — | — | — | — | (143,936 | ) | (2,713 | ) | — | (146,649 | ) | ||||||||||||||||||||||||||||||||
Coupons on other equity instruments | — | — | — | — | — | — | — | — | — | — | (5,606 | ) | (5,606 | ) | ||||||||||||||||||||||||||||||||||
Purchases of other equity instruments and sales of other equity instruments-net | — | — | — | — | — | — | — | — | — | — | 1,002 | 1,002 | ||||||||||||||||||||||||||||||||||||
Purchases of treasury stock | — | — | — | (34 | ) | — | — | — | — | (34 | ) | — | — | (34 | ) | |||||||||||||||||||||||||||||||||
Sales of treasury stock | — | — | — | 320 | — | — | — | — | 320 | — | — | 320 | ||||||||||||||||||||||||||||||||||||
Loss on sales of treasury stock | — | — | (46 | ) | — | — | — | — | — | (46 | ) | — | — | (46 | ) | |||||||||||||||||||||||||||||||||
Share-based payment transactions | — | (62 | ) | — | — | — | — | — | — | (62 | ) | — | — | (62 | ) | |||||||||||||||||||||||||||||||||
Transfer from other reserves to retained earnings | — | — | 90,970 | — | (21,303 | ) | (69,667 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Others | — | — | — | — | — | — | — | — | — | 2,723 | — | 2,723 | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | ¥ | 2,342,537 | ¥ | 645,584 | ¥ | 7,143,778 | ¥ | (13,117 | ) | ¥ | 186,648 | ¥ | 1,238,591 | ¥ | 1,238 | ¥ | 1,242,853 | ¥ | 12,788,112 | ¥ | 106,809 | ¥ | 734,613 | ¥ | 13,629,534 | |||||||||||||||||||||||
The accompanying notes are an integral part of the Consolidated Financial Statements.
F-5
Consolidated Statements of Cash Flows (Unaudited)
For the six months ended September 30, | ||||||||
2022 | 2021 | |||||||
(In millions) | ||||||||
Operating Activities: | ||||||||
Profit before tax | ¥ | 1,024,552 | ¥ | 509,353 | ||||
Adjustments for: | ||||||||
Gains on financial assets at fair value through profit or loss and investment securities | (18,600 | ) | (96,183 | ) | ||||
Foreign exchange (gains) losses | (939,255 | ) | 47,260 | |||||
Provision for loan losses | 86,989 | 13,855 | ||||||
Depreciation and amortization | 157,999 | 158,232 | ||||||
Share of post-tax profit of associates and joint ventures | (61,241 | ) | (27,899 | ) | ||||
Net changes in assets and liabilities: | ||||||||
Net (increase) decrease of term deposits with original maturities over three months | 1,767,421 | (98,456 | ) | |||||
Net increase of call loans and bills bought | (4,914,016 | ) | (191,334 | ) | ||||
Net decrease of reverse repurchase agreements and cash collateral on securities borrowed | 1,388,766 | 1,224,050 | ||||||
Net increase of loans and advances | (9,941,327 | ) | (139,094 | ) | ||||
Net change of trading assets and liabilities, derivative financial instruments, and financial liabilities designated at fair value through profit or loss | 1,232,767 | (500,754 | ) | |||||
Net increase (decrease) of deposits | 8,666,708 | (1,511,338 | ) | |||||
Net increase of call money and bills sold | 4,375 | 349,768 | ||||||
Net decrease of repurchase agreements and cash collateral on securities lent | (2,458,303 | ) | (2,364,123 | ) | ||||
Net increase (decrease) of other unsubordinated borrowings and debt securities in issue | (7,388,484 | ) | 1,162,855 | |||||
Income taxes paid—net | (106,797 | ) | (91,992 | ) | ||||
Other operating activities—net | (1,312,248 | ) | 425,033 | |||||
Net cash and cash equivalents used in operating activities | (12,810,694 | ) | (1,130,767 | ) | ||||
Investing Activities: | ||||||||
Purchases of financial assets at fair value through profit or loss and investment securities | (15,404,357 | ) | (18,734,409 | ) | ||||
Proceeds from sales of financial assets at fair value through profit or loss and investment securities | 11,051,492 | 11,859,983 | ||||||
Proceeds from maturities of financial assets at fair value through profit or loss and investment securities | 11,892,293 | 7,519,713 | ||||||
Investments in associates and joint ventures | — | (1,700 | ) | |||||
Proceeds from sales of investments in associates and joint ventures | 4,512 | 1,529 | ||||||
Purchases of property, plant and equipment, and investment properties | (30,387 | ) | (33,217 | ) | ||||
Purchases of intangible assets | (93,017 | ) | (92,958 | ) | ||||
Proceeds from sales of property, plant and equipment, investment properties and intangible assets | 1,864 | 495 | ||||||
Net cash and cash equivalents provided by investing activities | 7,422,400 | 519,436 | ||||||
Financing Activities: | ||||||||
Redemption of subordinated borrowings | (15,000 | ) | — | |||||
Proceeds from issuance of subordinated bonds | — | 93,347 | ||||||
Redemption of subordinated bonds | — | (174,000 | ) | |||||
Payments for the principal portion of lease liabilities | (44,825 | ) | (47,664 | ) | ||||
Dividends paid to shareholders of Sumitomo Mitsui Financial Group, Inc. | (143,871 | ) | (130,153 | ) | ||||
Dividends paid to non-controlling interest shareholders | (2,713 | ) | (727 | ) | ||||
Coupons paid to other equity instruments holders | (5,606 | ) | (5,365 | ) | ||||
Purchases of treasury stock and proceeds from sales of treasury stock—net | 240 | 259 | ||||||
Purchases of other equity instruments and proceeds from sales of other equity instruments—net | 1,002 | 3,338 | ||||||
Transactions with non-controlling interest shareholders—net | 956 | 111 | ||||||
Net cash and cash equivalents used in financing activities | (209,817 | ) | (260,854 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 1,674,253 | 49,681 | ||||||
Net decrease of cash and cash equivalents | (3,923,858 | ) | (822,504 | ) | ||||
Cash and cash equivalents at beginning of period | 74,343,953 | 71,548,697 | ||||||
Cash and cash equivalents at end of period | ¥ | 70,420,095 | ¥ | 70,726,193 | ||||
Net cash and cash equivalents provided by operating activities includes: | ||||||||
Interest and dividends received | ¥ | 1,367,994 | ¥ | 942,698 | ||||
Interest paid | 510,259 | 147,489 |
The accompanying notes are an integral part of the Consolidated Financial Statements.
F-6
Notes to Consolidated Financial Statements (Unaudited)
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 () 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 () 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 (Prime Market), with further listing on the Nagoya Stock Exchange (Premier Market). The Company’s American Depositary Shares are listed on the New York Stock Exchange.
kabushiki-iten
Kabushiki Kaisha
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 December 20, 2022.
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Preparation
The interim consolidated financial statements, including selected explanatory notes, of the Group have been prepared in accordance with IAS 34 “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”). The interim consolidated financial statements should be read in conjunction with the Group’s consolidated financial statements for the fiscal year ended March 31, 2022, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB.
Significant Accounting Policies
The significant accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Group’s consolidated financial statements for the fiscal year ended March 31, 2022.
For the six months ended September 30, 2022, a number of amendments to standards have become effective; however, they have not resulted in any material impact on the Group’s interim consolidated financial statements.
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 “Consolidated Financial Statements” 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 issuedto remove the effective date and indicated that a new effective date
Effective Date of Amendments to IFRS 10 and IAS 28
F-7
will be determined at a future date when it has finalized revisions, if any, that result from its research project on equity accounting. 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.
In June 2020, the IASB issued amendments to IFRS 17 to help entities implement the standard and make it easier for them to explain their financial performance. The fundamental principles introduced when the IASB first issued IFRS 17 in May 2017 remain unaffected. The mandatory effective date of applying IFRS 17 was January 1, 2021 when it was originally issued but deferred to annual periods beginning on or after January 1, 2023 and are not expected to have a material impact on the Group’s consolidated financial statements.
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
In February 2021, the IASB issued narrow-scope amendments to IAS 1 “Presentation of Financial Statements” and IFRS Practice Statement 2 “Making Materiality Judgements” to support entities improve accounting policy disclosures for users of financial statements. The amendments to IAS 1 require entities to disclose their material accounting policy information rather than their significant accounting policies. The amendments to IFRS Practice Statement 2 provide guidance on how to apply the concept of materiality to accounting policy disclosures. The amendments are effective for annual periods beginning on or after January 1, 2023.
Definition of Accounting Estimates (Amendments to IAS 8)
In February 2021, the IASB issued narrow-scope amendments to IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors.” The amendments introduce the definition of accounting estimates and clarify how entities should distinguish changes in accounting policies from changes in accounting estimates. The amendments are effective for annual periods beginning on or after January 1, 2023.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)
In May 2021, the IASB issued narrow-scope amendments to IAS 12 “Income Taxes” to specify how entities should account for deferred tax on transactions such as leases and decommissioning obligations. The aim of the amendments is to reduce diversity in the reporting of deferred tax on such transactions. The amendments are effective for annual periods beginning on or after January 1, 2023 and are not expected to have a material impact on the Group’s consolidated financial statements.
Initial Application of IFRS 17 and IFRS 9—Comparative Information (Amendment to IFRS 17)
In December 2021, the IASB issued a narrow-scope amendment to the transition requirements in IFRS 17 to help entities avoid temporary accounting mismatches between financial assets and insurance contract liabilities caused by the
different transition requirements between IFRS 17 and IFRS 9 “Financial Instruments.” The amendments are effective for annual periods beginning on or after January 1, 2023 and are not expected to have a material impact on the Group’s consolidated financial statements.
F-8
Classification of Liabilities as Current or
Non-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 or
non-current.
The amendments make it easier for entities to determine whether, in the statements of financial position, debt and other liabilities with an uncertain settlement date should be classified as current ornon-current.
The effective date of applying the amendments was January 1, 2022 when they were originally issued, however, in July 2020, the IASB issued an amendment which defers the effective date to annual periods beginning on or after January 1, 2023. Subsequently, in October 2022, the IASB issued an amendment which defers the effective date to annual periods beginning on or after January 1, 2024. The Group is currently evaluating the potential impact that the adoption of the amendments will have on its consolidated financial statements.Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)
In September 2022, the IASB issued narrow-scope amendments to IFRS 16 “Leases,” which add to subsequent measurement requirements for the lease liability arising from a sale and leaseback transaction. The amendments specify how to measure the lease liability when reporting after the date of the transaction. The amendments are effective for annual reporting periods beginning on or after January 1, 2024. The Group is currently evaluating the potential impact that the adoption of the amendments will have on its consolidated financial statements.
Non-current
Liabilities with Covenants (Amendments to IAS 1)In October 2022, the IASB issued amendments to IAS 1 to improve the information entities provide about long-term debt with covenants. The amendments to IAS 1 specify that covenants to be complied with after the reporting date do not affect the classification of debt as current or
non-current
at the reporting date. Instead, the amendments require an entity to disclose information about these covenants in the notes to the financial statements and enable investors to understand the risk that such debt could become repayable early. The amendments are effective for annual reporting periods beginning on or after January 1, 2024. The Group is currently evaluating the potential impact that the adoption of the amendments will have on its consolidated financial statements.3 | CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS |
The consolidated financial statements are influenced by estimates and management judgments, 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. For information on the estimation of the allowance for loan losses which reflects the current and forward-looking impact of the situation in Russia and Ukraine and the
COVID-19
pandemic, refer to Note 7 “Loans and Advances.” The critical accounting estimates and judgments are described in Note 3 “Critical Accounting Estimates and Judgments” of the Group’s consolidated financial statements for the fiscal year ended March 31, 2022.4 | SEGMENT ANALYSIS |
Business Segments
The Group’s business segment information is prepared based on the internal reporting system utilized by
its
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 Global Business Unit and the Global Markets Business Unit, with the remaining operations recorded in Head office account and others.
F-9
Wholesale Business Unit
The Wholesale Business Unit provides comprehensive solutions primarily for corporate clients in Japan that respond to wide-ranging client needs in relation to financing, investment management, risk hedging, settlement, M&A and other advisory services, digital services and leasing services. 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”), SMBC Nikko Securities Inc. (“SMBC Nikko Securities”), Sumitomo Mitsui Card Company, Limited (“Sumitomo Mitsui Card”) and SMBC Finance Service Co., Ltd. (“SMBC Finance Service”).
Retail Business Unit
The Retail Business Unit provides financial services to consumers residing in Japan and mainly consists of the retail businesses of SMBC, SMBC Trust Bank, SMBC Nikko Securities, Sumitomo Mitsui Card, SMBC Finance Service and SMBC Consumer Finance Co., Ltd. This business unit offers a wide range of products and services for consumers, including wealth management services, settlement services, consumer finance and housing loans, in order to address the financial needs of all individual customers.
Global Business Unit
The Global 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 services, underwriting activities, Japanese stock brokerage and M&A advisory services. This business unit mainly consists of the global 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 Global 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. It also includes the elimination items related to internal transactions between the Group companies.
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 figuresF-10
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.
Segmental Results of Operations
The following tables show the Group’s results of operations by business segment for the six months ended September 30, 2022 and 2021.
For the six months ended September 30, 2022:
Wholesale Business Unit | Retail Business Unit | Global Business Unit | Global Markets Business Unit | Head office account and others | Total | |||||||||||||||||||
(In billions) | ||||||||||||||||||||||||
Consolidated gross profit (1) | ¥ | 367.4 | ¥ | 553.8 | ¥ | 601.1 | ¥ | 266.0 | ¥ | (155.9 | ) | ¥ | 1,632.4 | |||||||||||
General and administrative expenses | (145.5 | ) | (456.2 | ) | (314.7 | ) | (56.7 | ) | 10.5 | (962.6 | ) | |||||||||||||
Others (2) | 37.3 | 2.1 | 46.0 | 15.4 | (48.7 | ) | 52.1 | |||||||||||||||||
Consolidated net business profit | ¥ | 259.2 | ¥ | 99.7 | ¥ | 332.4 | ¥ | 224.7 | ¥ | (194.1 | ) | ¥ | 721.9 | |||||||||||
For the six months ended September 30, 2021: | ||||||||||||||||||||||||
Wholesale Business Unit | Retail Business Unit | Global Business Unit | Global Markets Business Unit | Head office account and others | Total | |||||||||||||||||||
(In billions) | ||||||||||||||||||||||||
Consolidated gross profit (1) | ¥ | 329.5 | ¥ | 568.1 | ¥ | 394.5 | ¥ | 250.9 | ¥ | (111.7 | ) | ¥ | 1,431.3 | |||||||||||
General and administrative expenses | (148.9 | ) | (464.9 | ) | (213.9 | ) | (43.0 | ) | (5.2 | ) | (875.9 | ) | ||||||||||||
Others (2) | 30.3 | 0.8 | 25.1 | 17.6 | (43.1 | ) | 30.7 | |||||||||||||||||
Consolidated net business profit | ¥ | 210.9 | ¥ | 104.0 | ¥ | 205.7 | ¥ | 225.5 | ¥ | (160.0 | ) | ¥ | 586.1 | |||||||||||
(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 counted within the Group’s business segments in the managerial accounting. |
F-11
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 six months ended September 30, | ||||||||
2022 | 2021 | |||||||
(In billions) | ||||||||
Consolidated net business profit | ¥ | 721.9 | ¥ | 586.1 | ||||
Differences between management reporting and Japanese GAAP: | ||||||||
Total credit costs | (83.1 | ) | (26.7 | ) | ||||
Gains on equity instruments | 92.1 | 81.2 | ||||||
Extraordinary gains or losses and others | (6.2 | ) | (13.8 | ) | ||||
Profit before tax under Japanese GAAP | 724.7 | 626.8 | ||||||
Differences between Japanese GAAP and IFRS: | ||||||||
Scope of consolidation | 3.2 | 1.9 | ||||||
Derivative financial instruments | 464.5 | (10.4 | ) | |||||
Investment securities | (105.6 | ) | (49.5 | ) | ||||
Loans and advances | (33.2 | ) | 0.8 | |||||
Investments in associates and joint ventures | (28.7 | ) | (36.6 | ) | ||||
Property, plant and equipment | (0.6 | ) | 0.7 | |||||
Lease accounting | — | (0.3 | ) | |||||
Defined benefit plans | (28.1 | ) | (30.3 | ) | ||||
Foreign currency translation | (22.5 | ) | (2.9 | ) | ||||
Classification of equity and liability | 5.7 | 5.4 | ||||||
Others | 45.2 | 3.8 | ||||||
Profit before tax under IFRS | ¥ | 1,024.6 | ¥ | 509.4 | ||||
5 | 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 or(“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.
over-the-counter
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.
F-12
The tables below represent the derivative financial instruments by type and purpose of derivatives at September 30, 2022 and March 31, 2022.
At September 30, 2022 | ||||||||||||||||||||||||
Trading | Risk Management (1) | |||||||||||||||||||||||
Notional amounts | Assets | Liabilities | Notional amounts | Assets | Liabilities | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Interest rate derivatives | ¥ | 2,061,120,066 | ¥ | 6,212,947 | ¥ | 7,768,002 | ¥ | 72,040,221 | ¥ | 1,198,010 | ¥ | 1,332,739 | ||||||||||||
Futures | 223,142,537 | 102,812 | 91,516 | 6,247,101 | 12,001 | 1,289 | ||||||||||||||||||
Listed Options | 522,958,253 | 599,055 | 168,442 | — | — | — | ||||||||||||||||||
Forwards | 17,421,037 | 69,019 | 62,512 | — | — | — | ||||||||||||||||||
Swaps | 1,081,676,525 | 4,567,833 | 4,742,377 | 65,591,834 | 1,186,009 | 1,303,834 | ||||||||||||||||||
OTC Options | 215,921,714 | 874,228 | 2,703,155 | 201,286 | — | 27,616 | ||||||||||||||||||
Currency derivatives | 224,730,244 | 5,433,716 | 3,656,993 | 20,343,998 | 275,513 | 2,444,014 | ||||||||||||||||||
Futures | 13,767 | — | 1,387 | — | — | — | ||||||||||||||||||
Listed Options | — | — | — | — | — | — | ||||||||||||||||||
Forwards | 122,497,469 | 3,161,352 | 2,683,600 | 3,177,503 | 40,728 | 535,946 | ||||||||||||||||||
Swaps | 91,213,820 | 2,064,043 | 686,410 | 17,166,495 | 234,785 | 1,908,068 | ||||||||||||||||||
OTC Options | 11,005,188 | 208,321 | 285,596 | — | — | — | ||||||||||||||||||
Equity derivatives | 2,832,186 | 110,350 | 124,518 | — | — | — | ||||||||||||||||||
Futures | 1,433,209 | 49,993 | 44,600 | — | — | — | ||||||||||||||||||
Listed Options | 1,093,200 | 27,854 | 64,714 | — | — | — | ||||||||||||||||||
Forwards | 108 | — | 8 | — | — | — | ||||||||||||||||||
Swaps | 41,810 | 581 | 6,518 | — | — | — | ||||||||||||||||||
OTC Options | 263,859 | 31,922 | 8,678 | — | — | — | ||||||||||||||||||
Commodity derivatives | 230,568 | 15,417 | 14,023 | — | — | — | ||||||||||||||||||
Futures | 81,998 | 1,444 | 2,005 | — | — | — | ||||||||||||||||||
Listed Options | — | — | — | — | — | — | ||||||||||||||||||
Forwards | — | — | — | — | — | — | ||||||||||||||||||
Swaps | 99,706 | 13,270 | 11,048 | — | — | — | ||||||||||||||||||
OTC Options | 48,864 | 703 | 970 | — | — | — | ||||||||||||||||||
Credit derivatives | 3,118,501 | 22,050 | 26,300 | — | — | — | ||||||||||||||||||
Total derivative financial instruments | ¥ | 2,292,031,565 | ¥ | 11,794,480 | ¥ | 11,589,836 | ¥ | 92,384,219 | ¥ | 1,473,523 | ¥ | 3,776,753 | ||||||||||||
F-13
At March 31, 2022 | ||||||||||||||||||||||||
Trading | Risk Management (1) | |||||||||||||||||||||||
Notional amounts | Assets | Liabilities | Notional amounts | Assets | Liabilities | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Interest rate derivatives | ¥ | 1,429,411,628 | ¥ | 3,016,258 | ¥ | 3,189,943 | ¥ | 56,750,246 | ¥ | 577,685 | ¥ | 582,721 | ||||||||||||
Futures | 150,781,509 | 118,492 | 119,133 | 774,857 | 321 | 2 | ||||||||||||||||||
Listed Options | 450,609,244 | 493,433 | 99,058 | — | — | — | ||||||||||||||||||
Forwards | 12,650,288 | 1,447 | 84 | — | — | — | ||||||||||||||||||
Swaps | 659,925,813 | 2,062,478 | 2,096,930 | 55,805,239 | 577,364 | 579,505 | ||||||||||||||||||
OTC Options | 155,444,774 | 340,408 | 874,738 | 170,150 | — | 3,214 | ||||||||||||||||||
Currency derivatives | 180,733,207 | 2,637,955 | 2,000,625 | 13,999,978 | 66,030 | 986,906 | ||||||||||||||||||
Futures | 10,759 | 101 | 204 | — | — | — | ||||||||||||||||||
Listed Options | — | — | — | — | — | — | ||||||||||||||||||
Forwards | 84,081,833 | 1,259,714 | 1,132,187 | 2,836,806 | 29,947 | 267,923 | ||||||||||||||||||
Swaps | 86,177,897 | 1,258,400 | 727,106 | 11,163,172 | 36,083 | 718,983 | ||||||||||||||||||
OTC Options | 10,462,718 | 119,740 | 141,128 | — | — | — | ||||||||||||||||||
Equity derivatives | 2,801,005 | 102,313 | 157,086 | 19,720 | — | 2,031 | ||||||||||||||||||
Futures | 1,231,058 | 39,764 | 62,024 | — | — | — | ||||||||||||||||||
Listed Options | 1,252,615 | 35,056 | 82,997 | — | — | — | ||||||||||||||||||
Forwards | — | — | — | — | — | — | ||||||||||||||||||
Swaps | 56,448 | 542 | 4,859 | 19,720 | — | 2,031 | ||||||||||||||||||
OTC Options | 260,884 | 26,951 | 7,206 | — | — | — | ||||||||||||||||||
Commodity derivatives | 153,247 | 21,540 | 19,544 | — | — | — | ||||||||||||||||||
Futures | 11,186 | 1,413 | 202 | — | — | — | ||||||||||||||||||
Listed Options | — | — | — | — | — | — | ||||||||||||||||||
Forwards | — | — | — | — | — | — | ||||||||||||||||||
Swaps | 138,270 | 20,033 | 18,815 | — | — | — | ||||||||||||||||||
OTC Options | 3,791 | 94 | 527 | — | — | — | ||||||||||||||||||
Credit derivatives | 2,839,549 | 21,967 | 27,480 | — | — | — | ||||||||||||||||||
Total derivative financial instruments | ¥ | 1,615,938,636 | ¥ | 5,800,033 | ¥ | 5,394,678 | ¥ | 70,769,944 | ¥ | 643,715 | ¥ | 1,571,658 | ||||||||||||
(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, borrowings and debt instruments at fair value through other comprehensive income (“FVOCI”), certain equity instruments elected to be measured at FVOCI and net investments in foreign operations. 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.
F-14
Fair value hedges
The Group applies fair value hedge accounting to mitigate the risk of changes in the fair value of certain fixed rate financial assets and liabilities, and the risk of changes in the fair value of certain equity instruments elected to be measured at FVOCI. The table below represents the amounts related to items designated as hedging instruments at September 30, 2022 and March 31, 2022.
At September 30, 2022 | At March 31, 2022 | |||||||||||||||||||||||
Notional amounts | Carrying amounts | Notional amounts | Carrying amounts | |||||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Interest rate risk | ||||||||||||||||||||||||
Interest rate swaps | ¥ | 8,780,358 | ¥ | 176,724 | ¥ | 714,204 | ¥ | 8,117,678 | ¥ | 110,604 | ¥ | 246,482 | ||||||||||||
Interest rate options | 201,286 | — | 27,616 | 170,150 | — | 3,214 | ||||||||||||||||||
Stock price risk | ||||||||||||||||||||||||
Equity swaps | — | — | — | 19,720 | — | 2,031 |
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 table below represents the amounts related to items designated as hedging instruments at September 30, 2022 and March 31, 2022.
At September 30, 2022 | At March 31, 2022 | |||||||||||||||||||||||
Nominal amounts | Carrying amounts | Nominal amounts | Carrying amounts | |||||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Foreign exchange forward contracts | ¥ | 3,140,082 | ¥ | 40,728 | ¥ | 530,025 | ¥ | 2,783,215 | ¥ | ¥ | 266,699 | |||||||||||||
Foreign currency denominated financial liabilities | 179,099 | — | 179,099 | 129,090 | — | 129,090 |
F-15
6 | 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 September 30, 2022 and March 31, 2022.
At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Debt instruments at amortized cost: | ||||||||
Domestic: | ||||||||
Japanese government bonds | ¥ | 72,543 | ¥ | — | ||||
Japanese municipal bonds | 43,706 | 25,741 | ||||||
Total domestic | 116,249 | 25,741 | ||||||
Foreign: | ||||||||
Bonds issued by other governments and official institutions (1) | 60,802 | 56,400 | ||||||
Other debt instruments | 1,415 | 1,813 | ||||||
Total foreign | 62,217 | 58,213 | ||||||
Total debt instruments at amortized cost | ¥ | 178,466 | ¥ | 83,954 | ||||
Debt instruments at fair value through other comprehensive income: | ||||||||
Domestic: | ||||||||
Japanese government bonds | ¥ | 9,988,100 | ¥ | 15,774,197 | ||||
Japanese municipal bonds | 1,085,718 | 1,145,496 | ||||||
Japanese corporate bonds | 1,077,207 | 948,992 | ||||||
Other debt instruments | 311 | 311 | ||||||
Total domestic | 12,151,336 | 17,868,996 | ||||||
Foreign: | ||||||||
U.S. Treasury and other U.S. government agency bonds | 5,637,454 | 5,681,789 | ||||||
Bonds issued by other governments and official institutions (1) | 2,987,313 | 2,997,588 | ||||||
Mortgage-backed securities | 1,161,047 | 1,006,051 | ||||||
Other debt instruments | 537,442 | 512,542 | ||||||
Total foreign | 10,323,256 | 10,197,970 | ||||||
Total debt instruments at fair value through other comprehensive income | ¥ | 22,474,592 | ¥ | 28,066,966 | ||||
Equity instruments at fair value through other comprehensive income: | ||||||||
Domestic equity instruments | ¥ | 3,453,106 | ¥ | 3,658,591 | ||||
Foreign equity instruments | 889,466 | 939,894 | ||||||
Total equity instruments at fair value through other comprehensive income | ¥ | 4,342,572 | ¥ | 4,598,485 | ||||
Total investment securities | ¥ | 26,995,630 | ¥ | 32,749,405 | ||||
(1) | Bonds issued by governments and official institutions excluding U.S. Treasury and other U.S. government agencies. |
F-16
7 | LOANS AND ADVANCES |
The following tables present loans and advances at September 30, 2022 and March 31, 2022.
At September 30, 2022 | ||||||||||||||||
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 | ¥ | 111,730,401 | ¥ | 3,795,243 | ¥ | 1,391,224 | ¥ | 116,916,868 | ||||||||
Adjust: Unearned income, unamortized premiums—net and deferred loan fees—net | (391,181 | ) | ||||||||||||||
Less: Allowance for loan losses | (175,289 | ) | (258,280 | ) | (556,599 | ) | (990,168 | ) | ||||||||
Carrying amount | ¥ | 115,535,519 | ||||||||||||||
At March 31, 2022 | ||||||||||||||||
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 | ¥ | 100,846,789 | ¥ | 3,700,816 | ¥ | 1,406,094 | ¥ | 105,953,699 | ||||||||
Adjust: Unearned income, unamortized premiums—net and deferred loan fees—net | (324,830 | ) | ||||||||||||||
Less: Allowance for loan losses | (162,919 | ) | (247,020 | ) | (583,115 | ) | (993,054 | ) | ||||||||
Carrying amount | ¥ | 104,635,815 | ||||||||||||||
F-17
Reconciliation of allowance for loan losses is as follows:
At September 30, 2022 | ||||||||||||||||
12-month ECL | Lifetime ECL not credit- impaired | Lifetime ECL credit-impaired | Total | |||||||||||||
(In millions) | ||||||||||||||||
Allowance for loan losses: | ||||||||||||||||
Balance at April 1, 2022 | ¥ | 162,919 | ¥ | 247,020 | ¥ | 583,115 | ¥ | 993,054 | ||||||||
Net transfers between stages | (7,616 | ) | (8,529 | ) | 16,145 | — | ||||||||||
Provision for loan losses | 12,104 | 5,737 | 69,148 | 86,989 | ||||||||||||
Charge-offs (1) | — | — | 142,198 | 142,198 | ||||||||||||
Recoveries | — | — | 10,467 | 10,467 | ||||||||||||
Net charge-offs | — | — | 131,731 | 131,731 | ||||||||||||
Others (2) | 7,882 | 14,052 | 19,922 | 41,856 | ||||||||||||
Balance at September 30, 2022 | ¥ | 175,289 | ¥ | 258,280 | ¥ | 556,599 | ¥ | 990,168 | ||||||||
At September 30, 2021 | ||||||||||||||||
12-month ECL | Lifetime ECL not credit- impaired | Lifetime ECL credit-impaired | Total | |||||||||||||
(In millions) | ||||||||||||||||
Allowance for loan losses: | ||||||||||||||||
Balance at April 1, 2021 | ¥ | 170,156 | ¥ | 255,909 | ¥ | 423,222 | ¥ | 849,287 | ||||||||
Net transfers between stages | (8,713 | ) | (1,465 | ) | 10,178 | — | ||||||||||
Provision (credit) for loan losses | (2,382 | ) | (14,193 | ) | 30,430 | 13,855 | ||||||||||
Charge-offs (1) | — | — | 72,949 | 72,949 | ||||||||||||
Recoveries | — | — | 7,032 | 7,032 | ||||||||||||
Net charge-offs | — | — | 65,917 | 65,917 | ||||||||||||
Others (2) | 828 | 1,131 | 824 | 2,783 | ||||||||||||
Balance at September 30, 2021 | ¥ | 159,889 | ¥ | 241,382 | ¥ | 398,737 | ¥ | 800,008 | ||||||||
(1) | Charge-offs consist of the reduction of the allowance through the sales of loans and write-offs. |
(2) | Others mainly include foreign exchange translations for the six months ended September 30, 2022 and 2021. |
The allowance for loan losses is measured under the expected credit losses (“ECL”) model which requires the use of complex models and significant assumptions about future economic conditions and credit behavior. For the six months ended September 30, 2022, the obligor grading, macroeconomic factors and additional ECL adjustments used to determine the final ECL reflected the current and forward-looking impact of the situation in Russia and Ukraine and the
COVID-19
pandemic.Although the Group understands that there is significant uncertainty in predicting the severity and duration of Russia’s aggression against Ukraine, the timing of the economic recovery from the
COVID-19
pandemic and its future impact on the Japanese and global economy, the Group assumed that the Japanese and global economy will recover moderately from theCOVID-19
pandemic during the fiscal year ending March 31, 2023 and continue to recover during the fiscal year ending March 31, 2024, which will be to some extent affected by rising commodity prices and downward pressure on the global economy from the continuous global monetary tightening. This assumption was considered in determining the base scenario. The following table shows the growth rates of the Japanese and global GDP, which are the key factors of the macroeconomic scenarios, under the base scenario.F-18
For the fiscal year ending March 31, | ||||||||
2023 | 2024 | |||||||
(%) | ||||||||
Japanese GDP | 2.0 | 2.0 | ||||||
Global GDP | 2.9 | 2.9 |
In determining the need for making additional ECL adjustments, the Group considered whether there is an increase in the credit risk for some portfolios which had a material adverse impact resulting from the sanctions imposed in connection with Russia’s aggression against Ukraine or from the
COVID-19
pandemic and whether the increased risk, if any, was not fully incorporated in the ECL model. For the Russian exposure, the Group evaluated the forward-looking impact on credit risks and losses based on factors such as the possibility that payment of principal or interest would be delayed or the request for loan restructuring would be made due to the prolonged impact of sanctions targeting Russia imposed by the Japanese government and authorities in several other jurisdictions, Russia’s measures to defend its economy and mitigate the effect of sanctions, and a deterioration of credit condition of Russia. For theCOVID-19
pandemic, additional ECL adjustments included the consideration of the temporary impact on probability of default of various measures taken by governments. The Group evaluated the forward-looking impact on credit risks and losses of certain industry-related portfolios selected based on changes in factors such as the market conditions and bankruptcy trends as a result of the reduction in economic activity by requests for voluntary restraint on movement and business closure requests to commercial facilities. As a consequence, the Group decided to maintain ECL adjustments for the above portfolios affected by the situation in Russia and Ukraine and theCOVID-19
pandemic.As a result, for the six months ended September 30, 2022, the allowance for loan losses
slightly
decreased by ¥2,886 million from ¥993,054 million at the beginning of period to ¥990,168 million at end of period. The decrease was primarily due to charge-offsrelated to some large borrowers
through the sales of loans and write-offs, which was partially offset by the increase in the provision for loan losses related to some other large borrowers
.8 | BORROWINGS |
Borrowings at September 30, 2022 and March 31, 2022 consisted of the following:
At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Unsubordinated borrowings | ¥ | 12,029,633 | ¥ | 18,766,117 | ||||
Subordinated borrowings | 219,210 | 234,680 | ||||||
Liabilities associated with securitization transactions | 1,178,378 | 1,200,147 | ||||||
Lease liabilities | 378,853 | 383,707 | ||||||
Total borrowings | ¥ | 13,806,074 | ¥ | 20,584,651 | ||||
9 | DEBT SECURITIES IN ISSUE |
Debt securities in issue at September 30, 2022 and March 31, 2022 consisted of the following:
At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Commercial paper | ¥ | 2,588,279 | ¥ | 2,424,579 | ||||
Unsubordinated bonds | 8,316,555 | 8,000,837 | ||||||
Subordinated bonds | 1,043,418 | 1,003,021 | ||||||
Total debt securities in issue | ¥ | 11,948,252 | ¥ | 11,428,437 | ||||
F-19
10 | PROVISIONS |
The following table presents movements by class of provisions for the six months ended September 30, 2022.
Provision for interest repayment | Other provisions | Total | ||||||||||
(In millions) | ||||||||||||
Balance at April 1, 2022 | ¥ | 135,123 | ¥ | 92,661 | ¥ | 227,784 | ||||||
Additional provisions | — | 4,142 | 4,142 | |||||||||
Amounts used | (17,268 | ) | (3,759 | ) | (21,027 | ) | ||||||
Unused amounts reversed | — | (7,448 | ) | (7,448 | ) | |||||||
Amortization of discount and effect of change in discount rate | (1 | ) | 68 | 67 | ||||||||
Others | — | 273 | 273 | |||||||||
Balance at September 30, 2022 | ¥ | 117,854 | ¥ | 85,937 | ¥ | 203,791 | ||||||
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 of
15-20%
but below the maximum allowable of 29.2% were called “gray zone interest,” and many consumer lending and credit card companies were charging interest in this zone.In January 2006, judicial decisions strictly interpreted the conditions under which consumer finance companies may retain gray zone interest. As a result, claims for refunds of gray zone interest have increased, and consumer lending and credit card companies have recorded a provision for claims for refunds of gray zone interest.
In December 2006, the Government of Japan made amendments to laws regulating money lenders to implement regulatory reforms affecting the consumer finance industry. As a result, in June 2010, the maximum legal interest rates on loans were reduced to the range of
15-20%,
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. The timing of the settlement of these claims is uncertain.
For the six months ended September 30, 2022, the provision for interest repayment decreased primarily due to the use of the provision.
Other Provisions
Other provisions include asset retirement obligations and provisions for loan commitments, point programs, reimbursement of deposits and litigation claims. Most of these provisions occurred in the normal course of business and none of them were individually significant at September 30, 2022 and April 1, 2022.
F-20
11 | SHAREHOLDERS’ EQUITY |
Common Stock
The number of issued shares of common stock and common stock held by the Company at September 30, 2022 and March 31, 2022 was as follows:
At September 30, 2022 | At March 31, 2022 | |||||||
Shares outstanding | 1,374,691,194 | 1,374,362,102 | ||||||
Shares in treasury | 3,466,127 | 3,542,321 |
The total number of authorized shares of common stock was 3,000 million at September 30, 2022 and March 31, 2022 with no stated value.
On November 14, 2022, the Company announced the progress of the repurchase of its own shares pursuant to the resolution of the board of directors held on November 12, 2021. The resolution authorized the repurchase of up to the lesser of (i) an aggregate
of 33,000,000 shares of its common stock and (ii) an aggregate of ¥100
billion between November 15, 2021 and November 11, 2022. However, its share repurchases were suspended during periods in which it may have been deemed to hold material
non-public
information. As a result, the repurchase period beginning November 15, 2021 ended without any repurchase of shares.Simultaneously, the Company announced that the board of directors resolved to repurchase shares of the Company’s common stock and cancel all the repurchased shares. The resolution authorized the repurchase of up to the lesser of (i) an aggregate of 61,000,000 shares of its common stock and (ii) an aggregate of ¥200 billion between November 15, 2022 and May 31, 2023. The cancellation of the repurchased shares is scheduled on June 20, 2023.
During November 2022, the Company entered into contracts to repurchase
4,593,700
shares of common stock for ¥21
billion in aggregate. Preferred Stock
The following table shows the number of shares of preferred stock at September 30, 2022 and March 31, 2022.
At September 30, 2022 | At March 31, 2022 | |||||||||||||||
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 | — |
12 | EQUITY ATTRIBUTABLE TO OTHER EQUITY INSTRUMENTS HOLDERS |
Equity attributable to other equity instruments holders at September 30, 2022 and March 31, 2022 consisted of the following:
At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Perpetual subordinated bonds | ¥ | 734,613 | ¥ | 733,611 | ||||
Total equity attributable to other equity instruments holders | ¥ | 734,613 | ¥ | 733,611 | ||||
SMFG issued perpetual subordinated bonds, which are Basel
III-c
ompliant
Additional Tier 1 capital instruments and are classified as equity under IFRS.F-21
The bonds bear a fixed rate of interest until the first call date. After the first call date, they will bear
a
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
1capital ratio falls below
5.125% (“Capital Ratio Event”), the principal amount required to fully restore the Common Equity Tier
1capital 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.
13 | FEE AND COMMISSION INCOME |
Fee and commission income for the six months ended September 30, 2022 and 2021 consisted of the following:
For the six months ended September 30, | ||||||||
2022 | 2021 | |||||||
(In millions) | ||||||||
Loans | ¥ | 68,340 | ¥ | 60,585 | ||||
Credit card business | 181,965 | 160,119 | ||||||
Guarantees | 35,386 | 32,579 | ||||||
Securities-related business | 55,537 | 84,673 | ||||||
Deposits | 8,560 | 8,300 | ||||||
Remittances and transfers | 73,526 | 72,036 | ||||||
Safe deposits | 2,051 | 2,021 | ||||||
Trust fees | 3,044 | 2,631 | ||||||
Investment trusts | 74,220 | 93,860 | ||||||
Agency | 4,630 | 4,574 | ||||||
Others | 100,287 | 86,779 | ||||||
Total fee and commission income | ¥ | 607,546 | ¥ | 608,157 | ||||
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 Global 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 Global Business Unit. Loan transaction fees principally arise in the Wholesale Business Unit and the Global Business Unit.
F-22
14 | IMPAIRMENT CHARGES ON FINANCIAL ASSETS |
Impairment charges (reversals) on financial assets for the six months ended September 30, 2022 and 2021 consisted of the following:
For the six months ended September 30, | ||||||||
2022 | 2021 | |||||||
(In millions) | ||||||||
Loans and advances | ¥ | 86,989 | ¥ | 13,855 | ||||
Loan commitments | (7,429 | ) | 7,694 | |||||
Financial guarantees | 8,465 | (2,779 | ) | |||||
Total impairment charges on financial assets | ¥ | 88,025 | ¥ | 18,770 | ||||
15 | EARNINGS PER SHARE |
The following table shows the income and share data used in the basic and diluted earnings per share calculations for the six months ended September 30, 2022 and 2021.
For the six months ended September 30, | ||||||||
2022 | 2021 | |||||||
(In millions, except number of shares and per share data) | ||||||||
Basic: | ||||||||
Profit attributable to shareholders of the Company | ¥ | 762,185 | ¥ | 361,393 | ||||
Weighted average number of common stock in issue (in thousands of shares) | 1,371,054 | 1,370,657 | ||||||
Basic earnings per share | ¥ | 555.91 | ¥ | 263.66 | ||||
Diluted: | ||||||||
Profit attributable to the common shareholders of the Company | ¥ | 762,185 | ¥ | 361,393 | ||||
Impact of dilutive potential ordinary shares issued by subsidiaries | — | — | ||||||
Net profit used to determine diluted earnings per share | ¥ | 762,185 | ¥ | 361,393 | ||||
Weighted average number of common stock in issue (in thousands of shares) | 1,371,054 | 1,370,657 | ||||||
Adjustments for stock options (in thousands of shares) | 478 | 602 | ||||||
Weighted average number of common stock for diluted earnings per share (in thousands of shares) | 1,371,532 | 1,371,259 | ||||||
Diluted earnings per share | ¥ | 555.72 | ¥ | 263.55 |
16 | DIVIDENDS PER SHARE |
The dividends recognized by the Company for the six months ended September 30, 2022 and 2021 were as follows:
Per share | Aggregate amount | |||||||
(In yen) | (In millions) | |||||||
Dividends on common stock for the six months ended September 30, | ||||||||
2022 | ¥ | 105 | ¥ | 143,936 | ||||
2021 | ¥ | 95 | ¥ | 130,190 |
On
November
14
, 2022, the board of directors approved a dividend of ¥115 per share of common stock totaling ¥157,691 million in respect of the six months ended September 30, 2022. The consolidated financial statements for the six months ended September 30, 2022 do not include this dividend
payable.
F-23
17 | 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.
In addition, the Group’s wholly-owned broker-dealer subsidiary, SMBC Nikko Securities Inc. (“SMBC Nikko Securities”), is involved in ongoing legal proceedings in Japan. On March 24 and April 13, 2022, the Tokyo District Public Prosecutors Office brought charges against SMBC Nikko Securities and several of its former and current officers and employees, on allegations of illegal stabilization transactions in violation of the Financial Instruments and Exchange Act of Japan (“FIEA”). The first hearing in the trial was conducted on October 28, 2022, at which SMBC Nikko Securities admitted culpability with respect to the charges. A criminal proceeding is ongoing before the Tokyo District Court, which could result in monetary penalties for SMBC Nikko Securities as an entity, although the expected duration and outcome of the proceedings are uncertain.
Capital Commitments
At September 30, 2022 and March 31, 2022, the Group had ¥3,981 million and ¥6,587 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.
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 September 30, 2022 and March 31, 2022.
At September 30, 2022 | At March 31, 2022 | |||||||
(In millions) | ||||||||
Loan commitments | ¥ | 78,115,920 | ¥ | 73,246,384 | ||||
Financial guarantees and other credit-related contingent liabilities | 14,425,845 | 11,722,240 | ||||||
Total | ¥ | ¥ | ||||||
F-24
18 | FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES |
Accounting policies and the valuation process of fair value measurement for the six months ended September 30, 2022 are consistent with those described in Note 44 “Fair Value of Financial Assets and Liabilities” of the Group’s consolidated financial statements for the fiscal year ended March 31, 2022.
Financial Assets and Liabilities Carried at Fair Value
Fair Value Hierarchy
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 September 30, 2022 and March 31, 2022. 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). |
F-25
At September 30, 2022 | ||||||||||||||||
Level 1 (1) | Level 2 (1) | Level 3 | Total | |||||||||||||
(In millions) | ||||||||||||||||
Financial assets: | ||||||||||||||||
Trading assets: | ||||||||||||||||
Debt instruments | ¥ | 3,307,309 | ¥ | 608,927 | ¥ | — | ¥ | 3,916,236 | ||||||||
Equity instruments | 89,077 | 1,037 | — | 90,114 | ||||||||||||
Total trading assets | 3,396,386 | 609,964 | — | 4,006,350 | ||||||||||||
Derivative financial instruments: | ||||||||||||||||
Interest rate derivatives | 713,868 | 6,697,081 | 8 | 7,410,957 | ||||||||||||
Currency derivatives | — | 5,708,487 | 742 | 5,709,229 | ||||||||||||
Equity derivatives | 77,847 | 758 | 31,745 | 110,350 | ||||||||||||
Commodity derivatives | 1,444 | 13,973 | — | 15,417 | ||||||||||||
Credit derivatives | — | 21,669 | 381 | 22,050 | ||||||||||||
Total derivative financial instruments | 793,159 | 12,441,968 | 32,876 | 13,268,003 | ||||||||||||
Financial assets at fair value through profit or loss: | ||||||||||||||||
Debt instruments | 45,278 | 294,637 | 633,479 | 973,394 | ||||||||||||
Equity instruments | 2,459 | 83 | 39,110 | 41,652 | ||||||||||||
Total financial assets at fair value through profit or loss | 47,737 | 294,720 | 672,589 | 1,015,046 | ||||||||||||
Investment securities at fair value through other comprehensive income: | ||||||||||||||||
Japanese government bonds | 9,988,100 | — | — | 9,988,100 | ||||||||||||
U.S. Treasury and other U.S. government agency bonds | 5,637,454 | — | — | 5,637,454 | ||||||||||||
Other debt instruments | 1,279,381 | 5,569,657 | — | 6,849,038 | ||||||||||||
Total debt instruments | 16,904,935 | 5,569,657 | — | 22,474,592 | ||||||||||||
Equity instruments | 3,875,528 | 6,583 | 460,461 | 4,342,572 | ||||||||||||
Total investment securities at fair value through other comprehensive income | 20,780,463 | 5,576,240 | 460,461 | 26,817,164 | ||||||||||||
Total | ¥ | 25,017,745 | ¥ | 18,922,892 | ¥ | 1,165,926 | ¥ | 45,106,563 | ||||||||
Financial liabilities: | ||||||||||||||||
Trading liabilities: | ||||||||||||||||
Debt instruments | ¥ | 2,814,727 | ¥ | 137,831 | ¥ | — | ¥ | 2,952,558 | ||||||||
Equity instruments | 21,612 | 6,391 | — | 28,003 | ||||||||||||
Total trading liabilities | 2,836,339 | 144,222 | — | 2,980,561 | ||||||||||||
Derivative financial instruments: | ||||||||||||||||
Interest rate derivatives | 261,247 | 8,828,893 | 10,601 | 9,100,741 | ||||||||||||
Currency derivatives | 1,387 | 6,093,563 | 6,057 | 6,101,007 | ||||||||||||
Equity derivatives | 109,314 | 57 | 15,147 | 124,518 | ||||||||||||
Commodity derivatives | 2,005 | 12,018 | — | 14,023 | ||||||||||||
Credit derivatives | — | 25,940 | 360 | 26,300 | ||||||||||||
Total derivative financial instruments | 373,953 | 14,960,471 | 32,165 | 15,366,589 | ||||||||||||
Financial liabilities designated at fair value through profit or loss | — | 194,128 | 228,601 | 422,729 | ||||||||||||
Others (2) | — | (6,457 | ) | (10,196 | ) | (16,653 | ) | |||||||||
Total | ¥ | 3,210,292 | ¥ | 15,292,364 | ¥ | 250,570 | ¥ | 18,753,226 | ||||||||
F-26
At March 31, 2022 | ||||||||||||||||
Level 1 (1) | Level 2 (1) | Level 3 | Total | |||||||||||||
(In millions) | ||||||||||||||||
Financial assets: | ||||||||||||||||
Trading assets: | ||||||||||||||||
Debt instruments | ¥ | 2,860,215 | ¥ | 629,043 | ¥ | — | ¥ | 3,489,258 | ||||||||
Equity instruments | 245,186 | 1,852 | — | 247,038 | ||||||||||||
Total trading assets | 3,105,401 | 630,895 | — | 3,736,296 | ||||||||||||
Derivative financial instruments: | ||||||||||||||||
Interest rate derivatives | 612,246 | 2,981,691 | 6 | 3,593,943 | ||||||||||||
Currency derivatives | 101 | 2,697,933 | 5,951 | 2,703,985 | ||||||||||||
Equity derivatives | 74,820 | 689 | 26,804 | 102,313 | ||||||||||||
Commodity derivatives | 1,413 | 20,127 | — | 21,540 | ||||||||||||
Credit derivatives | — | 21,318 | 649 | 21,967 | ||||||||||||
Total derivative financial instruments | 688,580 | 5,721,758 | 33,410 | 6,443,748 | ||||||||||||
Financial assets at fair value through profit or loss: | ||||||||||||||||
Debt instruments | 516,455 | 447,738 | 693,013 | 1,657,206 | ||||||||||||
Equity instruments | 2,375 | 120 | 35,884 | 38,379 | ||||||||||||
Total financial assets at fair value through profit or loss | 518,830 | 447,858 | 728,897 | 1,695,585 | ||||||||||||
Investment securities at fair value through other comprehensive income: | ||||||||||||||||
Japanese government bonds | 15,774,197 | — | — | 15,774,197 | ||||||||||||
U.S. Treasury and other U.S. government agency bonds | 5,681,789 | — | — | 5,681,789 | ||||||||||||
Other debt instruments | 1,378,880 | 5,232,100 | — | 6,610,980 | ||||||||||||
Total debt instruments | 22,834,866 | 5,232,100 | — | 28,066,966 | ||||||||||||
Equity instruments | 4,117,832 | 11,940 | 468,713 | 4,598,485 | ||||||||||||
Total investment securities at fair value through other comprehensive income | 26,952,698 | 5,244,040 | 468,713 | 32,665,451 | ||||||||||||
Total | ¥ | 31,265,509 | ¥ | 12,044,551 | ¥ | 1,231,020 | ¥ | 44,541,080 | ||||||||
Financial liabilities: | ||||||||||||||||
Trading liabilities: | ||||||||||||||||
Debt instruments | ¥ | 3,026,965 | ¥ | 125,078 | ¥ | — | ¥ | 3,152,043 | ||||||||
Equity instruments | 23,339 | 6,610 | — | 29,949 | ||||||||||||
Total trading liabilities | 3,050,304 | 131,688 | — | 3,181,992 | ||||||||||||
Derivative financial instruments: | ||||||||||||||||
Interest rate derivatives | 218,193 | 3,547,303 | 7,168 | 3,772,664 | ||||||||||||
Currency derivatives | 204 | 2,983,028 | 4,299 | 2,987,531 | ||||||||||||
Equity derivatives | 145,021 | 2,676 | 11,420 | 159,117 | ||||||||||||
Commodity derivatives | 202 | 19,342 | — | 19,544 | ||||||||||||
Credit derivatives | — | 27,352 | 128 | 27,480 | ||||||||||||
Total derivative financial instruments | 363,620 | 6,579,701 | 23,015 | 6,966,336 | ||||||||||||
Financial liabilities designated at fair value through profit or loss | — | 164,648 | 291,086 | 455,734 | ||||||||||||
Others (2) (3) | — | 917 | (3,052 | ) | (2,135 | ) | ||||||||||
Total | ¥ | 3,413,924 | ¥ | 6,876,954 | ¥ | 311,049 | ¥ | 10,601,927 | ||||||||
F-27
(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 six months ended September 30, 2022 and for the fiscal year ended March 31, 2022. |
(2) | Derivatives embedded in financial liabilities, except for financial liabilities designated at fair value through profit or loss, are separately accounted for, but presented together with the host contract in the consolidated statements of financial position. In these tables, the separated 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 (including embedded derivatives)” in Note 44 “Fair Value of Financial Assets and Liabilities” of the Group’s consolidated financial statements for the fiscal year ended March 31, 2022. |
(3) | Contingent consideration liabilities arising from business combinations, which are measured at fair value using discounted cash flow models, are presented as others. |
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 six months ended September 30, 2022 and 2021.
Total gains (losses) | Changes in unrealized gains (losses) included in profit or loss related to assets and liabilities held at September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||
At April 1, 2022 | Included in profit or loss | Included in other comprehensive income | Purchases | Sales | Issuances | Settlements (1) | Transfers into Level 3 (2) | Transfers out of Level 3 (2) | At September 30, 2022 | |||||||||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||||||||||
Derivative financial instruments—net: | ||||||||||||||||||||||||||||||||||||||||||||
Interest rate derivatives—net | ¥ | (7,162 | ) | ¥ | (3,439 | ) | ¥ | — | ¥ | 8 | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ¥ | (10,593 | ) | ¥ | (3,409 | ) | ||||||||||||||||||
Currency derivatives—net | 1,652 | (1,445 | ) | — | — | — | — | — | — | (5,522 | ) | (5,315 | ) | (2,099 | ) | |||||||||||||||||||||||||||||
Equity derivatives—net | 15,384 | 3,709 | — | 2,609 | (5,104 | ) | — | — | — | — | 16,598 | 6,924 | ||||||||||||||||||||||||||||||||
Credit derivatives—net | 521 | (500 | ) | — | — | — | — | — | — | — | 21 | (494 | ) | |||||||||||||||||||||||||||||||
Total derivative financial instruments—net | 10,395 | (1,675 | ) | — | 2,617 | (5,104 | ) | — | — | — | (5,522 | ) | 711 | 922 | ||||||||||||||||||||||||||||||
Financial assets at fair value through profit or loss: | ||||||||||||||||||||||||||||||||||||||||||||
Debt instruments | 693,013 | 25,736 | 398 | 68,177 | (40,242 | ) | — | (33,344 | ) | — | (80,259 | ) | 633,479 | 26,808 | ||||||||||||||||||||||||||||||
Equity instruments | 35,884 | 76 | — | 4,403 | (161 | ) | — | (633 | ) | — | (459 | ) | 39,110 | (48 | ) | |||||||||||||||||||||||||||||
Total financial assets at fair value through profit or loss | 728,897 | 25,812 | 398 | 72,580 | (40,403 | ) | — | (33,977 | ) | — | (80,718 | ) | 672,589 | 26,760 | ||||||||||||||||||||||||||||||
Investment securities at fair value through other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
Equity instruments | 468,713 | — | (6,391 | ) | 2,175 | (3,972 | ) | — | (64 | ) | — | — | 460,461 | — | ||||||||||||||||||||||||||||||
Total investment securities at fair value through other comprehensive income | 468,713 | — | (6,391 | ) | 2,175 | (3,972 | ) | — | (64 | ) | — | — | 460,461 | — | ||||||||||||||||||||||||||||||
Financial liabilities designated at fair value through profit or loss | (291,086 | ) | 41,262 | 220 | — | — | (44,886 | ) | 65,889 | — | — | (228,601 | ) | 57,436 | ||||||||||||||||||||||||||||||
Others (3) —liabilities | 3,052 | 7,567 | — | 940 | — | — | — | — | (1,363 | ) | 10,196 | 8,185 | ||||||||||||||||||||||||||||||||
Total | ¥ | 919,971 | ¥ | 72,966 | ¥ | (5,773 | ) | ¥ | 78,312 | ¥ | (49,479 | ) | ¥ | (44,886 | ) | ¥ | 31,848 | ¥ | — | ¥ | (87,603 | ) | ¥ | 915,356 | ¥ | 93,303 | ||||||||||||||||||
F-28
Total gains (losses) | Changes in unrealized gains (losses) included in profit or loss related to assets and liabilities held at September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||
At April 1, 2021 | Included in profit or loss | Included in other comprehensive income | Purchases | Sales | Issuances | Settlements (1) | Transfers into Level 3 (2) | Transfers out of Level 3 (2) | At September 30, 2021 | |||||||||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||||||||||
Derivative financial instruments—net: | ||||||||||||||||||||||||||||||||||||||||||||
Interest rate derivatives—net | ¥ | (3,588 | ) | ¥ | 1,799 | ¥ | — | ¥ | 101 | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ¥ | (135 | ) | ¥ | (1,823 | ) | ¥ | 1,799 | |||||||||||||||||||
Currency derivatives—net | (5,341 | ) | 674 | — | — | — | — | — | — | — | (4,667 | ) | 615 | |||||||||||||||||||||||||||||||
Equity derivatives—net | 7,132 | (296 | ) | — | 5,423 | (3,987 | ) | — | — | — | — | 8,272 | 1,442 | |||||||||||||||||||||||||||||||
Credit derivatives—net | 1,766 | 166 | 5 | — | — | — | (437 | ) | — | — | 1,500 | 172 | ||||||||||||||||||||||||||||||||
Total derivative financial instruments—net | (31 | ) | 2,343 | 5 | 5,524 | (3,987 | ) | — | (437 | ) | — | (135 | ) | 3,282 | 4,028 | |||||||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||||||||||
Financial assets at fair value through profit or loss: | ||||||||||||||||||||||||||||||||||||||||||||
Debt instruments | 561,450 | 47,629 | 20 | 58,818 | (43,278 | ) | — | (28,643 | ) | — | (848 | ) | 595,148 | 46,888 | ||||||||||||||||||||||||||||||
Equity instruments | 32,777 | (1,291 | ) | — | 3,975 | (374 | ) | — | (2,109 | ) | — | (359 | ) | 32,619 | (1,369 | ) | ||||||||||||||||||||||||||||
Total financial assets at fair value through profit or loss | 594,227 | 46,338 | 20 | 62,793 | (43,652 | ) | — | (30,752 | ) | — | (1,207 | ) | 627,767 | 45,519 | ||||||||||||||||||||||||||||||
Investment securities at fair value through other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
Equity instruments | 447,605 | — | 29,590 | 46,753 | (585 | ) | — | (5,031 | ) | — | (1 | ) | 518,331 | — | ||||||||||||||||||||||||||||||
Total investment securities at fair value through other comprehensive income | 447,605 | — | 29,590 | 46,753 | (585 | ) | — | (5,031 | ) | — | (1 | ) | 518,331 | — | ||||||||||||||||||||||||||||||
Financial liabilities designated at fair value through profit or loss | (166,896 | ) | 3,064 | 775 | — | — | (217,324 | ) | 135,967 | — | 5,378 | (239,036 | ) | 3,041 | ||||||||||||||||||||||||||||||
Others (3) —liabilities | (1,104 | ) | (2,607 | ) | — | — | — | — | — | — | 615 | (3,096 | ) | (2,915 | ) | |||||||||||||||||||||||||||||
Total | ¥ | 873,801 | ¥ | 49,138 | ¥ | 30,390 | ¥ | 115,070 | ¥ | (48,224 | ) | ¥ | (217,324 | ) | ¥ | 99,747 | ¥ | — | ¥ | 4,650 | ¥ | 907,248 | ¥ | 49,673 | ||||||||||||||||||||
(1) | Settlements for equity instruments include redemption of preferred stocks and receipt of cash distributions which represent a return of investment. |
(2) | Transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the period. For the six months ended September 30, 2022, transfers out of Level 3 amounted to ¥87,603 million primarily due to a decrease of significance of unobservable inputs of certain financial assets at fair value through profit or loss, including ¥(4,650)certain investment funds. On the other hand, for the six months ended September 30, 2021, those amounted tomillion primarily due to an increase in observability of inputs for certain financial liabilities designated at fair value through profit or loss. |
(3) | Derivatives embedded in financial liabilities, except for financial liabilities designated at fair value through profit or loss, are separately accounted for, but presented together with the host contract in the consolidated statements of financial position. In these tables, the separated 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. |
F-29
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 September 30, 2022 and 2021 by line item of the consolidated income statements.
Total gains (losses) included in profit or loss for the six months ended September 30, | Changes in unrealized gains (losses) included in profit or loss related to assets and liabilities held at September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(In millions) | ||||||||||||||||
Net interest income | ¥ | 861 | ¥ | 2,566 | ¥ | 576 | ¥ | 868 | ||||||||
Net trading income (loss) | 5,120 | (1,756 | ) | 8,531 | 1,319 | |||||||||||
Net income from financial assets and liabilities at fair value profit or loss | 67,074 | 49,402 | 84,196 | 48,560 | ||||||||||||
Other expenses | 89 | 1,074 | — | 1,074 | ||||||||||||
Total | ¥ | 72,966 | ¥ | 49,138 | ¥ | 93,303 | ¥ | 49,673 | ||||||||
The aggregate deferred day one profit yet to be recognized in profit or loss at the beginning and end of the six months ended September 30, 2022 and 2021, and reconciliation of changes in the balances were as follows:
For the six months ended September 30, | ||||||||
2022 | 2021 | |||||||
(In millions) | ||||||||
Balance at beginning of period | ¥ | 27,100 | ¥ | 18,392 | ||||
Increase due to new trades | 7,061 | 14,309 | ||||||
Reduction due to redemption, sales or passage of time | (16,017 | ) | (11,712 | ) | ||||
Balance at end of period | ¥ | 18,144 | ¥ | 20,989 | ||||
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 statements. The table above shows the day one profit and loss balances, all of which are derived from derivative financial instruments, financial assets at fair value through profit or loss and financial liabilities designated 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
Valuation techniques are consistent with those described in Note 44 “Fair Value of Financial Assets and Liabilities” of the Group’s consolidated financial statements for the fiscal year ended March 31, 2022.
F-30
Significant Unobservable Inputs
The following tables present quantitative information about significant unobservable inputs used in the fair value measurement for Level 3 financial assets and liabilities at September 30, 2022 and March 31, 2022. Qualitative information about significant unobservable inputs is consistent with those described in Note 44 “Fair Value of Financial Assets and Liabilities” of the Group’s consolidated financial statements for the fiscal year ended March 31, 2022.
At September 30, 2022 | ||||||||||||||||
Assets | Liabilities | Valuation technique(s) (1) | Significant unobservable inputs (1) | Range of inputs (1) | ||||||||||||
(In millions) | ||||||||||||||||
Derivative financial instruments: | ||||||||||||||||
Interest rate derivatives | ¥ | 8 | ¥ | 10,601 | Option model | Interest rate to interest rate correlation | 36%-99% | |||||||||
Quanto correlation | 4%-41% | |||||||||||||||
Currency derivatives | 742 | 6,057 | Option model | Interest rate to interest rate correlation | 29%-99% | |||||||||||
Quanto correlation | 7%-50% | |||||||||||||||
Foreign exchange volatility | 12%-48% | |||||||||||||||
Equity derivatives | 31,745 | 15,147 | Option model | Equity to equity correlation | 47%-92% | |||||||||||
Quanto correlation | (13)%-33% | |||||||||||||||
Equity volatility | 17%-104% | |||||||||||||||
Credit derivatives | 381 | 360 | Credit Default model | Quanto correlation | 15%-25% | |||||||||||
Financial assets at fair value through profit or loss: | ||||||||||||||||
Debt instruments | 633,479 | — | Option model | Foreign exchange volatility | 13%-42% | |||||||||||
DCF model | Probability of default rate | 0%-13% | ||||||||||||||
Loss given default rate | 0%-100% | |||||||||||||||
Net asset value (2) | — | — | ||||||||||||||
Equity instruments | 39,110 | — | DCF model | Probability of default rate | 0%-2% | |||||||||||
Loss given default rate | 90% | |||||||||||||||
See note (3) below | — | — | ||||||||||||||
Investment securities at fair value through other comprehensive income: | ||||||||||||||||
Equity instruments | 460,461 | — | Market multiples | Price/ Book value multiple | 0.2x-3.4x | |||||||||||
Liquidity discount | 20% | |||||||||||||||
See note (3) below | — | — | ||||||||||||||
Financial liabilities designated at fair value through profit or loss | — | 228,601 | Option model | Equity to equity correlation | 45%-93% | |||||||||||
Interest rate to interest rate correlation | 29%-30% | |||||||||||||||
Quanto correlation | (13)%-50% | |||||||||||||||
Equity volatility | 19%-104% | |||||||||||||||
Credit Default model | Quanto correlation | 15%-25% | ||||||||||||||
Others (4) | — | (10,196 | ) | Option model | Equity to equity correlation | 59%-84% | ||||||||||
Interest rate to interest rate correlation | 29%-99% | |||||||||||||||
Quanto correlation | 4%-50% | |||||||||||||||
Equity volatility | 21%-37% | |||||||||||||||
Foreign exchange volatility | 12%-48% | |||||||||||||||
Credit Default model | Quanto correlation | 15%-25% |
F-31
At March 31, 2022 | ||||||||||||||||
Assets | Liabilities | Valuation technique(s) (1) | Significant unobservable inputs (1) | Range of inputs (1) | ||||||||||||
(In millions) | ||||||||||||||||
Derivative financial instruments: | ||||||||||||||||
Interest rate derivatives | ¥ | 6 | ¥ | 7,168 | Option model | Interest rate to interest rate correlation | 16%-99% | |||||||||
Quanto correlation | 7%-30% | |||||||||||||||
Currency derivatives | 5,951 | 4,299 | Option model | Interest rate to interest rate correlation | 29%-99% | |||||||||||
Quanto correlation | 7%-49% | |||||||||||||||
Foreign exchange volatility | 11%-39% | |||||||||||||||
DCF model | Prepayment rate | 22% | ||||||||||||||
Equity derivatives | 26,804 | 11,420 | Option model | Equity to equity correlation | 45%-92% | |||||||||||
Quanto correlation | (16)%-35% | |||||||||||||||
Equity volatility | 17%-79% | |||||||||||||||
Credit derivatives | 649 | 128 | Credit Default model | Quanto correlation | 15%-25% | |||||||||||
Financial assets at fair value through profit or loss: | ||||||||||||||||
Debt instruments | 693,013 | — | Monte Carlo Simulation | Equity volatility | 17%-38% | |||||||||||
Option model | Foreign exchange volatility | 12%-41% | ||||||||||||||
DCF model | Probability of default rate | 0%-23% | ||||||||||||||
Loss given default rate | 10%-100% | |||||||||||||||
Net asset value (2) | — | — | ||||||||||||||
Equity instruments | 35,884 | — | DCF model | Probability of default rate | 0%-2% | |||||||||||
Loss given default rate | 90% | |||||||||||||||
See note (3) below | — | — | ||||||||||||||
Investment securities at fair value through other comprehensive income: | ||||||||||||||||
Equity instruments | 468,713 | — | Market multiples | Price/Earnings multiple | 9.3x-48.5x | |||||||||||
Price/Book value multiple | 0.3x-2.2x | |||||||||||||||
EV/EBITDA multiple | 5.8x-15.5x | |||||||||||||||
Liquidity discount | 20% | |||||||||||||||
See note (3) below | — | — | ||||||||||||||
Financial liabilities designated at fair value through profit or loss | — | 291,086 | Option model | Equity to equity correlation | 43%-93% | |||||||||||
Interest rate to interest rate correlation | 29%-30% | |||||||||||||||
Quanto correlation | (16)%-49% | |||||||||||||||
Equity volatility | 13%-57% | |||||||||||||||
Credit Default model | Quanto correlation | 15%-25% | ||||||||||||||
Others (4) | — | (3,052 | ) | Option model | Equity to equity correlation | 57%-93% | ||||||||||
Interest rate to interest rate correlation | 16%-99% | |||||||||||||||
Quanto correlation | 7%-49% | |||||||||||||||
Equity volatility | 17%-49% | |||||||||||||||
Foreign exchange volatility | 12%-41% | |||||||||||||||
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) | Derivatives embedded in financial liabilities, except for financial liabilities designated at fair value through profit or loss, are separately accounted for, but presented together with the host contract in the consolidated statements of financial position. In these tables, the separated 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. |
F-32
Sensitivity Analysis
The fair values 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. Qualitative information about sensitivity to changes in significant unobservable inputs is consistent with those described in Note 44 “Fair Value of Financial Assets and Liabilities” of the Group’s consolidated financial statements for the fiscal year ended March 31, 2022.
At September 30, 2022 | ||||||||||||||||||||
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 | ¥ | (10,593 | ) | ¥ | — | ¥ | — | ¥ | — | ¥ | — | |||||||||
Currency derivatives—net | (5,315 | ) | 7 | 7 | — | — | ||||||||||||||
Equity derivatives—net | 16,598 | 2,643 | 2,687 | — | — | |||||||||||||||
Credit derivatives—net | 21 | 27 | 27 | — | — | |||||||||||||||
Financial assets at fair value through profit or loss: | ||||||||||||||||||||
Debt instruments | 633,479 | 841 | 2,127 | — | — | |||||||||||||||
Equity instruments | 39,110 | 70 | 139 | — | — | |||||||||||||||
Investment securities at fair value through other comprehensive income: | ||||||||||||||||||||
Equity instruments | 460,461 | — | — | 16,141 | 16,141 | |||||||||||||||
Financial liabilities designated at fair value through profit or loss (1) | (228,601 | ) | 1,915 | 2,228 | — | — | ||||||||||||||
Others (1)(2) —liabilities: | 10,196 | 94 | 89 | — | — | |||||||||||||||
At March 31, 2022 | ||||||||||||||||||||
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 | ¥ | (7,162 | ) | ¥ | — | ¥ | — | ¥ | — | ¥ | — | |||||||||
Currency derivatives—net | 1,652 | 75 | 73 | — | — | |||||||||||||||
Equity derivatives—net | 15,384 | 3,274 | 3,309 | — | — | |||||||||||||||
Credit derivatives—net | 521 | 17 | 18 | — | — | |||||||||||||||
Financial assets at fair value through profit or loss: | ||||||||||||||||||||
Debt instruments | 693,013 | 3,347 | 7,422 | — | — | |||||||||||||||
Equity instruments | 35,884 | 88 | 167 | — | — | |||||||||||||||
Investment securities at fair value through other comprehensive income: | ||||||||||||||||||||
Equity instruments | 468,713 | — | — | 12,914 | 12,019 | |||||||||||||||
Financial liabilities designated at fair value through profit or loss (1) | (291,086 | ) | 2,008 | 2,319 | — | — | ||||||||||||||
Others (1)(2) —liabilities: | 3,052 | 126 | 118 | — | — |
(1) | 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. |
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(2) | Derivatives embedded in financial liabilities, except for financial liabilities designated at fair value through profit or loss, are separately accounted for, but presented together with the host contract in the consolidated statements of financial position. In these tables, the separated 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. |
Financial Assets and Liabilities Not Carried at Fair Value
The table below presents the carrying amounts and fair values of financial assets and liabilities not carried at fair value on the Group’s consolidated statements of financial position at September 30, 2022 and March 31, 2022. It does not include the carrying amounts and fair values of financial assets and liabilities whose carrying amounts are reasonable approximations of fair values.
At September 30, 2022 | At March 31, 2022 | |||||||||||||||||
Notes | Carrying amount | Fair value | Carrying amount | Fair value | ||||||||||||||
(In millions) | ||||||||||||||||||
Financial assets: | ||||||||||||||||||
Investment securities: | ||||||||||||||||||
Debt instruments at amortized cost | a | ¥ | 178,466 | ¥ | 178,251 | ¥ | 83,954 | ¥ | 83,965 | |||||||||
Loans and advances | b | 115,535,519 | 117,766,894 | 104,635,815 | 107,177,195 | |||||||||||||
Other financial assets | b | 5,788,957 | 5,785,908 | 5,309,839 | 5,307,008 | |||||||||||||
Financial liabilities: | ||||||||||||||||||
Deposits: | ||||||||||||||||||
Non-interest-bearing deposits, demand deposits and deposits at notice | c | ¥ | 119,961,737 | ¥ | 119,960,567 | ¥ | 114,512,622 | ¥ | 114,511,759 | |||||||||
Other deposits | c | 52,766,561 | 52,753,411 | 48,080,870 | 48,074,478 | |||||||||||||
Borrowings | c | 13,427,221 | 13,410,416 | 20,200,944 | 20,234,044 | |||||||||||||
Debt securities in issue | c | 11,948,252 | 11,725,610 | 11,428,437 | 11,440,260 | |||||||||||||
Other financial liabilities | c | 9,284,232 | 9,284,152 | 7,808,826 | 7,808,773 |
Notes:
a. | 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. | |||
b. | (i) | The carrying amounts of loans with no specified repayment dates represent a reasonable estimate of fair value, considering the nature of these financial instruments. | ||
(ii) | Short-term financial assets: The carrying amounts represent a reasonable estimate of fair value. | |||
(iii) | Long-term financial assets: 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. | |||
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. | |||
(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) | Short-term financial liabilities: The carrying amounts represent a reasonable estimate of fair value. | |||
(iii) | Long-term financial liabilities: The fair values are, in principle, based on the present values of future cash flows calculated using the funding costs for the remaining maturities. The fair values of debt securities in issue are based on a price quoted by a third party, such as a pricing service or broker, or 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. |
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19 | INTEREST RATE BENCHMARK REFORM |
The following tables show quantitative information about financial instruments that have yet to be transitioned to an alternative benchmark rate at September 30, 2022 and March 31, 2022.
At September 30, 2022 | ||||||||
USD LIBOR (1) | Others (1) (2) | |||||||
(In billions) | ||||||||
Carrying amount of non-derivative financial assets | ¥ | 13,944 | ¥ | 39 | ||||
Carrying amount of non-derivative financial liabilities | 1,588 | — | ||||||
Derivative notional amounts | 311,477 | 69 |
At March 31, 2022 | ||||||||
USD LIBOR (1) | Others (1) (2) | |||||||
(In billions) | ||||||||
Carrying amount of non-derivative financial assets | ¥ | 13,330 | ¥ | 370 | ||||
Carrying amount of non-derivative financial liabilities | 1,344 | — | ||||||
Derivative notional amounts | 221,161 | 1,756 |
(1) | The amounts in the tables above are the aggregation of the amounts used for regulatory reporting of SMFG, SMBC, SMBC’s subsidiaries and SMBC Nikko Securities Inc. |
(2) | “Others” consists of JPY and GBP LIBOR contracts, most of which include contracts that will switch to using alternative reference rates at the next reset after September 30, 2022 and March 31, 2022. It also includes, to a limited extent, synthetic LIBOR contracts that the Group utilized as a temporary solution. |
20 | EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE |
Administrative actions from the Financial Services Agency
On October 7, 2022, SMBC Nikko Securities Inc. (“SMBC Nikko Securities”), which is a wholly owned subsidiary of SMFG, received from the Financial Services Agency of Japan (“FSA”) a business suspension order based on Article 52, Paragraph 1 of the Financial Instruments and Exchange Act (“FIEA”), generally prohibiting it from engaging in new business relating to block offer transactions for the period from October 7, 2022 to January 6, 2023. In addition, SMBC Nikko Securities received from the FSA business improvement orders based on Article 51 of the FIEA in connection with the market manipulation conduct and the firewall regulation violations.
On the same day, SMFG received from the FSA an improvement measures order based on Article
32-2,
Paragraph 2 of the FIEA in connection with the market manipulation conduct.These administrative actions issued to SMBC Nikko Securities and SMFG are not expected to have a material impact on the Group’s consolidated financial statements.
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