| Financial Risk Management | 46 FINANCIAL RISK MANAGEMENT The Group classifies risks into the following categories: credit risk, market risk, liquidity risk, operational risk, conduct risk, reputational risk, model risk and environmental and social risk. This note presents information about the Group’s exposure to credit risk, market risk, and liquidity risk, and its policies and processes for measuring and managing these risks. Risk Management System Based on the recognition of the importance of risk management, top management is actively involved in the risk management process, and systems are in place for verifying the effectiveness and appropriateness of this process. Specifically, the Group-wide basic policies for risk management are determined by the Management Committee before being authorized by the board of directors, and regular reports are issued to the board of directors by the Group Chief Risk Officer (“CRO”) with regard to the status of risk management based on these policies. Three lines of defense have been defined, and the Group has clarified related roles and responsibilities of relevant divisions. With these provisions in place, risk management systems have been established based on the characteristics of particular businesses, and measures are being put in place to strengthen and improve the effectiveness of these systems in accordance with these basic policies for risk management. Furthermore, the Group is strengthening Group-wide risk management systems through the Group CRO Committee and the Global CRO Committee. The diagram below represents the risk management system of the Group.
Credit Risk Credit risk is the risk of incurring losses from decline or loss of the value of an asset (including off-balance off-balance Credit risk management system Credit risk is the most significant risk to which the Group is exposed. The purpose of credit risk management is to keep the credit risk exposure to a permissible level relative to capital, to maintain the quality of assets and to ensure returns commensurate with risk. At the Group, the Group CRO formulates credit risk management policies each year on the basis of Group-wide basic policies for risk management. The Credit & Investment Planning Department, responsible for the comprehensive management of credit risk, drafts and administers credit risk regulations including the Group credit policies, manages non-performing The following chart shows the credit risk management system of SMBC, the Group’s significant banking subsidiary.
At SMBC, the Credit & Investment Planning Department within the Risk Management Unit is responsible for the comprehensive management of credit risk. This department drafts and administers credit policies, the internal rating system, credit authority guidelines and credit application guidelines, and manages NPLs, including impaired loans, and performs other aspects of credit portfolio management. The department also cooperates with the Corporate Risk Management Department and the Risk Management Information Department in quantifying credit risk (risk capital and risk-weighted assets) and controls SMBC’s entire credit risk. Further, the Credit & Investment Planning Department aims to stabilize the credit portfolio and manage the risk through credit derivatives, loan asset sales and other instruments. The credit departments, in cooperation with branches, conduct credit risk management for loans and manage portfolios. The credit limits they use are based on the baseline amounts that the Credit & Investment Planning Department establishes for each grading category, with particular attention paid to evaluating and managing customers or loans perceived to have particularly high credit risk. The Corporate Research Department engages in research on industries and analyzes the business and financial conditions of borrower enterprises to detect early signs of problems or growth potential. The Credit Administration Department is responsible for handling NPLs of borrowers classified as potentially bankrupt or lower, and formulates plans for workouts, including write-offs, and corporate rehabilitation. The department closely liaises with SMBC Servicer Co., Ltd., a Group company, which engages in related services to efficiently reduce the amount of NPLs, including through the sales of loans. The Internal Audit Unit of SMBC, operating independently of the business units, audits asset quality, accuracy of grading and state of credit risk management, and reports the results directly to the board of directors, the Management Committee and audit & supervisory committee. SMBC has established the Credit Risk Committee to undertake control of credit risk and to ensure the overall soundness of the loan operations. Credit risk management methods To effectively manage the risk involved in individual loans as well as the credit portfolio as a whole, the Group first acknowledges that every loan entails credit risk, assesses the credit risk posed by each borrower and loan using an internal rating system, and quantifies that risk for control purposes. Credit risk evaluation At SMBC, the Credit & Investment Planning Department manages an internal rating system for each asset control category set according to portfolio characteristics. For example, credits to commercial and industrial (“C&I”) companies, individuals for business purposes (domestic only), sovereigns, public sector entities, and financial institutions are assigned an “obligor grade,” which indicates the borrower’s creditworthiness, and/or “facility grade,” which indicates the collectability of assets taking into account the transaction conditions such as guarantee/collateral, and tenor. The business units determine an obligor grade by first assigning a financial grade using a financial strength grading model and data obtained from the obligor’s financial statements, including net worth and cash flows. The financial grade is then adjusted taking into account the actual state of the obligor’s financial position and qualitative factors to derive the obligor grade. The qualitative factors mainly include the expected future cash flows taking into account factors such as historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, and the overall support from financial institutions. In the event that the borrower is domiciled overseas, internal ratings for credit are made after taking into consideration the country rank, which represents an assessment of the credit quality of each country based on its political and economic situation, as well as its current account balance and external debt. Obligor grades and facility grades are reviewed once a year and as otherwise necessary, such as when there are changes in the credit situation. The Group’s subsidiaries carry out credit risk evaluations in line with SMBC. The tables below show the corporate obligor grading system of SMBC.
Obligor Grade Definition Borrower Category
Domestic
J1 Very high certainty of debt repayment Normal
J2 High certainty of debt repayment
J3 Satisfactory certainty of debt repayment
J4 Debt repayment is likely but this could change in cases of significant changes in economic trends or business environment depending on the situation
J5 No problem with debt repayment over the short term, but not satisfactory over the mid to long term and the situation could change in cases of any changes in economic trends or business environment
J6 Currently no problem with debt repayment, but it is highly likely that this could change in cases of significant changes in economic trends or business environment
J7 Close monitoring is required due to problems in meeting loan terms and conditions, sluggish/unstable business, or financial problems Borrowers Requiring
J7R Obligors with loans that are more than three months past due or with restructured loans within the “Borrowers Requiring Caution” category Substandard
J8 Currently not bankrupt, but experiencing business difficulties, making insufficient progress in restructuring, and highly likely to go bankrupt Potentially Bankrupt
J9 Though not yet legally or formally bankrupt, has serious business difficulties and rehabilitation is unlikely; thus, effectively bankrupt Virtually Bankrupt
J10 Legally or formally bankrupt Bankrupt Borrowers
Obligor Grade Definition Borrower Category
Overseas
G1 Very high certainty or high certainty of debt repayment Normal
G2 Satisfactory certainty of debt repayment
G3 Debt repayment is likely but this could change in cases of significant changes in economic trends or business environment depending on the situation
G4 Debt repayment is likely but this could change in cases of significant changes in economic trends or business environment
G5 No problem with debt repayment over the short term, but not satisfactory over the mid to long term and the situation could change in cases of any changes in economic trends or business environment
G6 Currently no problem with debt repayment, but it is highly likely that this could change in cases of significant changes in economic trends or business environment
G7 Close monitoring is required due to problems in meeting loan terms and conditions, sluggish/unstable business, or financial problems Borrowers Requiring
Obligor Grade Definition Borrower Category
Overseas
G7R Obligors with loans that are more than three months past due or with restructured loans within the “Borrowers Requiring Caution” category Substandard
G8 Currently not bankrupt, but experiencing business difficulties, making insufficient progress in restructuring, and highly likely to go bankrupt Potentially Bankrupt
G9 Though not yet legally or formally bankrupt, has serious business difficulties and rehabilitation is unlikely; thus, effectively bankrupt Virtually Bankrupt
G10 Legally or formally bankrupt Bankrupt Borrowers There are also grading systems for loans to individuals such as housing loans and structured finance including project finance, where the repayment source is limited to the cash flows generated by a particular business or asset. For example, the obligor grade of housing loans is determined taking into account various relevant factors such as proportion of the repayment to revenue, proportion of down payment to the value and past due information. The Credit & Investment Planning Department of SMBC centrally manages the internal rating systems, and designs, operates, supervises and validates the grading models. It validates the grading models (including statistical validation) of main assets following the procedure manual once a year to ensure their effectiveness and suitability. Quantification of credit risk At SMBC, credit risk quantification refers to the process of estimating the degree of credit risk of a portfolio or individual loan taking into account not just the obligor’s probability of default (“PD”), but also the concentration of risk in a specific customer or industry and the loss impact of fluctuations in the value of collateral, such as real estate and securities. Specifically, the PD by grade, loss given default (“LGD”), credit quality correlation among obligors, and other parameter values are estimated using the historical data of obligors and facilities stored in a database to calculate the credit risk. Then, based on these parameters, SMBC runs a simulation of simultaneous default using the Monte Carlo Simulation to calculate SMBC’s maximum loss exposure to the estimated amount of the maximum losses that may be incurred. Based on these quantitative results, SMBC allocates risk capital. Risk quantification is also executed for purposes such as to determine the portfolio’s risk concentration or to simulate economic movements (stress tests), and the results are used for making optimal decisions across the whole range of business operations, including formulating business plans and providing a standard against which individual credit applications are assessed. Credit assessment At SMBC, the credit assessment of corporate loans involves a variety of financial analyses, including cash flows, to predict an enterprise’s capability of loan repayment and its growth prospects. These quantitative measures, when combined with qualitative analyses of industrial trends, the enterprise’s research and development capabilities, the competitiveness of its products or services, and its management caliber, result in a comprehensive credit assessment. The loan application is analyzed in terms of the intended utilization of the funds and the repayment schedule. In the assessment of housing loans for individuals, SMBC employs a credit assessment model based on credit data amassed and analyzed by SMBC over many years, taking into account various relevant factors including proportion of the repayment to revenue, proportion of down payment to the value and past due information. Credit monitoring At SMBC, in addition to analyzing loans at the application stage, the Credit Monitoring System is utilized to reassess obligor grades, and review credit policies for each obligor so that problems can be detected at an early stage, and quick and effective action can be taken. The system includes annual monitoring that is carried out each time the financial results of the obligor enterprise are obtained, as well as ad-hoc Credit portfolio management Risk-taking within the scope of capital To keep the credit risk exposure to a permissible level relative to capital, the Corporate Risk Management Department of the Group sets a credit risk capital limit for internal control purposes. Under this limit, sub-limits Controlling concentration risk As the Group’s equity capital may be materially impaired in the event that the credit concentration risk becomes apparent, the Credit & Investment Planning Department of the Group therefore takes measures to manage concentration risks, such as introducing large exposure limits and conducting intensive loan reviews for obligors with large exposures, with an increased focus on industrial sectors with an excessive concentration of credit risk. Further, to manage country risk, SMBC’s Strategic Planning Department of the Global Banking Unit has credit limit guidelines based on each country’s creditworthiness. Toward active portfolio management The Credit & Investment Planning Department makes use of financial instruments to proactively and flexibly manage SMBC’s portfolio to stabilize credit risk. Maximum exposure to credit risk before collateral held or other credit enhancements The following table shows the maximum exposure to credit risk before taking into account any collateral held or other credit enhancements at March 31, 2024 and 2023.
At March 31,
2024 2023
(In millions)
Credit risk exposures relating to assets on the consolidated statements of financial position:
Deposits with banks ¥ 77,962,347 ¥ 75,113,703
Call loans and bills bought 5,336,280 5,684,812
Reverse repurchase agreements and cash collateral on securities borrowed 14,148,667 11,024,084
Trading assets 5,674,162 4,229,845
Derivative financial instruments 9,909,272 8,649,947
Financial assets at fair value through profit or loss 2,293,049 1,392,889
At March 31,
2024 2023
(In millions)
Investment securities:
Debt instruments at amortized cost 316,392 235,567
Debt instruments at FVOCI 24,016,184 22,811,423
Loans and advances 121,716,465 111,891,134
Other financial assets 7,509,528 5,360,634
Credit risk exposures relating to off-balance (1)
Loan commitments 88,926,181 79,068,816
Financial guarantees and other credit-related contingent liabilities 14,869,558 13,693,772
Total ¥ 372,678,085 ¥ 339,156,626
(1) The off-balance Based on the table above, excluding loan commitments (refer to Note 42 “Contingency and Capital Commitments”), the majority of the total exposure to credit risk is derived from “Loans and advances.” Collateral and other credit enhancements The Group considers the acquisition of collateral and guarantees as a secondary repayment source to further enhance loan recovery and minimize credit risk. Based on the assessment of a borrower’s real financial condition and potential future cash flows, the Group shall analyze the borrower’s repayment ability and require sufficient collateral in the form of an asset or third-party obligation. This serves to mitigate the inherent credit risk in the exposure, by either improving recoveries in the event of a default or transferring the borrower’s obligation to guarantors. Collateral received is mainly segregated into (1) financial collateral such as cash, deposits and securities, (2) real estate collateral such as land and buildings, and (3) guarantees received from sovereigns, municipal corporations, credit guarantee corporations and other public entities, financial institutions, and other companies. The Group’s credit risk management is mainly based on an analysis of the repayment ability from the cash flows of the borrower’s business performance, and the collateral and other credit enhancements are considered as secondary repayment sources in the Group’s business practice. At the time of the primary lending decision, the Group evaluates the collateral on an individual borrower basis to consider its financial effect for mitigating credit risk. The re-evaluation The following table shows the financial effect of collateral and other credit enhancements on impaired loans and advances at March 31, 2024 and 2023. The maximum collateral amounts included in the disclosure are limited to the carrying value of loans and advances where the credit exposure is over-collateralized.
At March 31,
2024 2023
(In millions)
Impaired loans and advances ¥ 1,338,444 ¥ 1,170,662
Financial effect of collateral and other credit enhancements 457,358 387,980 Concentration of risks of loans and advances with credit risk exposure An analysis of concentrations of credit risk from loans and advances by geographical sector and industry sector at March 31, 2024 and 2023 is shown below. The concentration by geographical sector is measured based on the domicile of the borrower. Geographical sector
At March 31,
2024 2023
(In millions)
Domestic ¥ 71,162,406 ¥ 67,690,579
Foreign:
Americas 20,773,650 18,168,277
Europe 10,243,368 9,070,221
Asia 14,184,836 13,185,870
Others 6,821,860 5,028,880
Total foreign 52,023,714 45,453,248
Gross loans and advances 123,186,120 113,143,827
Adjust: Unearned income, unamortized premiums—net and deferred loan (490,655 ) (388,579 )
Less: Allowance for loan losses (979,000 ) (864,114 )
Carrying amount ¥ 121,716,465 ¥ 111,891,134
Industry sector
At March 31,
2024 2023
(In millions)
Domestic:
Manufacturing ¥ 11,280,268 ¥ 10,654,680
Agriculture, forestry, fisheries and mining 243,528 379,701
Construction 1,107,013 949,426
Transportation, communications and public enterprises 6,320,575 6,464,350
Wholesale and retail 6,222,405 6,143,314
Finance and insurance 3,877,554 3,901,580
Real estate and goods rental and leasing 16,921,046 15,604,512
Services 5,449,640 4,896,764
Municipalities 573,667 687,606
Lease financing 48,492 12,712
Consumer (1) 16,426,993 15,886,487
Others 2,691,225 2,109,447
Total domestic 71,162,406 67,690,579
At March 31,
2024 2023
(In millions)
Foreign:
Public sector ¥ 598,598 ¥ 291,238
Financial institutions 10,874,863 9,283,249
Commerce and industry 33,669,222 30,369,262
Lease financing 276,063 295,199
Others 6,604,968 5,214,300
Total foreign 52,023,714 45,453,248
Gross loans and advances 123,186,120 113,143,827
Adjust: Unearned income, unamortized premiums—net and deferred loan (490,655 ) (388,579 )
Less: Allowance for loan losses (979,000 ) (864,114 )
Carrying amount ¥ 121,716,465 ¥ 111,891,134
(1) The balance in Consumer mainly consists of housing loans. The housing loan balances amounted to ¥11,008,530 million and ¥10,784,572 million at March 31, 2024 and 2023, respectively. The following tables show a disaggregation of the structured finance loans and advances balances, where the repayment source is limited to the cash flows generated by a particular business or asset, and the balances of secured or unsecured consumer loans at March 31, 2024 and 2023. These loans and advances are included in the preceding tables. Structured finance:
At March 31,
2024 2023
(In millions)
Real estate finance ¥ 5,647,338 ¥ 4,581,928
Project finance 7,119,699 6,283,946
Other structured finance 548,828 509,334
Total structured finance ¥ 13,315,865 ¥ 11,375,208
Consumer:
At March 31,
2024 2023
(In millions)
Secured loans (1) ¥ 11,564,294 ¥ 11,386,978
Unsecured loans 4,862,699 4,499,509
Total consumer ¥ 16,426,993 ¥ 15,886,487
(1) The secured loans and advances mainly represent housing loans. The housing loan balances amounted to ¥11,008,530 million and ¥10,784,572 million at March 31, 2024 and 2023, respectively. Credit quality analysis The following tables set forth information about the gross carrying amount of financial assets and the exposure to credit risk on loan commitments and financial guarantee contracts by stage allocation and internal rating grades of SMBC. Refer to Note 2 “Summary of Material Accounting Policies” for information on stage allocation. Also refer to Note 46 “Financial Risk Management” for information on obligor grading system of SMBC.
At March 31, 2024
12-month Lifetime ECL not credit- Lifetime ECL credit-impaired Total
(In millions)
Loans and advances at amortized cost:
Normal
J1-6 ¥ 49,962,330 ¥ 194,336 ¥ — ¥ 50,156,666
G1-6 40,835,338 1,282,060 — 42,117,398
Japanese government and local municipal corporations 3,411,548 — — 3,411,548
Other (1) 24,196,329 74,759 — 24,271,088
Requiring caution
J7 — 1,013,748 — 1,013,748
G7 — 683,422 — 683,422
Other (1) — 193,806 — 193,806
Impaired (2) — — 1,338,444 1,338,444
Gross loans and advances 118,405,545 3,442,131 1,338,444 123,186,120
Adjust: Unearned income, unamortized premiums—net and deferred loan fees—net (490,655 )
Less: Allowance for loan losses (196,325 ) (257,542 ) (525,133 ) (979,000 )
Carrying amount ¥ 121,716,465
(1) The balance of “Other” includes housing loans, which amounted to ¥10,931,412 million and ¥16,295 million for the borrower category of Normal and Requiring Caution, respectively.
(2) “Impaired” refers to loans and advances to borrowers with obligor grades not higher than 7R.
At March 31, 2023
12-month Lifetime ECL not credit- Lifetime ECL credit-impaired Total
(In millions)
Loans and advances at amortized cost:
Normal
J1-6 ¥ 47,453,523 ¥ 289,316 ¥ — ¥ 47,742,839
G1-6 34,975,850 1,177,231 — 36,153,081
Japanese government and local municipal corporations 2,981,570 — — 2,981,570
Other (1) 22,843,553 291,913 — 23,135,466
Requiring caution
J7 — 838,655 — 838,655
G7 — 842,888 — 842,888
Other (1) — 278,666 — 278,666
Impaired (2) — — 1,170,662 1,170,662
Gross loans and advances 108,254,496 3,718,669 1,170,662 113,143,827
Adjust: Unearned income, unamortized premiums—net and deferred loan fees—net (388,579 )
Less: Allowance for loan losses (187,455 ) (240,494 ) (436,165 ) (864,114 )
Carrying amount ¥ 111,891,134
(1) The balance of “Other” includes housing loans, which amounted to ¥10,697,842 million and ¥16,624 million for the borrower category of Normal and Requiring Caution, respectively.
(2) “Impaired” refers to loans and advances to borrowers with obligor grades not higher than 7R. Modified loans and advances that were subject to lifetime ECL measurement amounted to ¥92,412 million and ¥43,604 million for the fiscal years ended March 31, 2024 and 2023, respectively. The net modification gain or loss is not material.
At March 31, 2024
12-month Lifetime ECL Lifetime ECL credit-impaired Total
(In millions)
Loan commitments and financial guarantees (1)
Gross carrying amount ¥ 48,772,715 ¥ 852,452 ¥ 63,287 ¥ 49,688,454
Allowance for off-balance 33,480 43,751 6,300 83,531
At March 31, 2023
12-month Lifetime ECL Lifetime ECL Total
(In millions)
Loan commitments and financial guarantees (1)
Gross carrying amount ¥ 43,212,638 ¥ 1,009,650 ¥ 68,585 ¥ 44,290,873
Allowance for off-balance 48,584 36,163 15,241 99,988
(1) Loan commitments are the undrawn components of loan commitments on which ECL can be separately identified from those on the drawn components. Movements in ECL allowance The following tables show reconciliations from the opening balance to the closing balance of the ECL allowance by class of financial instrument.
12-month Lifetime ECL Lifetime ECL credit-impaired Total
(In millions)
Loans and advances at amortized cost (1)
Balance at April 1, 2022 ¥ 162,919 ¥ 247,020 ¥ 583,115 ¥ 993,054
Transfer to 12-month 2,300 (2,037 ) (263 ) —
Transfer to lifetime ECL not credit-impaired (3,495 ) 6,485 (2,990 ) —
Transfer to lifetime ECL credit-impaired (9,959 ) (14,605 ) 24,564 —
Net transfers between stages (11,154 ) (10,157 ) 21,311 —
Provision (credit) for loan losses 29,264 (5,591 ) 114,503 138,176
Charge-offs — — 310,284 310,284
Recoveries — — 16,948 16,948
Net charge-offs — — 293,336 293,336
Others (2) 6,426 9,222 10,572 26,220
Balance at March 31, 2023 187,455 240,494 436,165 864,114
Transfer to 12-month 5,914 (5,403 ) (511 ) —
Transfer to lifetime ECL not credit-impaired (7,662 ) 9,906 (2,244 ) —
Transfer to lifetime ECL credit-impaired (3,031 ) (13,786 ) 16,817 —
Net transfers between stages (4,779 ) (9,283 ) 14,062 —
12-month Lifetime ECL Lifetime ECL credit-impaired Total
(In millions)
Provision for loan losses 2,428 15,774 204,692 222,894
Of which refinement of the ECL models (3) (18,941 ) (22,043 ) — (40,984 )
Charge-offs — — 184,608 184,608
Recoveries — — 16,904 16,904
Net charge-offs — — 167,704 167,704
Others (2) 11,221 10,557 37,918 59,696
Balance at March 31, 2024 ¥ 196,325 ¥ 257,542 ¥ 525,133 ¥ 979,000
(1) “Loans and advances at amortized cost” includes allowance for undrawn components of loan commitments issued to retail customers which cannot be separately identified from that for the drawn components.
(2) Others mainly include foreign exchange translations.
(3) The refinement of the ECL models is primarily the subdivision of the foreign region (Global) into three (US, European, and Asia-Pacific region) and the addition of key drivers for credit risks and losses such as short-term interest rate of Japan. This refinement constitutes a continued improvement towards more responsive models and is intended to better reflect the diversified growth trend of the portfolio in each foreign region and the effect of the lifting of the negative interest rate policy by the Bank of Japan. For the fiscal year ended March 31, 2024, the ECL allowance increased by ¥114,886 million from ¥864,114 million at March 31, 2023 to ¥979,000 million at March 31, 2024. The increase was primarily due to an increase in the allowance for lifetime ECL credit-impaired, which increased by ¥88,968 million for the fiscal year ended March 31, 2024. This was primarily due to an increase in the provision for loan losses related to some large corporate borrowers and the translation impact of the depreciation of the yen. For additional information, refer to Note 3 “Critical Accounting Estimates and Judgments.”
12-month Lifetime ECL Lifetime ECL credit-impaired Total
(In millions)
Loan commitments and financial guarantees (1)
Balance at April 1, 2022 ¥ 34,473 ¥ 41,756 ¥ 12,034 ¥ 88,263
Net transfers between stages 90 (1,054 ) 964 —
Provision (credit) for off-balance 12,584 (4,539 ) 2,243 10,288
Others 1,437 — — 1,437
Balance at March 31, 2023 48,584 36,163 15,241 99,988
Net transfers between stages (1,107 ) 2,182 (1,075 ) —
Provision (credit) for off-balance (15,338 ) 5,406 (7,866 ) (17,798 )
Others 1,341 — — 1,341
Balance at March 31, 2024 ¥ 33,480 ¥ 43,751 ¥ 6,300 ¥ 83,531
(1) ECL allowance for loan commitments is that for the undrawn components of loan commitments, which can be separately identified from that for the drawn components. Trading assets, financial assets at fair value through profit or loss and investment securities The following tables show an analysis of trading assets, financial assets at fair value through profit or loss and debt instruments at amortized cost and at fair value through other comprehensive income based on the external rating system at March 31, 2024 and 2023, excluding instruments with equity features. Collateral is generally not obtained directly from the issuers.
At March 31, 2024
Trading assets (1) Financial assets at (1) Debt instruments at (1)(2) Debt instruments at (1)(2)
(In millions)
AAA ¥ 71,032 ¥ — ¥ — ¥ 2,207,908
AA- 4,755,302 33,391 236,798 20,435,445
A- 360,440 10,517 — 913,176
Lower than A- 332,322 51,449 77,884 1,057,963
Unrated 73,073 17,054 1,710 228,214
Total ¥ 5,592,169 ¥ 112,411 ¥ 316,392 ¥ 24,842,706
At March 31, 2023
Trading assets (1) Financial assets at (1) Debt instruments at (1)(2) Debt instruments at (1)(2)
(In millions)
AAA ¥ 644,180 ¥ 6,000 ¥ — ¥ 10,034,033
AA- 3,147,681 31,296 165,593 11,992,005
A- 223,843 14,669 — 399,783
Lower than A- 126,281 85,739 68,995 984,062
Unrated 13,343 600 979 173,750
Total ¥ 4,155,328 ¥ 138,304 ¥ 235,567 ¥ 23,583,633
(1) The amounts represent fair value for trading assets and financial assets at fair value through profit or loss, whereas they represent the gross carrying amount for debt instruments at amortized cost and at fair value through other comprehensive income.
(2) There were no debt instruments at amortized cost or debt instruments at fair value through other comprehensive income subject to lifetime ECL at March 31, 2024 and 2023. Credit risk from derivative financial instruments The Group maintains control limits on derivative positions, by both amount and term. At any one time, the amount subject to credit risk is limited to the fair value of derivative financial instruments that are favorable to the Group (i.e., assets where their fair value is positive). The Group’s credit risk from derivatives is mitigated where possible through netting agreements whereby derivative assets and liabilities with the same counterparty can be offset. Netting agreements, such as the ISDA master agreement, allow the netting of obligations arising under all of the derivative transactions that the agreement covers upon the counterparty’s default, regardless of maturity and currency, resulting in a single net claim against the counterparty. The Group’s credit risk is also mitigated by collateral arrangements through the credit support annex, resulting in collateral delivered or received regularly based on the replacement costs of derivatives. Market Risk and Liquidity Risk Market risk is the possibility that fluctuations in interest rates, foreign exchange rates, stock prices or other market prices will change the market value of financial products, leading to a loss. The purpose of market risk management is to keep the market risk exposure to a permissible level relative to capital. Liquidity risk is defined as the uncertainty around the ability to meet debt obligations without incurring unacceptably large losses. An example of such risk is the possible inability to meet current and future cash flow/ collateral needs, both expected and unexpected. In such cases, the Group may be required to raise funds at less than favorable rates or be unable to raise sufficient funds for settlement. The purpose of liquidity risk management is to ensure that the Group is in a position to address its liquidity obligations through monitoring the liquidity gap between assets and liabilities, and by maintaining highly liquid supplementary funding resources. On the basis of the Group-wide basic policies for risk management, the Group has a quantitative management process to control market and liquidity risks on a Group-wide basis. The Group at least annually reviews and identifies which companies primarily carry the market and liquidity risks within the Group. The Group sets permissible level limits of risk for each identified company in consideration of those companies’ business plans. The Group ensures that each identified company establishes a risk management system that is appropriate to the risks it faces, and has built-in Framework for market and liquidity risk management The board of directors authorizes important matters related to the management of market and liquidity risks, such as the basic policies and risk appetite, which are decided by the Management Committee. The Corporate Risk Management Department and the Risk Management Information Department, which are independent from the business units that directly handle market transactions, manage market and liquidity risks in an integrated manner. The Corporate Risk Management Depa |
