6-K 1 d57447d6k.htm FORM 6-K Form 6-K
Table of Contents

 

 

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 THE

SECURITIES EXCHANGE ACT OF 1934

For the month of July 2021

Commission file number 001-34919

SUMITOMO MITSUI FINANCIAL GROUP, INC.

(Translation of registrant’s name into English)

1-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005, 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 or Form 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 Regulation S-T Rule 101(b)(1):

       

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-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-                     


Table of Contents

The information, documents and exhibits set forth in this 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 Form F-3 (File No. 333-228913) and to be a part of such prospectus from the date of the filing thereof, to the extent not superseded by documents or reports subsequently filed or furnished.

TABLE OF DOCUMENT(S) SUBMITTED

 

1.

Consolidated Financial Statements of Sumitomo Mitsui Financial Group, Inc. as of and for the years ended March 31, 2020 and 2021

 

2.

Independent Auditor’s Report on the Consolidated Financial Statements of Sumitomo Mitsui Financial Group, Inc. as of and for the years ended March 31, 2020 and 2021


Table of Contents

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 Executive Officer

Group Chief Financial Officer

Date: July 5, 2021


Table of Contents

AUDITED CONSOLIDATED JAPANESE GAAP FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED MARCH 31, 2020 AND 2021

On June 29, 2021, we published our consolidated financial statements as of and for the years ended March 31, 2020 and 2021 prepared in accordance with accounting principles generally accepted in Japan, or Japanese GAAP, as part of our annual securities report (yukashoken hokokusho) for the year ended March 31, 2021 filed by us with the relevant Japanese authorities. This document includes such audited consolidated financial statements and the notes thereto. Japanese GAAP differs in certain respects from International Financial Reporting Standards as issued by the International Accounting Standards Board, or IFRS, and generally accepted accounting principles in the United States. For a description of certain differences between IFRS and Japanese GAAP, see “Item 5.A Operating Results—Reconciliation with Japanese GAAP” in our most recent annual report on Form 20-F filed with the SEC.


Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

 

March 31

  

Millions of yen

     Millions of
U.S. dollars
 
  

2020

    

2021

     2021  

Assets:

                                                                                                                                                                                         

Cash and due from banks

   *8    ¥     61,768,573         *8    ¥ 72,568,875         $ 655,486     

Call loans and bills bought

        896,739              2,553,463           23,064     

Receivables under resale agreements

        8,753,816              5,565,119           50,268     

Receivables under securities borrowing transactions

        5,005,103              5,827,448           52,637     

Monetary claims bought

        4,559,429              4,665,244           42,139     

Trading assets

   *8      7,361,253         *2, *8      6,609,195           59,698     

Money held in trust

        353              309           3     

Securities

   *1, *8, *16      27,128,751         *1, *2, *8, *16      36,549,043           330,133     

Loans and bills discounted

   *3, *4, *5, *6, *7, *8, *9      82,517,609         *3, *4, *5, *6, *7, *8, *9      85,132,738           768,971     

Foreign exchanges

   *7      2,063,284         *7      2,173,189           19,630     

Lease receivables and investment assets

        219,733              236,392           2,135     

Other assets

   *8      8,298,393         *8      8,590,785           77,597     

Tangible fixed assets

   *10, *11, *12      1,450,323         *10, *11, *12      1,458,991           13,178     

Assets for rent

        506,755              465,147           4,201     

Buildings

        341,505              370,531           3,347     

Land

        423,346              457,920           4,136     

Lease assets

        28,933              23,589           213     

Construction in progress

        46,138              17,394           157     

Other tangible fixed assets

        103,645              124,408           1,124     

Intangible fixed assets

        753,579              738,759           6,673     

Software

        440,407              475,360           4,294     

Goodwill

        194,289              147,508           1,332     

Lease assets

        986              769           7     

Other intangible fixed assets

        117,896              115,120           1,040     

Net defined benefit asset

        230,573              565,534           5,108     

Deferred tax assets

        26,314              29,840           270     

Customers’ liabilities for acceptances and guarantees

        9,308,882              9,978,396           90,131     

Reserve for possible loan losses

        (479,197)             (659,017)          (5,953)    
     

 

 

       

 

 

    

 

 

 

Total assets

      ¥   219,863,518            ¥   242,584,308         $    2,191,169     
     

 

 

       

 

 

    

 

 

 

 

1


Table of Contents

(Continued)

March 31

  

Millions of yen

     Millions of
U.S. dollars
 
  

2020

    

2021

     2021  

Liabilities and net assets:

                                                                                                                                                                                         

Liabilities:

              

Deposits

   *8    ¥     127,042,217         *8    ¥ 142,026,156         $ 1,282,867     

Negotiable certificates of deposit

        10,180,435              12,570,617           113,545     

Call money and bills sold

        3,740,539              1,368,515           12,361     

Payables under repurchase agreements

   *8      13,237,913         *8      15,921,103           143,809     

Payables under securities lending transactions

   *8      2,385,607         *8      2,421,353           21,871     

Commercial paper

        1,409,249              1,686,404           15,233     

Trading liabilities

        6,084,528              5,357,649           48,394     

Borrowed money

   *8, *13      15,210,894         *8, *13      17,679,690           159,694     

Foreign exchanges

        1,461,308              1,113,037           10,054     

Short-term bonds

        379,000              585,000           5,284     

Bonds

   *14      9,235,639         *14      9,043,031           81,682     

Due to trust account

   *8, *15      1,811,355         *8, *15      2,321,223           20,967     

Other liabilities

        7,011,967              7,741,638           69,927     

Reserve for employee bonuses

        73,868              89,522           809     

Reserve for executive bonuses

        3,362              4,408           40     

Net defined benefit liability

        35,777              35,334           319     

Reserve for executive retirement benefits

        1,270              1,081           10     

Reserve for point service program

        26,576              24,655           223     

Reserve for reimbursement of deposits

        4,687              9,982           90     

Reserve for losses on interest repayment

        142,890              140,758           1,271     

Reserves under the special laws

        3,145              3,902           35     

Deferred tax liabilities

        257,384              532,193           4,807     

Deferred tax liabilities for land revaluation

   *10      30,111         *10      29,603           267     

Acceptances and guarantees

   *8      9,308,882         *8      9,978,396           90,131     
     

 

 

       

 

 

    

 

 

 

Total liabilities

        209,078,615              230,685,262           2,083,689     
     

 

 

       

 

 

    

 

 

 

Net assets:

              

Capital stock

        2,339,964              2,341,274           21,148     

Capital surplus

        692,003              693,205           6,261     

Retained earnings

        6,336,311              6,492,586           58,645     

Treasury stock

        (13,983)             (13,698)          (124)    
     

 

 

       

 

 

    

 

 

 

Total stockholders’ equity

        9,354,296              9,513,367           85,931     
     

 

 

       

 

 

    

 

 

 

Net unrealized gains (losses) on other securities

        1,371,407              2,094,605           18,920     

Net deferred gains (losses) on hedges

        82,257              14,723           133     

Land revaluation excess

   *10      36,878         *10      36,251           327     

Foreign currency translation adjustments

        (32,839)             40,390           365     

Accumulated remeasurements of defined benefit plans

        (92,030)             127,080           1,148     
     

 

 

       

 

 

    

 

 

 

Total accumulated other comprehensive income

        1,365,673              2,313,051           20,893     
     

 

 

       

 

 

    

 

 

 

Stock acquisition rights

        2,064              1,791           16     

Non-controlling interests

        62,869              70,836           640     
     

 

 

       

 

 

    

 

 

 

Total net assets

        10,784,903              11,899,046           107,479     
     

 

 

       

 

 

    

 

 

 

Total liabilities and net assets

      ¥   219,863,518            ¥   242,584,308         $    2,191,169     
     

 

 

       

 

 

    

 

 

 

 

2


Table of Contents

CONSOLIDATED STATEMENTS OF INCOME

 

                                                      
     Millions of yen      Millions of
U.S. dollars
 

Year ended March 31

   2020      2021      2021  

Ordinary income

      ¥   4,591,873            ¥   3,902,307          $ 35,248     

Interest income

       2,486,699             1,853,039           16,738     

Interest on loans and discounts

       1,693,016             1,367,726           12,354     

Interest and dividends on securities

       346,822             283,786           2,563     

Interest on call loans and bills bought

       15,890             11,896           107     

Interest on receivables under resale agreements

       31,449             10,056           91     

Interest on receivables under securities borrowing transactions

       21,247             4,407           40     

Interest on deposits with banks

       80,924             17,891           162     

Interest on lease transactions

       7,307             6,540           59     

Interest on deferred payment

       30,335             24,712           223     

Other interest income

       259,705             126,021           1,138     

Trust fees

       4,701             4,895           44     

Fees and commissions

       1,287,538             1,298,373           11,728     

Trading income

       262,826             199,647           1,803     

Other operating income

       297,290             365,761           3,304     

Lease-related income

       39,123             32,155           290     

Other

       258,166                          333,606           3,013     

Other income

                    252,816             180,589           1,631     

Recoveries of written-off claims

       12,414             12,850           116     

Other

     *1       240,401           *1       167,739           1,515     

Ordinary expenses

       3,659,809             3,191,288                   28,826     

Interest expenses

       1,179,770             517,822           4,677     

Interest on deposits

       441,477             152,094           1,374     

Interest on negotiable certificates of deposit

       131,849             35,876           324     

Interest on call money and bills sold

       10,284             1,786           16     

Interest on payables under repurchase agreements

       131,320             7,097           64     

Interest on payables under securities lending transactions

       1,111             203           2     

Interest on commercial paper

       31,525             6,029           54     

Interest on borrowed money

       57,632             37,667           340     

Interest on short-term bonds

       29             63           1     

Interest on bonds

       220,874             204,509           1,847     

Other interest expenses

       153,666             72,492           655     

Fees and commissions payments

       204,188             204,352           1,846     

Other operating expenses

       186,511             193,354           1,746     

Lease-related expenses

       26,514             23,419           212     

Other

       159,997             169,935           1,535     

General and administrative expenses

     *2            1,739,603           *2            1,747,144           15,781     

Other expenses

       349,734             528,613           4,775     

Provision for reserve for possible loan losses

       70,571             233,875           2,113     

Other

     *3       279,163           *3       294,737           2,662     
    

 

 

      

 

 

    

 

 

 

Ordinary profit

       932,064             711,018           6,422     
    

 

 

      

 

 

    

 

 

 

 

3


Table of Contents
                                                      
(Continued)  
     Millions of yen      Millions of
U.S. dollars
 

Year ended March 31

   2020      2021      2021  

Extraordinary gains

      ¥   23,896            ¥   9,440          $   85     

Gains on disposal of fixed assets

       1,855             9,035           82     

Other extraordinary gains

     *4       22,040           *4       404           4     

Extraordinary losses

       67,314             48,222           436     

Losses on disposal of fixed assets

       1,910             4,939           45     

Losses on impairment of fixed assets

     *5       65,106           *5       42,525           384     

Provision for reserve for eventual future operating losses from financial instruments transactions

                    297                           757           7     
    

 

 

      

 

 

    

 

 

 

Income before income taxes

       888,646                     672,237                     6,072     
    

 

 

      

 

 

    

 

 

 

Income taxes-current

       213,526             225,523           2,037     

Income taxes-deferred

       (45,842)            (69,177)          (625)    
    

 

 

      

 

 

    

 

 

 

Income taxes

       167,684             156,346           1,412     
    

 

 

      

 

 

    

 

 

 

Profit

               720,962             515,890           4,660     
    

 

 

      

 

 

    

 

 

 

Profit attributable to non-controlling interests

       17,078             3,077           28     
    

 

 

      

 

 

    

 

 

 

Profit attributable to owners of parent

      ¥ 703,883            ¥ 512,812          $ 4,632     
    

 

 

      

 

 

    

 

 

 

 

4


Table of Contents
                                                      
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  
     Millions of yen      Millions of
U.S. dollars
 

Year ended March 31

   2020      2021      2021  

Profit

      ¥   720,962            ¥   515,890          $   4,660     

Other comprehensive income (losses)

     *1       (347,990)          *1       949,124           8,573     

Net unrealized gains (losses) on other securities

                    (314,792)                         718,428           6,489     

Net deferred gains (losses) on hedges

       166,177             (82,494)          (745)    

Land revaluation excess

       (39)            —           —     

Foreign currency translation adjustments

       (74,052)            80,177           724     

Remeasurements of defined benefit plans

       (84,420)            217,424           1,964     

Share of other comprehensive income of affiliates

       (40,864)            15,587           141     
    

 

 

      

 

 

    

 

 

 

Total comprehensive income

               372,971                  1,465,014                   13,233     
    

 

 

      

 

 

    

 

 

 

Comprehensive income attributable to owners of parent

       355,302             1,460,228           13,190     

Comprehensive income attributable to non-controlling interests

       17,669             4,785           43     

 

5


Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

 

Year ended March 31, 2020

  Millions of yen        
  Stockholders’ equity  
  Capital
stock
    Capital
surplus
    Retained
earnings
    Treasury
stock
    Total  

Balance at the beginning of the fiscal year

   ¥   2,339,443         ¥   739,047         ¥   5,992,247         ¥   (16,302)        ¥   9,054,436     

Changes in the fiscal year

         

Issuance of new stock

    521          521              1,043     

Cash dividends

        (255,834)           (255,834)    

Profit attributable to owners of parent

        703,883            703,883     

Purchase of treasury stock

          (100,088)         (100,088)    

Disposal of treasury stock

      (250)           733          483     

Cancellation of treasury stock

      (101,673)           101,673          —     

Changes in shareholders’ interest due to transaction with non-controlling
interests

      (47,565)             (47,565)    

Decrease due to decrease in subsidiaries

        (945)           (945)    

Decrease due to decrease in affiliates accounted for by the equity method

        (679)           (679)    

Reversal of land revaluation excess

        (435)           (435)    

Transfer from retained earnings to capital surplus

      101,923          (101,923)           —     

Net changes in items other than stockholders’ equity in the fiscal year

         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

    521          (47,044)         344,064          2,318          299,860     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

   ¥   2,339,964         ¥ 692,003         ¥ 6,336,311         ¥ (13,983)        ¥ 9,354,296     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Year ended March 31, 2020

 

 

Millions of yen

 
  Accumulated other comprehensive income  
  Net unrealized
gains (losses)
on other
securities
    Net deferred
gains (losses)
on hedges
    Land
revaluation
excess
    Foreign
currency
translation
adjustments
    Accumulated
remeasurements
of defined
benefit plans
    Total  

Balance at the beginning of the fiscal year

   ¥ 1,688,852         ¥ (54,650)        ¥ 36,547         ¥ 50,379         ¥ (7,244)        ¥ 1,713,884     

Changes in the fiscal year

           

Issuance of new stock

           

Cash dividends

           

Profit attributable to owners of parent

           

Purchase of treasury stock

           

Disposal of treasury stock

           

Cancellation of treasury stock

           

Changes in shareholders’ interest due to transaction with non-controlling
interests

           

Decrease due to decrease in subsidiaries

           

Decrease due to decrease in affiliates accounted for by the equity method

           

Reversal of land revaluation excess

           

Transfer from retained earnings to capital surplus

           

Net changes in items other than stockholders’ equity in the fiscal year

    (317,445)         136,907          331          (83,219)         (84,785)         (348,211)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

    (317,445)         136,907          331          (83,219)         (84,785)         (348,211)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

   ¥ 1,371,407         ¥ 82,257         ¥ 36,878         ¥ (32,839)        ¥ (92,030)        ¥ 1,365,673     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

6


Table of Contents

Year ended March 31, 2020

  Millions of yen
  Stock
acquisition
rights
    Non-
controlling
interests
   

Total
net assets

Balance at the beginning of the fiscal year

   ¥ 4,750         ¥ 678,540         ¥  11,451,611   

Changes in the fiscal year

     

Issuance of new stock

      1,043   

Cash dividends

      (255,834)  

Profit attributable to owners of parent

      703,883   

Purchase of treasury stock

      (100,088)  

Disposal of treasury stock

      483   

Cancellation of treasury stock

      —    

Changes in shareholders’ interest due to transaction with non-controlling
interests

      (47,565)  

Decrease due to decrease in subsidiaries

      (945)  

Decrease due to decrease in affiliates accounted for by the equity method

      (679)  

Reversal of land revaluation excess

      (435)  

Transfer from retained earnings to capital surplus

      —     

Net changes in items other than stockholders’ equity in the fiscal year

    (2,685)         (615,671)       (966,568)  
 

 

 

   

 

 

   

 

Net changes in the fiscal year

    (2,685)         (615,671)       (666,708)  
 

 

 

   

 

 

   

 

Balance at the end of the fiscal year

   ¥              2,064         ¥       62,869        ¥  10,784,903   
 

 

 

   

 

 

   

 

 

7


Table of Contents

(Continued)

 

Year ended March 31, 2021

  Millions of yen        
  Stockholders’ equity  
  Capital
stock
    Capital
surplus
    Retained
earnings
    Treasury
stock
    Total  

Balance at the beginning of the fiscal year

   ¥       2,339,964         ¥      692,003         ¥   6,336,311         ¥   (13,983)        ¥   9,354,296     

Cumulative effects of changes in accounting policies

        (41,849)           (41,849)    

Restated balance

    2,339,964          692,003          6,294,462          (13,983)         9,312,447     

Changes in the fiscal year

         

Issuance of new stock

    1,309          1,308              2,618     

Cash dividends

        (267,143)           (267,143)    

Profit attributable to owners of parent

        512,812            512,812     

Purchase of treasury stock

          (61)         (61)    

Disposal of treasury stock

      (65)           347          281     

Changes in shareholders’ interest due to transaction with non-controlling
interests

      (106)             (106)    

Decrease due to decrease in affiliates accounted for by the equity method

        (48,054)           (48,054)    

Reversal of land revaluation excess

        574            574     

Transfer from retained earnings to capital surplus

      65          (65)           —     

Net changes in items other than stockholders’ equity in the fiscal year

         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

    1,309          1,202          198,123          285          200,920     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

   ¥ 2,341,274         ¥ 693,205         ¥ 6,492,586         ¥ (13,698)        ¥ 9,513,367     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Year ended March 31, 2021

  Millions of yen  
  Accumulated other comprehensive income  
  Net unrealized
gains (losses)
on other
securities
    Net deferred
gains (losses)
on hedges
    Land
revaluation
excess
    Foreign
currency
translation
adjustments
    Accumulated
remeasurements
of defined
benefit plans
    Total  

Balance at the beginning of the fiscal year

   ¥ 1,371,407         ¥ 82,257         ¥ 36,878         ¥ (32,839)        ¥ (92,030)        ¥   1,365,673     

Cumulative effects of changes in accounting policies

           

Restated balance

    1,371,407          82,257          36,878          (32,839)         (92,030)         1,365,673     

Changes in the fiscal year

           

Issuance of new stock

           

Cash dividends

           

Profit attributable to owners of parent

           

Purchase of treasury stock

           

Disposal of treasury stock

           

Changes in shareholders’ interest due to transaction with non-controlling
interests

           

Decrease due to decrease in affiliates accounted for by the equity method

           

Reversal of land revaluation excess

           

Transfer from retained earnings to capital surplus

           

Net changes in items other than stockholders’ equity in the fiscal year

    723,198          (67,533)         (627)         73,229          219,110          947,377     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

    723,198          (67,533)         (627)         73,229          219,110          947,377     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

   ¥ 2,094,605         ¥ 14,723         ¥ 36,251         ¥ 40,390         ¥ 127,080         ¥ 2,313,051     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

8


Table of Contents

Year ended March 31, 2021

  Millions of yen  
  Stock
acquisition
rights
    Non-
controlling
interests
    Total
net assets
 

Balance at the beginning of the fiscal year

   ¥ 2,064         ¥ 62,869         ¥ 10,784,903     

Cumulative effects of changes in accounting policies

        (41,849)    

Restated balance

    2,064          62,869          10,743,054     

Changes in the fiscal year

     

Issuance of new stock

        2,618     

Cash dividends

        (267,143)    

Profit attributable to owners of parent

        512,812     

Purchase of treasury stock

        (61)    

Disposal of treasury stock

        281     

Changes in shareholders’ interest due to transaction with non-controlling
interests

        (106)    

Decrease due to decrease in affiliates accounted for by the equity method

        (48,054)    

Reversal of land revaluation excess

        574     

Transfer from retained earnings to capital surplus

        —     

Net changes in items other than stockholders’ equity in the fiscal year

    (272)         7,967          955,071     
 

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

    (272)         7,967          1,155,992     
 

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

   ¥                1,791         ¥          70,836         ¥ 11,899,046     
 

 

 

   

 

 

   

 

 

 

 

9


Table of Contents

(Continued)

 

Year ended March 31, 2021

  Millions of U.S. dollars        
  Stockholders’ equity  
  Capital
stock
    Capital
surplus
    Retained
earnings
    Treasury
stock
    Total  

Balance at the beginning of the fiscal year

   $   21,136         $ 6,251         $ 57,233         $ (126)        $ 84,494     

Cumulative effects of changes in accounting policies

        (378)           (378)    

Restated balance

    21,136          6,251          56,855          (126)         84,116     

Changes in the fiscal year

         

Issuance of new stock

    12          12              24     

Cash dividends

        (2,413)           (2,413)    

Profit attributable to owners of parent

        4,632            4,632     

Purchase of treasury stock

          (1)        (1)    

Disposal of treasury stock

      (1)           3          3     

Changes in shareholders’ interest due to transaction with non-controlling
interests

      (1)             (1)    

Decrease due to decrease in affiliates accounted for by the equity method

        (434)           (434)    

Reversal of land revaluation excess

        5            5     

Transfer from retained earnings to capital surplus

      1          (1)           —     

Net changes in items other than stockholders’ equity in the fiscal year

         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

    12          11          1,790          3          1,815     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

   $ 21,148         $ 6,261         $       58,645         $ (124)        $ 85,931     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Year ended March 31, 2021

  Millions of U.S. dollars  
  Accumulated other comprehensive income  
  Net unrealized
gains (losses)
on other
securities
    Net deferred
gains (losses)
on hedges
    Land
revaluation
excess
    Foreign
currency
translation
adjustments
    Accumulated
remeasurements
of defined
benefit plans
    Total  

Balance at the beginning of the fiscal year

   $ 12,387         $ 743         $ 333         $ (297)        $ (831)        $ 12,336     

Cumulative effects of changes in accounting policies

           

Restated balance

    12,387          743          333          (297)         (831)         12,336     

Changes in the fiscal year

           

Issuance of new stock

           

Cash dividends

           

Profit attributable to owners of parent

           

Purchase of treasury stock

           

Disposal of treasury stock

           

Changes in shareholders’ interest due to transaction with non-controlling
interests

           

Decrease due to decrease in affiliates accounted for by the equity method

           

Reversal of land revaluation excess

           

Transfer from retained earnings to capital surplus

           

Net changes in items other than stockholders’ equity in the fiscal year

    6,532          (610)         (6)         661          1,979          8,557     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

    6,532          (610)         (6)         661          1,979          8,557     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

   $ 18,920         $ 133         $ 327         $ 365         $ 1,148         $         20,893     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

10


Table of Contents

Year ended March 31, 2021

  Millions of U.S. dollars  
  Stock
acquisition
rights
    Non-
controlling
interests
    Total
net assets
 

Balance at the beginning of the fiscal year

   $              19         $ 568         $ 97,416     

Cumulative effects of changes in accounting policies

        (378)    

Restated balance

    19          568          97,038     

Changes in the fiscal year

     

Issuance of new stock

        24     

Cash dividends

        (2,413)    

Profit attributable to owners of parent

        4,632     

Purchase of treasury stock

        (1)    

Disposal of treasury stock

        3     

Changes in shareholders’ interest due to transaction with non-controlling
interests

        (1)    

Decrease due to decrease in affiliates accounted for by the equity method

        (434)    

Reversal of land revaluation excess

        5     

Transfer from retained earnings to capital surplus

        —     

Net changes in items other than stockholders’ equity in the fiscal year

    (2)         72          8,627     
 

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

    (2)         72          10,442     
 

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

   $                   16         $               640         $       107,479     
 

 

 

   

 

 

   

 

 

 

 

11


Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Year ended March 31

  

Millions of yen

     Millions of
U.S. dollars
 
  

            2020             

    

            2021             

     2021  

Cash flows from operating activities:

              

Income before income taxes

      ¥ 888,646              ¥        672,237           $               6,072       

Depreciation

        209,198                207,815             1,877       

Losses on impairment of fixed assets

        65,106                42,525             384       

Amortization of goodwill

        17,533                19,365             175       

Net (gains) losses on step acquisitions

        (22,040)               (404)            (4)      

Equity in net (gains) losses of affiliates

        (56,051)               (24,972)            (226)      

Net change in reserve for possible loan losses

        13,411                177,227             1,601       

Net change in reserve for employee bonuses

        3,103                15,158             137       

Net change in reserve for executive bonuses

        201                1,061             10       

Net change in net defined benefit asset and liability

        101,532                (335,174)            (3,028)      

Net change in reserve for executive retirement benefits

        (84)               (235)            (2)      

Net change in reserve for point service program

        2,627                (1,920)            (17)      

Net change in reserve for reimbursement of deposits

        (3,249)               5,294             48       

Net change in reserve for losses on interest repayment

        (4,703)               (2,132)            (19)      

Interest income

        (2,486,699)               (1,853,039)            (16,738)      

Interest expenses

        1,179,770                517,822             4,677       

Net (gains) losses on securities

        (143,877)               (174,302)            (1,574)      

Net (gains) losses from money held in trust

        (0)               (0)            (0)      

Net exchange (gains) losses

        118,815                (398,722)            (3,602)      

Net (gains) losses from disposal of fixed assets

             54                     (4,096)             (37)      

Net change in trading assets

        (1,859,195)               578,416             5,225       

Net change in trading liabilities

        1,930,360                (223,323)            (2,017)      

Net change in loans and bills discounted

        (4,839,243)               (2,316,636)            (20,925)      

Net change in deposits

        5,064,595                14,626,281             132,113       

Net change in negotiable certificates of deposit

        (982,400)               2,388,038             21,570       

Net change in borrowed money (excluding subordinated borrowings)

        4,844,384                2,454,998             22,175       

Net change in deposits with banks

        (1,455,747)               (10,577)            (96)      

Net change in call loans and bills bought and others

        (812,970)               1,377,379             12,441       

Net change in receivables under securities borrowing transactions

        (907,630)               (822,344)            (7,428)      

Net change in call money and bills sold and others

        4,256,015                364,533             3,293       

Net change in commercial paper

        (882,878)               307,253             2,775       

Net change in payables under securities lending transactions

        572,787                35,745             323       

Net change in foreign exchanges (assets)

        (346,503)               (110,014)            (994)      

Net change in foreign exchanges (liabilities)

        296,890                (353,210)            (3,190)      

Net change in lease receivables and investment assets

        17,309                (3,878)            (35)      

Net change in short-term bonds (liabilities)

        294,500                206,000             1,861       

Issuance and redemption of bonds (excluding subordinated bonds)

        152,729                (97,531)            (881)      

Net change in due to trust account

        458,581                509,868             4,605       

Interest received

        2,501,815                1,909,880             17,251       

Interest paid

        (1,201,792)               (559,951)            (5,058)      

Other, net

        386,091                (189,032)            (1,707)      
     

 

 

       

 

 

    

 

 

 

Subtotal

        7,370,996                18,935,404             171,036       
     

 

 

       

 

 

    

 

 

 

Income taxes paid

        (283,536)               (139,452)            (1,260)      
     

 

 

       

 

 

    

 

 

 

Net cash provided by (used in) operating activities

            7,087,460                18,795,951                  169,776       
     

 

 

       

 

 

    

 

 

 

 

12


Table of Contents

(Continued)

 

Year ended March 31

  

Millions of yen

     Millions of
U.S. dollars
 
  

            2020             

    

            2021             

                 2021              

Cash flows from investing activities:

              

Purchases of securities

      ¥ (35,544,708)             ¥ (41,807,504)          $ (377,631)      

Proceeds from sale of securities

        23,204,983                17,221,557             155,556       

Proceeds from redemption of securities

        9,550,000                17,208,608             155,439       

Purchases of money held in trust

        (284)               (0)            (0)      

Proceeds from sale of money held in trust

        321                44             0       

Purchases of tangible fixed assets

        (103,052)               (145,946)            (1,318)      

Proceeds from sale of tangible fixed assets

        19,206                26,434                             239       

Purchases of intangible fixed assets

        (147,784)               (178,765)            (1,615)      

Purchase of stocks of subsidiaries resulting in change in scope of consolidation

        (17,365)               (4,305)            (39)      

Proceeds from sale of stocks of subsidiaries resulting in change in scope of consolidation

        27,021                —             —       
     

 

 

       

 

 

    

 

 

 

Net cash provided by (used in) investing activities

        (3,011,660)               (7,679,878)            (69,369)      
     

 

 

       

 

 

    

 

 

 

Cash flows from financing activities:

              

Repayment of subordinated borrowings

        (8,000)               —             —       

Proceeds from issuance of subordinated bonds and bonds with stock acquisition rights

        139,405                194,103             1,753       

Redemption of subordinated bonds and bonds with stock acquisition rights

        (113,000)               (488,640)            (4,414)      

Dividends paid

        (255,771)               (267,119)            (2,413)      

Proceeds from issuance of common stock to non-controlling stockholders

        —                100             1       

Repayments to non-controlling stockholders

        (436,500)               —             —       

Dividends paid to non-controlling stockholders

        (16,922)               (1,244)            (11)      

Purchases of treasury stock

        (100,088)               (61)            (1)      

Proceeds from disposal of treasury stock

        483                281             3       

Purchase of stocks of subsidiaries not resulting in change in scope of consolidation

        (234,159)               0             0       
     

 

 

       

 

 

    

 

 

 

Net cash provided by (used in) financing activities

        (1,024,554)               (562,580)            (5,082)      
     

 

 

       

 

 

    

 

 

 

Effect of exchange rate changes on cash and cash equivalents

        (74,480)               159,912             1,444       
     

 

 

       

 

 

    

 

 

 

Net change in cash and cash equivalents

        2,976,764                10,713,405             96,770       
     

 

 

       

 

 

    

 

 

 

Cash and cash equivalents at the beginning of the fiscal year

        53,120,963                56,097,807             506,709       

Net change in cash and cash equivalents resulting from merger of consolidated subsidiaries

        79                —             —       
     

 

 

       

 

 

    

 

 

 

Cash and cash equivalents at the end of the fiscal year

   *1    ¥   56,097,807           *1    ¥    66,811,212           $      603,479       
     

 

 

       

 

 

    

 

 

 

 

13


Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Basis of presentation)

Sumitomo Mitsui Financial Group, Inc. (“the Company”) was established on December 2, 2002 as a holding company for the SMBC Group (“the Group”) through a statutory share transfer (kabushiki iten) of all of the outstanding equity securities of Sumitomo Mitsui Banking Corporation (“SMBC”) in exchange for the Company’s newly issued securities. The Company is a joint stock corporation with limited liability (Kabushiki Kaisha) incorporated under the Companies Act of Japan. Upon formation of the Company and completion of the statutory share transfer, SMBC became a direct wholly owned subsidiary of the Company.

The Company has prepared the accompanying consolidated financial statements in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements from International Financial Reporting Standards (“IFRS”).

The accounts of overseas subsidiaries and affiliated companies, are, in principle, integrated with those of the Company’s accounting policies for purposes of consolidation unless they apply different accounting principles and standards as required under U.S. GAAP or IFRS, in which case a certain limited number of items are adjusted based on their materiality.

These consolidated financial statements are translated from the consolidated financial statements contained in the annual securities report filed under the Financial Instrument and Exchange Act of Japan (“FIEA based financial statements”) except for the addition of the non-consolidated financial statements and US dollar figures.

Amounts less than 1 million yen have been rounded down. As a result, the totals in Japanese yen shown in the financial statements do not necessarily agree with the sum of the individual amounts.

The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2021 which was ¥110.71 to US$1. These translations should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at that rate.

 

14


Table of Contents

(Significant accounting policies for preparing consolidated financial statements)

1. Scope of consolidation

 

(1)

Consolidated subsidiaries

The number of consolidated subsidiaries at March 31, 2021 is 177.

Principal companies:

   Sumitomo Mitsui Banking Corporation (“SMBC”)
     SMBC Trust Bank Ltd
   SMBC Nikko Securities Inc. (“SMBC Nikko”)
   Sumitomo Mitsui Card Company, Limited (“SMCC”)
   SMBC Finance Service Co., Ltd.
   SMBC Consumer Finance Co., Ltd.
   The Japan Research Institute, Limited
   Sumitomo Mitsui DS Asset Management Company, Limited (“SMDAM”)
   SMBC Bank International plc
   Sumitomo Mitsui Banking Corporation (China) Limited
   PT Bank BTPN Tbk
   SMBC Americas Holdings, Inc.
   SMBC Guarantee Co., Ltd.

Changes in the consolidated subsidiaries in the fiscal year ended March 31, 2021 are as follows:

Alternative Investment Capital Limited and 12 other companies were newly included in the scope of consolidation as a result of acquisition of shares and for other reasons.

SMBC Finance Service Co., Ltd. was excluded from the scope of consolidation following its merger with the Company’s consolidated subsidiary Cedyna Financial Corporation. 9 other companies were also excluded from the scope of consolidation, as they ceased to be subsidiaries due to liquidation and for other reasons.

Cedyna Financial Corporation changed its name to SMBC Finance Service Co., Ltd., and Sumitomo Mitsui Banking Corporation Europe Limited changed its name to SMBC Bank International plc.

 

(2)

Unconsolidated subsidiaries

 

Principal company:

  

SBCS Co., Ltd.

7 of the unconsolidated subsidiaries are investment partnerships, and neither their assets nor profit/loss are substantially attributable to subsidiaries, and thus are excluded from the scope of consolidation pursuant to Article 5, Paragraph 1, Item 2 of the Ordinance on the Terminology, Forms, and Preparation Methods of Consolidated Financial Statements.

Other unconsolidated subsidiaries are excluded from the scope of consolidation because their total amounts in terms of total assets, ordinary income, net income and retained earnings are immaterial, as such, they do not hinder a rational judgment of the financial position and results of operations of the Company and its consolidated subsidiaries when excluded from the scope of consolidation.

2. Application of the equity method

 

(1)

Unconsolidated subsidiaries accounted for by the equity method

The number of unconsolidated subsidiaries accounted for by the equity method at March 31, 2021 is 5.

 

Principal company:

  

SBCS Co., Ltd.

 

(2)

Equity method affiliates

The number of affiliates accounted for by the equity method at March 31, 2021 is 93.

 

Principal companies:

  

Sumitomo Mitsui Finance and Leasing Company, Limited

  

Sumitomo Mitsui Auto Service Company, Limited

Changes in the equity method affiliates in the fiscal year ended March 31, 2021 are as follows:

24 companies became equity method affiliates due to new establishment and for other reasons.

Kansai Mirai Financial Group, Inc. (“KMFG”) and 26 other companies have been excluded from the scope of equity method affiliates as they ceased to be affiliates due to sale of KMFG’s stocks which SMBC had contributed to employee retirement benefit trusts.

 

15


Table of Contents
(3)

Unconsolidated subsidiaries that are not accounted for by the equity method

7 unconsolidated subsidiaries that are not accounted for by the equity method are investment partnerships, and neither their assets nor profit/loss are substantially attributable to subsidiaries, and thus are excluded from the scope of equity method pursuant to Article 10, Paragraph 1, Item 2 of the Ordinance on the Terminology, Forms, and Preparation Methods of Consolidated Financial Statements.

 

(4)

Affiliates that are not accounted for by the equity method

 

Principal company:

  

Park Square Capital / SMBC Loan Programme S. à r. l.

Affiliates that are not accounted for by the equity method are also excluded from the scope of equity method because their total amounts in terms of net income and retained earnings are immaterial, and as such, they do not hinder a rational judgment of the Company’s financial position and results of operations when excluded from the scope of equity method.

3. The balance sheet dates of consolidated subsidiaries

 

(1)

The balance sheet dates of the consolidated subsidiaries at March 31, 2021 are as follows:

 

October 31

     2     

November 30

     1     

December 31

     90     

March 31

     84     

 

(2)

The subsidiaries with balance sheets dated October 31 are consolidated using the financial statements as of January 31 and a subsidiary with balance sheets dated November 30 as well as certain subsidiaries with balance sheets dated December 31 are consolidated using the financial statements as of March 31. Other subsidiaries are consolidated using the financial statements as of their respective balance sheet dates.

Appropriate adjustments were made to material transactions during the periods between their respective balance sheet dates and the consolidated closing date.

4. Accounting policies

 

(1)

Standards for recognition and measurement of trading assets/liabilities and trading income/losses

Transactions for trading purposes (seeking gains arising from short-term changes in interest rates, currency exchange rates, or market prices of securities and other market related indices or from variation among markets) are included in “Trading assets” or “Trading liabilities” on the consolidated balance sheets on a trade date basis. Profits and losses on trading-purpose transactions are recognized on a trade date basis, and recorded as “Trading income” and “Trading losses” on the consolidated statements of income.

Securities and monetary claims purchased for trading purposes are stated at the fiscal year-end market value, and financial derivatives such as swaps, futures and options are stated at amounts that would be settled if the transactions were terminated at the consolidated balance sheet date.

“Trading income” and “Trading losses” include interest received or paid during the fiscal year. The year-on-year valuation differences of securities and monetary claims are also recorded in the above-mentioned accounts. As for the derivatives, the year-on-year changes in gains or losses of the derivatives calculated by assuming they were settled at the end of the fiscal year ended March 31, 2020 and 2021.

In terms of the evaluation of specific market risks and credit risks for derivative transactions, those fair values are calculated by group basis of the financial assets and liabilities based on net asset or liability after offsetting.

 

16


Table of Contents
(2)

Standards for recognition and measurement of securities

 

  1)

Debt securities that consolidated subsidiaries have the positive intent and ability to hold to maturity are classified as held-to-maturity securities and are carried at amortized cost (based on straight-line method) using the moving-average method. Investments in affiliates that are not accounted for by the equity method are carried at cost using the moving-average method. Securities other than trading purpose securities, held-to-maturity securities and investments in unconsolidated subsidiaries and affiliates are classified as “other securities “(available-for-sale securities). Other securities are carried at their market prices (cost of securities sold is calculated using primarily the moving-average method). Stocks with no market prices are carried at cost using the moving-average method.

Net unrealized gains (losses) on other securities, net of income taxes, are included in “Net assets” except for the amount reflected on the gains or losses by applying fair value hedge accounting.

 

  2)

Securities included in money held in trust are carried in the same method as in (1) and (2), 1) above.

 

(3)

Standards for recognition and measurement of derivative transactions

Derivative transactions, excluding those classified as trading derivatives, are carried at fair value.

In terms of the evaluation of specific market risks and credit risks for derivative transactions, those fair values are calculated by group basis of the financial assets and liabilities based on net asset or liability after offsetting.

 

(4)

Depreciation

 

  1)

Tangible fixed assets (excluding assets for rent and lease assets)

Buildings owned by the Company and SMBC, which is a consolidated subsidiary of the Company, are depreciated using the straight-line method. Others are depreciated using the declining-balance method. The estimated useful lives of major items are as follows:

 

Buildings:

 

7 to 50 years

 

Others:

 

2 to 20 years

 

Other consolidated subsidiaries depreciate tangible fixed assets primarily using the straight-line method over the estimated useful lives of the respective assets.

 

  2)

Intangible fixed assets

Intangible fixed assets are depreciated using the straight-line method. Capitalized software for internal use owned by the Company and its consolidated domestic subsidiaries is depreciated over its estimated useful life (5 to 10 years).

 

  3)

Assets for rent

Assets for rent are depreciated using the straight-line method, assuming that lease terms are, in principle, their depreciation period and the salvage is estimated disposal value when the lease period expires.

 

  4)

Lease assets

Lease assets with respect to non-transfer ownership finance leases, which are recorded in “Tangible fixed assets,” are depreciated using the straight-line method, assuming that lease terms are their expected lifetime and salvage values are zero.

 

17


Table of Contents
(5)

Reserve for possible loan losses

The reserve for possible loan losses of major consolidated subsidiaries is provided as detailed below in accordance with the internal standards for write-offs and provisions.

For claims on borrowers that have entered into bankruptcy, special liquidation proceedings or similar legal proceedings (“Bankrupt borrowers”) or borrowers that are not legally or formally insolvent but are regarded as substantially in the same situation (“Effectively bankrupt borrowers”), a reserve is provided based on the amount of claims, after the write-off stated below, net of the expected amount of recoveries from collateral and guarantees. For claims on borrowers that are not currently bankrupt but are perceived to have a high risk of falling into bankruptcy (“Potentially bankrupt borrowers”), a reserve is provided in the amount deemed necessary based on an overall solvency assessment of the claims, net of the expected amount of recoveries from collateral and guarantees.

SMBC, which is a consolidated subsidiary of the Company, applies Discounted Cash Flows (“DCF”) method for claims of large borrowers exceeding a certain amount, of which borrowers categories are bankrupt borrowers, effectively bankrupt borrowers and potentially bankrupt borrowers and whole or part of loans are classified as “Past due loans (3 months or more)” or “Restructured loans” requiring close monitoring, and whose cash flows from collection of principals and interest can be rationally estimated. SMBC establishes a reserve for possible loan losses using the DCF method for such claims in the amount of the difference between the present value of principal and interest (calculated using the rationally estimated cash flows discounted at the initial contractual interest rate) and the book value.

For other claims, they are recorded by estimating the amount of expected loss in the next one year or three years. The estimated amount of expected loss is calculated by using average ratio of loan-loss ratio or probability of bankruptcies for certain periods in the past based on actual loan losses or bankruptcies in the past one year or three years, and by making necessary adjustments including future estimations.

In addition, in light of the latest economic situation and risk factors, for potential losses for specific portfolios that are based on the future prospects with high probability, but cannot be reflected in actual loan losses in the past and in any individual borrower’s classification, a reserve is provided in the amount deemed necessary based on an overall assessment.

For claims originated in specific overseas countries, an additional reserve is provided in the amount deemed necessary based on the assessment of political and economic conditions.

Branches and credit supervision departments assess all claims in accordance with the internal rules for self-assessment of assets, and the Credit Review Department, independent from these operating sections, audits their assessment.

The reserve for possible loan losses of other consolidated subsidiaries for general claims is provided in the amount deemed necessary based on the historical loan-loss ratios, and for doubtful claims in the amount deemed uncollectible based on assessment of each claim.

For collateralized or guaranteed claims on bankrupt borrowers and effectively bankrupt borrowers, the amount exceeding the estimated value of collateral and guarantees is deemed to be uncollectible and written off against the total outstanding amount of the claims. The amount of write-off for the fiscal years ended March 31, 2020 and 2021 were ¥142,834 million and ¥163,185 million, respectively.

 

(6)

Reserve for employee bonuses

The reserve for employee bonuses is provided for payment of bonuses to employees, in the amount of estimated bonuses, which are attributable to the fiscal year.

 

(7)

Reserve for executive bonuses

The reserve for executive bonuses is provided for payment of bonuses to executives, in the amount of estimated bonuses, which are attributable to the fiscal year.

 

18


Table of Contents
(8)

Reserve for executive retirement benefits

The reserve for executive retirement benefits is provided for payment of retirement benefits to executives, in the amount deemed accrued at the fiscal year-end based on our internal regulations.

 

(9)

Reserve for point service program

The reserve for point service program is provided for the potential future redemption of points awarded to customers under the “SMBC Point Pack,” credit card points programs, and other customer points award programs. The amount is calculated by converting the outstanding points into a monetary amount, and rationally estimating and recognizing the amount that will be redeemed in the future.

 

(10)

Reserve for reimbursement of deposits

The reserve for reimbursement of deposits which were derecognized as liabilities under certain conditions is provided for the possible losses on the future claims of withdrawal based on the historical reimbursements.

 

(11)

Reserve for losses on interest repayment

The reserve for losses on interest repayment is provided for the possible losses on future claims of repayment of interest based on historical interest repayment results.

 

(12)

Reserve under the special laws

The reserve under the special laws is a reserve for contingent liabilities and provided for compensation for losses from securities related transactions or derivative transactions, pursuant to Article 46-5 of the Financial Instruments and Exchange Act.

 

(13)

Employee retirement benefits

In calculating the projected benefit obligation, mainly the benefit formula basis is used to attribute the expected benefit attributable to the respective fiscal year.

Unrecognized prior service cost is amortized on a straight-line basis, primarily over 9 years within the employees’ average remaining service period at incurrence.

Unrecognized net actuarial gain (loss) is amortized on a straight-line basis, primarily over 9 years within the employees’ average remaining service period, commencing from the next fiscal year of incurrence.

 

(14)

Translation of foreign currency assets and liabilities

Assets and liabilities of the Company and SMBC, which is a consolidated subsidiary of the Company, denominated in foreign currencies and accounts of SMBC overseas branches are translated into Japanese yen mainly at the exchange rate prevailing at the consolidated balance sheet date, with the exception of stocks of subsidiaries and affiliates translated at rates prevailing at the time of acquisition.

Other consolidated subsidiaries’ assets and liabilities denominated in foreign currencies are translated into Japanese yen at the exchange rate prevailing at their respective balance sheet dates.

 

(15)

Lease transactions

 

  1)

Recognition of income on finance leases

Interest income is allocated to each period.

 

  2)

Recognition of income on operating leases

Primarily, lease-related income is recognized on a straight-line basis over the full term of the lease, based on the contractual amount of lease fees per month.

 

19


Table of Contents
(16)

Hedge accounting

 

  1)

Hedging against interest rate changes

As for the hedge accounting method applied to hedging transactions for interest rate risk arising from financial assets and liabilities, SMBC, which is a consolidated subsidiary of the Company, applies deferred hedge accounting.

SMBC applies deferred hedge accounting stipulated in “Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry” (JICPA Industry Committee Practical Guidelines No. 24, October 8, 2020) to portfolio hedges on groups of large-volume, small-value monetary claims and debts.

As for the portfolio hedges to offset market fluctuation, SMBC assesses the effectiveness of such hedges by classifying the hedged items (such as deposits and loans) and the hedging instruments (such as interest rate swaps) by their maturity. As for the portfolio hedges to fix cash flows, SMBC assesses the effectiveness of such hedges by verifying the correlation between the hedged items and the hedging instruments.

As for the individual hedges, SMBC also assesses the effectiveness of such individual hedges.

 

  2)

Hedging against currency fluctuations

SMBC, which is a consolidated subsidiary of the Company, applies deferred hedge accounting stipulated in “Treatment of Accounting and Auditing Concerning Accounting for Foreign Currency Transactions in Banking Industry” (JICPA Industry Committee Practical Guidelines No. 25, October 8, 2020) to currency swap and foreign exchange swap transactions executed for the purpose of lending or borrowing funds in different currencies.

Pursuant to JICPA Industry Committee Practical Guidelines No. 25, SMBC assesses the effectiveness of currency swap and foreign exchange swap transactions executed for the purpose of offsetting the risk of changes in currency exchange rates by verifying that there are foreign-currency monetary claims and debts corresponding to the foreign-currency positions.

In order to hedge risk arising from volatility of exchange rates for stocks of subsidiaries and affiliates and other securities (excluding bonds) denominated in foreign currencies, SMBC applies deferred hedge accounting or fair value hedge accounting, on the conditions that the hedged securities are designated in advance and that sufficient on-balance (actual) or off-balance (forward) liability exposure exists to cover the cost of the hedged securities denominated in the same foreign currencies.

 

  3)

Hedging against share price fluctuations

SMBC, which is a consolidated subsidiary of the Company, applies fair value hedge accounting to individual hedges offsetting the price fluctuation of the shares that are classified under other securities, and accordingly evaluates the effectiveness of such individual hedges.

 

  4)

Transactions between consolidated subsidiaries

As for derivative transactions between consolidated subsidiaries or internal transactions between trading accounts and other accounts (or among internal sections), SMBC manages the interest rate swaps and currency swaps that are designated as hedging instruments in accordance with the non-arbitrary and strict criteria for external transactions stipulated in JICPA Industry Committee Practical Guidelines No. 24 and No. 25. Therefore, SMBC accounts for the gains or losses that arise from interest rate swaps and currency swaps in its earnings or defers them, rather than eliminating them.

Certain other consolidated subsidiaries apply the deferred hedge accounting, fair value hedge accounting or the special treatment for interest rate swaps.

 

(17)

Amortization of goodwill

Goodwill is amortized using the straight-line method over a period in which its benefit is expected to be realized, not to exceed 20 years. Immaterial goodwill is charged or credited to income directly when incurred.

 

20


Table of Contents
(18)

Scope of “Cash and cash equivalents” on consolidated statements of cash flows

For the purpose of presenting the consolidated statements of cash flows, “Cash and cash equivalents” are cash on hand, non-interest earning deposits with banks and deposits with the Bank of Japan.

 

(19)

Consumption taxes

National and local consumption taxes of the Company and its consolidated domestic subsidiaries are accounted for using the tax-excluded method.

 

(20)

Adoption of the consolidated corporate-tax system

The Company and certain consolidated domestic subsidiaries apply the consolidated corporate-tax system.

 

21


Table of Contents

(Significant Accounting Estimates)

1. Reserve for possible loan losses

 

(1)

The amount recorded in the consolidated financial statements for the fiscal year ended March 31, 2021

 

Year ended March 31, 2021

   Millions of yen  

Reserve for possible loan losses

   ¥               659,017          

 

(2)

Information on details of the significant accounting estimates for the identified item

Based on the assessment of all claims including loans and bills discounted conducted in accordance with the self-assessment procedures, and borrower category determined depending on their credit risk status, the following amounts are recorded as a reserve for possible loan losses.

- The estimated amount of expected loss calculated for each borrower category based on the average value of historical loan-loss ratio or probability of default over a certain past period is recorded as a reserve for loan losses

- As for claims classified as substandard or lower level classifications whose cash flows from collection of principals and interest can rationally be estimated, the Discounted Cash Flows (“DCF”) method is applied for ones with large borrowers of those claims and the amount calculated by the DCF method is recorded as a reserve for loan losses

- As for expected loss based on the future prospects with high probability, but cannot be reflected in historical loan-losses and in any individual borrower category, the amount deemed necessary based on an overall assessment is recorded as a reserve for loan losses

Reserve for possible loan losses recorded by the method above involves the following uncertainties in the process of estimation, hence requiring high-level managerial judgment.

- Consideration for qualitative factors including forward-looking information in determining borrower category

- Reasonable estimation of future individual cash flows in the DCF method

- Determination of a method for estimating expected loss based on future prospect in consideration of the latest economic environment and risk factors, and of the targeted portfolio

These may be affected by changes in economic environment, which have a potentially significant impact on the amount of reserve for possible loan losses for the next fiscal year.

(Note) For the estimation of the reserve for possible loan losses specifically related to COVID-19, refer to (Additional Information).

 

2.

Impairment loss for fixed assets

 

(1)

The amount recorded in the consolidated financial statements for the fiscal year ended March 31, 2021

 

Year ended March 31, 2021

   Millions of yen  

Tangible fixed assets

   ¥            1,458,991          

Intangible fixed assets

     738,759          

Losses on impairment of fixed assets

     42,525          

 

(2)

Information on details of the significant accounting estimates for the identified item

Fixed assets that have an indication of impairment are tested for recognition of impairment loss, and if recognition is required, their book values are reduced to the recoverable amount and the reduced amount is recorded as impairment loss. Recoverable amount is either net realizable value, which is deducting expected disposal cost from fair value of the fixed asset, or value in use which is the present value of cash flows expected to derive from the continuous use and disposal of the fixed asset after use.

Future cash flows and the growth rate used for testing the recognition of impairment loss as well as for calculating value in use are determined based on the factors including the estimation or judgment by management and the market growth rate, etc. Discount rate used for calculating value in use is determined based on the market interest rate and other market conditions, and these may be affected by changes in economic and financial environment. Therefore, if modification is required, it may have a potentially significant impact on the amount of impairment loss for fixed assets for the next fiscal year.

 

22


Table of Contents

3. Fair value of financial instruments

 

(1)

The amount recorded in the consolidated financial statements for the fiscal year ended March 31, 2021

This is stated in (Notes to financial instruments).

 

(2)

Information on details of the significant accounting estimates for the identified item

This is stated in (Notes to financial instruments).

4. Reserve for losses on interest repayment

 

(1)

The amount recorded in the consolidated financial statements for the fiscal year ended March 31, 2021

 

Year ended March 31, 2021

   Millions of yen  

Reserve for losses on interest repayment

   ¥               140,758          

 

(2)

Information on details of the significant accounting estimates for the identified item

Reserve for losses on interest repayment is recorded based on estimated amount of claim of repayment in preparing for future claims of interest repayment from the customers whose loans are offered at interest rates in excess of the ceiling prescribed under the Interest Rate Restriction Act.

Estimated amount of claim for such repayment is calculated based on certain assumptions using the historical data regarding the number and amount of claims from customers. The trend in future claims of repayment from customers has a potentially significant impact on the amount of reserve for losses on interest repayment for the next fiscal year.

5. Retirement benefits expenses and retirement benefit obligations

 

(1)

The amount recorded in the consolidated financial statements for the fiscal year ended March 31, 2021

 

Year ended March 31, 2021

   Millions of yen  

Net defined benefit asset

   ¥               565,534          

Net defined benefit liability

     35,334          

Retirement benefit expenses included in general and administrative expenses

     18,237          

 

(2)

Information on details of the significant accounting estimates for the identified item

Retirement benefit expenses and retirement benefit obligations for the defined benefit plans for employees are recorded based on various assumptions including discount rate, employee turnover and future salary increase rate.

Discount rate is determined based on Japanese government bond yields, while the indicators such as employee turnover and future salary increase rate are determined based on historical data as well as the latest information on future outlook. Determining these key factors and metrics requires high-level managerial judgment, and if modifications are required, it may have significant impact on the amounts of retirement benefit expenses and retirement benefit obligations for the next fiscal year.

6. Deferred tax assets

 

(1)

The amount recorded in the consolidated financial statements for the fiscal year ended March 31, 2021

 

Year ended March 31, 2021

   Millions of yen  

Deferred tax assets

   ¥                 29,840          

Deferred tax liabilities

     532,193          

 

(2)

Information on details of the significant accounting estimates for the identified item

The amount of tax associated with temporary differences is recorded as deferred tax assets or deferred tax liabilities excluding the amount of tax that is not expected to be collected or paid in the future accounting periods. Deferred tax assets and deferred tax liabilities of the same taxable entity are offset and presented on a net basis.

 

23


Table of Contents

While the recoverability of deferred tax assets is determined by reasonably estimating the scheduling of temporary differences and taxable income, in the event of changes to the scheduling of temporary differences, taxable income which is lower than initial estimation, or tax reform such as reduction of corporate income tax rate, there is a potentially significant impact on the amount of deferred tax assets for the next fiscal year.

(Changes in Accounting Policies)

1. Accounting Standard etc. for Fair Value Measurement (Changes in accounting policies due to application of new or revised accounting standards)

The Company has applied “Accounting Standard for Fair Value Measurement” (ASBJ Statement No.30, July 4, 2019) and “Implementation Guidance on Accounting Standard for Fair Value Measurement” (ASBJ Guidance No.31, July 4, 2019) from the beginning of the fiscal year ended March 31, 2021.

Due to this application, the measurement of the fair value of stocks with market price (including foreign stocks, hereinafter the same) in other securities is changed from the fair value method based on their average prices during the final month of the fiscal year to the fair value method based on their fiscal year-end market prices. Derivative transactions are carried at fair value reflecting one’s own credit risks and counterparty’s credit risks etc.

As for stocks with market price, in accordance with transitional treatment stipulated in Item 19 of “Accounting Standards for Fair Value Measurement” and Item 44-2 of “Accounting Standard for Financial Instruments,” (ASBJ Statement No.10, July 4, 2019) the Company has applied new accounting policies since the beginning of the fiscal year ended March 31, 2021. As for fair value of derivative transactions, in accordance with transitional treatment stipulated in Item 20 of “Accounting Standards for Fair Value Measurement,” the cumulative effects are adjusted to “Retained earnings” of the beginning of the fiscal year ended March 31, 2021, in the case that the new accounting policy is retroactively applied prior to the beginning of the fiscal year ended March 31, 2021.

As a result, “Trading assets” decreased by 66,010 million yen, “Other assets” decreased by 29,768 million yen, “Deferred tax assets” increased by 2,306 million yen, “Trading liabilities” decreased by 21,557 million yen, “Other liabilities” decreased by 14,495 million yen, “Deferred tax liabilities” decreased by 15,570 million yen, “Retained earnings” decreased by 41,849 million yen, and “Net assets per share” decreased by 30.56 yen at the beginning of the fiscal year ended March 31, 2021.

2. Changes in recognition of installment-sales-related income and installment-sales-related expenses (Changes in accounting policies due to justifiable reasons other than above 1)

As for recognition of installment-sales-related income and installment-sales-related expenses, Sumitomo Mitsui Finance and Leasing Company, Limited (hereinafter, “SMFL”), which conducts leasing business, had been applying a method for which installment-sales-related income and installment-sales-related expenses are recognized on a due-date basis over the full period of the installment sales in accordance with “Implementation Guidance on Accounting Standards for Leasing Transactions” (ASBJ Guidance No.16, March 25, 2011). However, from the beginning of the fiscal year ended March 31, 2021, the net amount, which is calculated by deducting installment-sales-related expenses from installment-sales-related income, is recorded as “Interest on deferred payment.”

This change is made to properly reflect the fund transaction under the financial type installment-sales transactions on the consolidated financial statements due to SMFL becoming an equity method affiliate and other reasons.

These changes in accounting policies are applied retroactively, and therefore the consolidated financial statements for the fiscal year ended March 31, 2020 reflect the retroactive application. As a result, comparing before and after the retroactive application, “Ordinary income”, “Ordinary expenses”, and “Other operating expenses” decreased by ¥722,440 million respectively, “Interest income” increased by ¥30,335 million, and “Other operating income” decreased by ¥752,775 million, and there are no effects on “Ordinary profit”, “Income before income taxes”, “Profit” and “Profit attributable to owners of parent” for the fiscal year ended March 31, 2020. There is also no cumulative effect on “Net assets” at the beginning of the fiscal year ended March 31, 2020.

 

24


Table of Contents

(Unapplied Accounting Standards and Others)

“Revised Accounting Standard for Revenue Recognition” (ASBJ Statement No.29) etc. (issued March 30, 2018, revised March 31, 2020)

 

(1)

Outline

The accounting standard etc. provide comprehensive principles for revenue recognition by taking into account of international trends. The principles of revenue recognition in the standard etc. are to recognize revenue by depicting the transfer of promised goods or services to customers in an amount of the consideration expected to be earned in exchange for those goods or services.

 

(2)

Date of Application

The Company will apply the standard etc. from the beginning of the fiscal year commencing on April 1, 2021.

 

(3)

Effects of Application of the Accounting Standard etc.

The effects of the application of these accounting standard etc. are currently being assessed.

 

25


Table of Contents

(Changes in Presentation Method)

The Company has adopted the “Accounting Standard for Disclosure of Accounting Estimates” (ASBJ Statement No. 31, March 31, 2020) from the consolidated financial statements as at the end of the fiscal year ended March 31, 2021, and notes related to significant accounting estimates are included in the consolidated financial statements.

However, in accordance with transitional treatment stipulated in the proviso of Paragraph 11 of the accounting standard, no information is disclosed for the fiscal year ended March 31, 2020.

(Additional information)

(1) The estimates of reserve for possible loan losses related to the impact of the spread of the novel coronavirus disease (COVID-19)

Considering the continuing uncertainty of the spread of COVID-19, estimation of the reserve for possible loan losses associated with COVID-19 is reflected on the consolidated financial statements in the following method.

For potential losses related to individual borrowers due to deterioration in business performance and funding, a reserve for possible loan losses is provided by reviewing, as necessary, borrower category based on the most recent available information.

In addition, for potential losses which cannot be reflected in any of individual borrower category, a reserve for possible loan losses is recorded at an amount deemed necessary based on an overall assessment. The assessment is conducted by specifying the portfolio significantly affected by COVID-19 and estimating the impact of the changes in economic trend and market condition due to the voluntary restraint on the economic activities caused by COVID-19, after consideration of the effect of the government’s financial support on bankruptcy trends.

(2) Transition from the consolidated corporate-tax system to the group tax sharing system

Companies are required to shift from the consolidated corporate-tax system to the group tax sharing system from the fiscal year beginning on or after April 1, 2022, in accordance with the “Act for Partial Amendment of the Income Tax Act, etc.” (Act No. 8, 2020) enacted on March 31, 2020. However, the Company and certain consolidated domestic subsidiaries currently adopting the consolidated corporate-tax system applied the accounting treatment based on the provisions of the Income Tax Act before the revision for the fiscal year ended March 31, 2021, in accordance with the “Practical Solution on the Treatment of Tax Effect Accounting for the Transition from the Consolidated Taxation System to the Group Tax Sharing System” (ASBJ Practical Issue Task Force No. 39, March 31, 2020).

 

26


Table of Contents

(Notes to consolidated balance sheets)

 

*1

Stocks and investments in unconsolidated subsidiaries and affiliates

Stocks and investments in unconsolidated subsidiaries and affiliates at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

   2020      2021  

Stocks

   ¥                 943,980              ¥                 960,834          

Investments

     661                847          

Stocks of jointly controlled entities were as follows:

 

     Millions of yen  

March 31

   2020      2021  

Stocks of jointly controlled entities

   ¥                 322,598              ¥                 394,160          

 

*2

Unsecured loaned securities for which borrowers have the right to sell or pledge

The amount of unsecured loaned securities for which borrowers have the right to sell or pledge at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

   2020      2021  

Japanese government bonds in “Securities”

   ¥                          —              ¥                   50,045          

Trading securities in “Trading assets”

     —                2,190          

As for the unsecured borrowed securities, securities under resale agreements and securities borrowed with cash collateral with rights to sell or pledge without restrictions, those securities pledged, those securities lent and those securities held without being disposed at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

   2020      2021  

Securities pledged

   ¥            11,030,067              ¥              8,061,819          

Securities lent

     171,224                394,493          

Securities held without being disposed

     2,546,017                4,090,071          

 

*3

Bankrupt loans and non-accrual loans

Bankrupt loans and non-accrual loans at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

   2020      2021  

Bankrupt loans

   ¥                   13,978              ¥                   69,452          

Non-accrual loans

     378,173                422,551          

“Bankrupt loans” are loans, after write-off, to legally bankrupt borrowers as defined in Article 96-1-3 and 96-1-4 of “Order for Enforcement of the Corporation Tax Act” (Cabinet Order No. 97 of 1965) and on which accrued interest income is not recognized as there is substantial doubt about the ultimate collectability of either principal or interest because they are past due for a considerable period of time or for other reasons.

“Non-accrual loans” are loans on which accrued interest income is not recognized, excluding “Bankrupt loans” and loans on which interest payments are deferred in order to support the borrowers’ recovery from financial difficulties.

 

27


Table of Contents
*4

Past due loans (3 months or more)

Past due loans (3 months or more) at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

   2020      2021  

Past due loans (3 months or more)

   ¥                   14,400              ¥                   16,784          

“Past due loans (3 months or more)” are loans on which the principal or interest payment is past due for 3 months or more, excluding “Bankrupt loans” and “Non-accrual loans.”

 

*5

Restructured loans

Restructured loans at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

   2020      2021  

Restructured loans

   ¥                 221,288              ¥                 430,080          

“Restructured loans” are loans on which terms and conditions have been amended in favor of the borrowers (e.g. reduction of the original interest rate, deferral of interest payments, extension of principal repayments or debt forgiveness) in order to support the borrowers’ recovery from financial difficulties, excluding “Bankrupt loans,” “Non-accrual loans” and “Past due loans (3 months or more).”

 

*6

Risk-monitored loans

The total amount of bankrupt loans, non-accrual loans, past due loans (3 months or more) and restructured loans at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

   2020      2021  

Risk-monitored loans

   ¥                 627,840              ¥                 938,868          

The amounts of loans presented in Notes *3 to *6 above are the amounts before deduction of reserve for possible loan losses.

 

*7

Bills discounted

Bills discounted are accounted for as financial transactions in accordance with JICPA Industry Committee Practical Guidelines No. 24. SMBC and its banking subsidiaries have rights to sell or pledge without restrictions bank acceptance bought, commercial bills discounted, documentary bills and foreign exchanges bought, etc. The total face value at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

   2020      2021  

Bills discounted

   ¥                 850,324              ¥              1,142,755          

 

28


Table of Contents
*8

Assets pledged as collateral

Assets pledged as collateral at March 31, 2020 and 2021 consisted of the following:

 

March 31, 2020

     Millions of yen       

March 31, 2021

     Millions of yen    

Assets pledged as collateral:

     

Assets pledged as collateral:

  

Cash and due from banks

   ¥              78,112         

Cash and due from banks

   ¥                15,483          

Trading assets

     834,864         

Trading assets

     713,410          

Securities

     10,502,767         

Securities

             14,933,325          

Loans and bills discounted

     10,679,243         

Loans and bills discounted

     10,152,979          

Liabilities corresponding to assets pledged as collateral:

     

Liabilities corresponding to assets pledged as collateral:

  

Deposits

                       21,908         

Deposits

                   13,972          

Payables under repurchase agreements

     6,670,132         

Payables under repurchase agreements

     7,516,287          

Payables under securities lending transactions

     2,334,251         

Payables under securities lending transactions

     1,060,066          

Borrowed money

     10,587,419         

Borrowed money

     14,950,162          

Due to trust account

     432,135         

Due to trust account

     588,785          

Acceptances and guarantees

     103,886         

Acceptance and guarantees

     105,700          

 

In addition to the assets presented above, the following assets were pledged as collateral for cash settlements, and substitution for margins of futures transactions and certain other purposes at March 31, 2020 and 2021:

 

 

March 31, 2020

     Millions of yen       

March 31, 2021

     Millions of yen    

Cash and due from banks

   ¥              12,543          Cash and due from banks    ¥ 21          

Trading assets

     1,179,599          Trading assets      1,245,065          

Securities

     3,570,617          Securities      5,786,331          

Loans and bills discounted

                     10,350          Loans and bills discounted                      9,664          

 

Other assets include collateral money deposited for financial instruments, surety deposits, margin of futures markets and other margins. The amounts for such assets were as follows:

 

 

March 31, 2020

     Millions of yen       

March 31, 2021

     Millions of yen    

Collateral money deposited for financial instruments        

   ¥         2,240,739          Collateral money deposited for financial instruments    ¥         2,111,770          

Surety deposits

                     87,976          Surety deposits                    86,727          

Margins of futures markets

     101,838          Margins of futures markets      118,372          

Other margins

     46,569          Other margins      98,958          

 

29


Table of Contents
*9

Commitment line contracts on overdrafts and loans

Commitment line contracts on overdrafts and loans are agreements to lend to customers, up to a prescribed amount, as long as there is no violation of any condition established in the contracts. The amounts of unused commitments at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

           2020                      2021          

The amounts of unused commitments

   ¥        61,881,806              ¥       71,255,100           

The amounts of unused commitments whose original contract terms are within 1 year or unconditionally cancelable at any time

     44,330,598                49,932,323           

Since many of these commitments are expected to expire without being drawn upon, the total amount of unused commitments does not necessarily represent actual future cash flow requirements. Many of these commitments include clauses under which SMBC and other consolidated subsidiaries can reject an application from customers or reduce the contract amounts in the event that economic conditions change, SMBC and other consolidated subsidiaries need to secure claims, or other events occur. In addition, SMBC and other consolidated subsidiaries may request the customers to pledge collateral such as premises and securities at the time of the contracts, and take necessary measures such as monitoring customers’ financial positions, revising contracts when such need arises and securing claims after the contracts are made.

 

*10

Land revaluation excess

SMBC, a consolidated subsidiary of the Company, revalued their own land for business activities in accordance with “Act on Revaluation of Land” (the “Act”) (Act No. 34, effective March 31, 1998) and “Act for Partial Revision of Act on Revaluation of Land” (Act No. 19, effective March 31, 2001). The income taxes corresponding to the net unrealized gains are reported in “Liabilities” as “Deferred tax liabilities for land revaluation excess,” and the Company’s share of the net unrealized gains, net of deferred taxes, are reported as “Land revaluation excess” in “Net assets.”

Date of the revaluation

March 31, 1998 and March 31, 2002

Method of revaluation (stipulated in Article 3-3 of the Act)

Fair values were determined by applying appropriate adjustments for land shape and timing of appraisal to the values stipulated in Article 2-3, 2-4 or 2-5 of “Order for Enforcement of Act on Revaluation of Land” (Cabinet Order No. 119 effective March 31, 1998).

 

*11

Accumulated depreciation on tangible fixed assets

Accumulated depreciation on tangible fixed assets at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

           2020                      2021          

Accumulated depreciation

   ¥             783,544              ¥            834,990           

 

*12

Deferred gain on tangible fixed assets deductible for tax purposes

Deferred gain on tangible fixed assets deductible for tax purposes at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

           2020                      2021          

Deferred gain on tangible fixed assets deductible for tax purposes

   ¥               62,099              ¥              55,626           

[The consolidated fiscal year concerned]

     [—]               [—]          

 

30


Table of Contents
*13

Subordinated borrowings

The balance of subordinated borrowings included in “Borrowed money” at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

           2020                      2021          

Subordinated borrowings

   ¥             249,000              ¥            249,000           

 

*14

Subordinated bonds

The balance of subordinated bonds included in “Bonds” at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

   2020      2021  

Subordinated bonds

   ¥          2,216,743              ¥         1,922,165           

 

*15

Borrowings from trust account in relation to covered bonds issued by trust account

The amount of borrowings from trust account in relation to covered bonds issued by trust account included in “Due to trust account” at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

           2020                      2021          

The amount of borrowings from trust account in relation to covered bonds issued by trust account

   ¥             432,135              ¥            588,785           

 

*16

Guaranteed amount to privately-placed bonds

The amount guaranteed by SMBC and its banking subsidiaries to privately-placed bonds (stipulated by Article 2-3 of the Financial Instruments and Exchange Act) in “Securities” at March 31, 2020 and 2021 were as follows:

 

     Millions of yen  

March 31

           2020                      2021          

Guaranteed amount to privately-placed bonds

   ¥          1,603,941              ¥         1,431,071           

 

31


Table of Contents

(Notes to consolidated statements of income)

 

*1

Other income

“Other” in “Other income” for the fiscal years ended March 31, 2020 and 2021 included the following:

 

Year ended March 31, 2020

  

    Millions of yen    

  

Year ended March 31, 2021

  

    Millions of yen    

Gains on sales of stocks and others

   ¥  154,735           

Gains on sales of stocks and others

   ¥    124,730      

 

*2

General and administrative expenses

“General and administrative expenses” for the fiscal years ended March 31, 2020 and 2021 included the following:

 

Year ended March 31, 2020

  

    Millions of yen    

  

Year ended March 31, 2021

  

    Millions of yen    

Salaries and related expenses

   ¥  618,071           

Salaries and related expenses

   ¥    646,959      

Depreciation expense

   180,765           

Depreciation expense

   182,240      

Research and development costs

   77           

Research and development costs

   60      

 

*3

Other expenses

“Other expenses” for the fiscal years ended March 31, 2020 and 2021 included the following:

 

Year ended March 31, 2020

  

    Millions of yen    

  

Year ended March 31, 2021

  

    Millions of yen    

Write-off of loans

   ¥  105,307           

Write-off of loans

   ¥    117,415      

Write-off of stocks and others

   45,374           

Expenses related to equity derivatives

   45,968      
     

Write-off of stocks and others

   24,073      
     

Losses on sale of delinquent loans

   20,762      

 

*4

Other extraordinary gains

“Other extraordinary gains” for the fiscal year ended March 31, 2020 and 2021 including the following gains:

 

Year ended March 31, 2020

  

    Millions of yen    

  

Year ended March 31, 2021

  

    Millions of yen    

Gains on step acquisitions

   ¥    22,040           

Gains on step acquisitions

   ¥           404      

 

32


Table of Contents
*5

Losses on impairment of fixed assets

The differences between the recoverable amounts and the book value of the following asset is recognized as “Losses on impairment of fixed assets,” and included in “Extraordinary losses” for the fiscal year ended March 31, 2020 and 2021.

 

Year ended March 31, 2020

                  Millions of yen          

Area

 

Purpose of use

 

Type

  Impairment loss  

Tokyo metropolitan area

  Branches (21 items)   Land and buildings, etc.   ¥             2,180          
  Idle assets (87 items)       6,221          

Kinki area

  Branches (7 items)   Land and buildings, etc.     769          
  Idle assets (57 items)       1,105          

Other area in Japan

  Branches (5 items)   Land and buildings, etc.     456          
  Idle assets (20 items)       609          

Americas

  Lease assets for freight cars   Assets for rent     13,805          

  —     Goodwill and other intangible fixed assets     39,958          

Year ended March 31, 2021

                  Millions of yen          

Area

 

Purpose of use

 

Type

  Impairment loss  

Tokyo metropolitan area

  Branches (6 items)   Land and buildings, etc.   ¥                  873          
  Idle assets (164 items)       7,786          

Kinki area

  Branches (1 item)   Land and buildings, etc.     16          
  Idle assets (56 items)       2,415          

Other

  Branches (6 items)   Land and buildings, etc.     128          
  Idle assets (20 items)       390          

  —     Goodwill     30,914          

As for land and buildings, etc., at SMBC, a consolidated subsidiary of the Company, a branch, which continuously manages and determines its income and expenses, is the smallest unit of asset group for recognition and measurement of impairment loss of fixed assets. Assets such as corporate headquarters facilities, training facilities, data and system centers, and health and recreational facilities which do not produce cash flows that can be attributed to individual assets are treated as corporate assets. As for idle assets, impairment loss is measured individually. At other consolidated subsidiaries, a branch or other group is the smallest asset grouping unit as well.

The carrying amounts of idle assets at SMBC are reduced to their recoverable amounts, and the decreased amounts are included in “Extraordinary losses” as “Losses on impairment of fixed assets,” if there are indicators that the invested amounts may not be recoverable.

The recoverable amount is calculated using net realizable value which is basically determined by subtracting the expected disposal cost from the appraisal value based on the Real Estate Appraisal Standard.

Assets for rent are grouped by type of freight cars. For the fiscal year ended March 31, 2020, the carrying amounts of some of the freight cars were reduced to their recoverable amounts, and the decreased amounts were included in “Extraordinary losses” as “Losses on impairment of fixed assets,” as the invested amounts were considered not to be recoverable. The recoverable amount is measured by value in use, which is calculated by discounting future cash flows by 6%.

For goodwill and other intangible fixed assets, a consolidated subsidiary is the main unit of asset group. For the fiscal year ended March 31, 2020, SMBC Trust Bank Ltd. reviewed its future cash flows in view of the current market environment. As a result, all of the unamortized balance of goodwill and other intangible fixed assets at the end of the fiscal year ended March 31, 2020 were included in “Extraordinary losses” as “Losses on impairment of intangible fixed assets,” as the carrying amounts of the aforementioned assets associated with its PRESTIA business were considered not to be recoverable. The recoverable amount is measured by value in use, which is calculated by discounting future cash flows by 6%. For the fiscal year ended March 31, 2021, Sumitomo Mitsui DS Asset Management Company, Limited reviewed its future cash flows because it underperformed its full-year targets despite upward trend in its performance from the second half. This review found that the carrying amount of goodwill may not be recoverable, and as a result, ¥30.9 billion of unamortized balance of goodwill at the end of the fiscal year ended March 31, 2021 was recorded as “Losses on impairment of fixed assets” under “Extraordinary losses.” The recoverable amount is measured by value in use, which is calculated by discounting future cash flows by 9%.

 

33


Table of Contents

(Notes to consolidated statements of comprehensive income)

 

*1

Reclassification adjustment and tax effect of other comprehensive income

 

Year ended March 31

   Millions of yen  
   2020      2021  

Net unrealized gains (losses) on other securities:

         

Amount arising during the fiscal year

   ¥ (203,676               ¥ 1,230,652             

Reclassification adjustments

     (211,281        (217,948  
  

 

 

    

 

 

 

Before adjustments to tax effect

     (414,958        1,012,704    

Tax effect

     100,166          (294,275  
  

 

 

    

 

 

 

Net unrealized gains (losses) on other securities

     (314,792        718,428    
  

 

 

    

 

 

 

Net deferred gains (losses) on hedges:

         

Amount arising during the fiscal year

     128,887          (159,221  

Reclassification adjustments

     110,070          40,448    
  

 

 

    

 

 

 

Before adjustments to tax effect

     238,957          (118,772  

Tax effect

     (72,779        36,277    
  

 

 

    

 

 

 

Net deferred gains (losses) on hedges

     166,177          (82,494  
  

 

 

    

 

 

 

Land revaluation excess:

         

Amount arising during the fiscal year

                 

Reclassification adjustments

                 
  

 

 

    

 

 

 

Before adjustments to tax effect

                 

Tax effect

     (39           
  

 

 

    

 

 

 

Land revaluation excess

     (39           
  

 

 

    

 

 

 

Foreign currency translation adjustments:

         

Amount arising during the fiscal year

     (74,067        82,669    

Reclassification adjustments

     15          (2,492  
  

 

 

    

 

 

 

Before adjustments to tax effect

     (74,052        80,177    

Tax effect

                 
  

 

 

    

 

 

 

Foreign currency translation adjustments

     (74,052        80,177    
  

 

 

    

 

 

 

Remeasurements of defined benefit plans:

         

Amount arising during the fiscal year

     (125,218        307,353    

Reclassification adjustments

     5,429          5,758    
  

 

 

    

 

 

 

Before adjustments to tax effect

     (119,789        313,111    

Tax effect

                   35,369          (95,686  
  

 

 

    

 

 

 

Remeasurements of defined benefit plans

     (84,420        217,424    
  

 

 

    

 

 

 

Share of other comprehensive income of affiliates:

         

Amount arising during the fiscal year

     (42,843        16,387    

Reclassification adjustments

     1,979          (799  
  

 

 

    

 

 

 

Before adjustments to tax effect

     (40,864                      15,587    

Tax effect

                 
  

 

 

    

 

 

 

Share of other comprehensive income of affiliates

     (40,864        15,587    
  

 

 

    

 

 

 

Total other comprehensive income

   ¥ (347,990      ¥ 949,124    
  

 

 

    

 

 

 

 

34


Table of Contents

(Notes to consolidated statements of changes in net assets)

Fiscal year ended March 31, 2020

1. Type and number of shares issued and treasury stock

 

Year ended March 31, 2020

   Number of shares       
   At the beginning
of the fiscal year
           Increase                  Decrease            At the end
of the fiscal year
           Notes      

Shares issued

              

Common stock

     1,399,401,420            272,536            26,502,400            1,373,171,556          1,2
  

 

 

    

 

 

    

 

 

    

 

 

    

 

Total

     1,399,401,420                          272,536            26,502,400            1,373,171,556         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

Treasury stock

              

Common stock

     3,800,918            26,525,707            26,681,582            3,645,043          3,4
  

 

 

    

 

 

    

 

 

    

 

 

    

 

Total

     3,800,918            26,525,707            26,681,582            3,645,043         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

Notes:

   1.    The increase of 272,536 shares in the total number of shares issued was due to issuance of new stocks as stock-based compensation.
   2.    The decrease of 26,502,400 shares in the total number of shares issued was due to cancellation of treasury stock.
   3.    The increase of 26,525,707 shares in the number of treasury common stock comprises the increase of 23,307 shares due to purchase of fractional shares, and the increase of 26,502,400 shares due to purchase of treasury stock.
   4.    The decrease of 26,681,582 shares in the number of treasury common stock comprises the decrease of 179,182 shares due to sales of fractional shares as well as exercise of stock option, and the decrease of 26,502,400 shares due to cancellation of treasury stock.

2. Information on stock acquisition rights

Year ended March 31, 2020

               Number of shares      Millions of yen         
  

Details of stock
                  acquisition rights                  

   Type of shares      At the beginning of
the fiscal year
     Increase      Decrease      At the end of
the fiscal year
     At the end of
the fiscal year
           Notes        

The Company

   Stock acquisition rights
as stock options
       —          —          —          —          —      ¥ 2,064                 
  

 

  

 

 

    

 

 

    

 

 

 

Total

                     ¥       2,064       
                    

 

 

    

3. Information on dividends

 

(1)    Dividends paid in the fiscal year

 

Date of resolution

  

Type of shares

   Millions of yen, except per share amount
   Cash
    dividends    
     Cash dividends
per share
     Record date    Effective date

Ordinary General Meeting of Shareholders held on June 27, 2019

   Common stock    ¥     132,582          ¥         95         

 

March 31, 2019

   June 28, 2019

Meeting of the Board of Directors held on November 12, 2019

   Common stock          123,252            90         

 

September 30, 2019

   December 3, 2019

 

(2)    Dividends to be paid in the next fiscal year

 

Date of resolution

  

Type of shares

   Millions of yen, except per share amount
   Cash
          dividends        
     Source of
dividends
     Cash dividends
per share
     Record date    Effective date

Ordinary General Meeting of Shareholders held on June 26, 2020

   Common stock    ¥     136,952           
Retained
earnings

 
   ¥           100          March 31, 2020    June 29, 2020

 

35


Table of Contents

Fiscal year ended March 31, 2021

1. Type and number of shares issued and treasury stock

 

Year ended March 31, 2021

   Number of shares       
   At the beginning
of the fiscal year
           Increase                  Decrease            At the end
of the fiscal year
           Notes      

Shares issued

              

Common stock

     1,373,171,556            868,505            —            1,374,040,061          1
  

 

 

    

 

 

    

 

 

    

 

 

    

 

Total

     1,373,171,556                          868,505            —            1,374,040,061         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

Treasury stock

              

Common stock

     3,645,043            57,918                       90,659            3,612,302          2,3
  

 

 

    

 

 

    

 

 

    

 

 

    

 

Total

     3,645,043            57,918            90,659            3,612,302         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

Notes:

   1.    The increase of 868,505 shares in the total number of shares issued was due to issuance of new stocks as stock-based compensation.
   2.    The increase of 57,918 shares in the number of treasury common stock comprises the increase due to purchases of fractional shares and acquisition of restricted stocks without compensation under the Stock Compensation Plans.
   3.    The decrease of 90,659 shares in the number of treasury common stock comprises the decrease due to sales of fractional shares as well as exercise of stock options.

2. Information on stock acquisition rights

 

Year ended March 31, 2021

               Number of shares      Millions of yen         
  

Details of stock
                 acquisition rights                 

    Type of shares       At the beginning of
the fiscal year
     Increase      Decrease      At the end of
the fiscal year
     At the end of
the fiscal year
           Notes        

The Company

   Stock acquisition rights
as stock options
                                      ¥       1,791                 
  

 

  

 

 

    

 

 

    

 

 

 

Total

                     ¥       1,791       
                    

 

 

    

3. Information on dividends

 

(1)    Dividends paid in the fiscal year

Date of resolution                                                                                        

      

Type of shares 

   Millions of yen, except per share amount
   Cash
    dividends    
     Cash dividends
per share
     Record date    Effective date

Ordinary General Meeting of Shareholders held on June 26, 2020

     Common stock    ¥     136,952          ¥     100            March 31, 2020    June 29, 2020

Meeting of the Board of Directors held on November 13, 2020

     Common stock      130,190            95            September 30, 2020    December 3, 2020

 

(2)    Dividends to be paid in the next fiscal year

 

Date of resolution

      

Type of shares

   Millions of yen, except per share amount
   Cash
          dividends        
     Source of
dividends
     Cash dividends
per share
     Record date    Effective date

Ordinary General Meeting of Shareholders held on June 29, 2021

     Common stock    ¥     130,190           
Retained
earnings

 
   ¥           95          March 31, 2021    June 30, 2021

 

36


Table of Contents

(Notes to consolidated statements of cash flows)

 

*1

The reconciliation of balance of “Cash and cash equivalents” at the end of the fiscal year and the amounts of items stated in the consolidated balance sheet

 

     Millions of yen  

Year ended March 31

   2020      2021  

Cash and due from banks

   ¥        61,768,573                         ¥        72,568,875                     

Interest earning deposits with banks
(excluding the deposit with the Bank of Japan)

     (5,670,766)                          (5,757,662)                    
  

 

 

    

 

 

 

Cash and cash equivalents

   ¥              56,097,807                         ¥              66,811,212                     
  

 

 

    

 

 

 

 

37


Table of Contents

(Notes to lease transactions)

1. Finance leases

 

  (1)

Lessee side

 

  1)

Lease assets

 

  (a)

Tangible fixed assets

 

    

Tangible fixed assets mainly consisted of branches and equipment.

 

  (b)

Intangible fixed assets

 

    

Intangible fixed assets are software.

 

  2)

Depreciation method of lease assets

Depreciation method of lease assets is reported in “(Significant accounting policies for preparing consolidated financial statements) 4. Accounting policies (4) Depreciation.”

 

  (2)

Lessor side

 

  1)

Breakdown of lease investment assets

 

March 31

   Millions of yen  
   2020      2021  

Lease receivables

   ¥        258,052           ¥        288,189       

Residual value

     47,285             46,328       

Unearned interest income

     (85,604)            (98,125)      
  

 

 

    

 

 

 

Total

   ¥ 219,733           ¥ 236,392       
  

 

 

    

 

 

 

 

  2)

The scheduled collections of lease payments receivable related to lease investment assets are as follows:

 

March 31

   Millions of yen  
   2020      2021  

Within 1 year

   ¥          26,938           ¥          29,790       

More than 1 year to 2 years

     26,318             28,124       

More than 2 years to 3 years

     23,880             19,846       

More than 3 years to 4 years

     16,453             15,304       

More than 4 years to 5 years

     13,612             16,973       

More than 5 years

     150,848             178,149       
  

 

 

    

 

 

 

Total

   ¥ 258,052           ¥ 288,189       
  

 

 

    

 

 

 

 

38


Table of Contents

2. Operating leases

 

  (1)

Lessee side

Future minimum lease payments on operating leases which were not cancelable were as follows:

 

March 31

   Millions of yen  
   2020      2021  

Due within 1 year

   ¥ 42,384              ¥ 39,033          

Due after 1 year

     247,206                223,555          
  

 

 

    

 

 

 

Total

   ¥        289,591              ¥         262,589          
  

 

 

    

 

 

 

 

  (2)

Lessor side

Future minimum lease payments on operating leases which were not cancelable were as follows:

 

March 31

   Millions of yen  
   2020      2021  

Due within 1 year

   ¥ 31,498              ¥ 26,601          

Due after 1 year

     72,655                58,759          
  

 

 

    

 

 

 

Total

   ¥        104,154              ¥           85,361          
  

 

 

    

 

 

 

 

39


Table of Contents

(Notes to financial instruments)

1. Status of financial instruments

 

(1)

Policies on financial instruments

The Group conducts banking and other financial services such as leasing, securities, consumer finance, system development and information processing. Its banking business includes deposit taking, lending, securities trading and investment, remittance and transfer, foreign exchange, bond subscription agent, trust business, and over-the-counter sales of securities investment trusts and insurance products.

These services entail holding of financial assets such as loans and bills discounted, bonds, and stocks. Meanwhile, the Group raises funds through deposit taking, borrowing, bond offering, etc. Furthermore, it undertakes derivative transactions to meet customers’ hedging needs to control market risk associated with deposit taking and lending (“ALM purposes”), and to make profit on short-term fluctuations in interest rates, foreign exchange rates, etc. (“trading purposes”). At SMBC, the Company’s major consolidated subsidiary, derivative transactions for ALM purposes are undertaken by the Treasury Dept. and the International Treasury Dept. of the Treasury Unit, while derivative transactions for trading purposes are undertaken by the Trading Dept. of the Treasury Unit (derivative transactions for both ALM and trading purposes are undertaken by the Asia and Oceania Treasury Dept. in Asia and Oceania region, and are undertaken by the East Asia Treasury Dept. in East Asia region).

 

(2)

Details of financial instruments and associated risks

 

  1)

Financial assets

The main financial assets held by the Group include loans to foreign and domestic companies and domestic individuals, and securities such as bonds (government and corporate bonds) and stocks (foreign and domestic stocks), etc. Bonds such as government bonds are held for both trading and ALM purposes, and certain bonds are held as held-to-maturity securities. Stocks are held mainly for strategic purposes. These assets expose the Group to credit risk, market risk and liquidity risk. Credit risk is the risk of loss arising from nonperformance of obligations by the borrower or issuer due to factors such as deterioration in the borrower’s/issuer’s financial conditions. Market risk is the risk stemming from fluctuations in interest rates, exchange rates, or share prices. Liquidity risk is the risk arising from difficulty executing transactions in desired quantities at appropriate prices due to low market liquidity. These risks are properly monitored and managed based on “(3) Risk management framework for financial instruments” below.

 

  2)

Financial liabilities

Financial liabilities of the Group include borrowed money and bonds, etc. in addition to deposits. Deposits mainly comprise deposits of domestic and foreign companies and domestic individuals. Borrowed money and bonds include subordinated borrowings and subordinated bonds with special clause specifying that the repayment order of borrowing or bond subordinates to other borrowings or bonds. Also, financial liabilities, like financial assets, expose the Group to not only market risk but also funding liquidity risk: the risk of the Group not being able to raise funds due to market turmoil, deterioration in the Group’s creditworthiness or other factors. These risks are properly monitored and managed based on “(3) Risk management framework for financial instruments” below.

 

  3)

Derivative transactions

Derivatives handled by the Group include foreign exchange futures; futures, forwards, swaps and options related to interest rates, currencies, equities, bonds and commodities; and credit and weather derivatives.

Major risks associated with derivatives include market risk, liquidity risk, and credit risk arising from nonperformance of contractual obligations due to deterioration in the counterparty’s financial conditions. These risks are properly monitored and managed based on “(3) Risk management framework for financial instruments” below.

Hedge accounting is applied to derivative transactions executed for ALM purposes, as necessary. Hedging instruments, hedged items, hedging policy and hedging method to assess the effectiveness of the hedge are described in “(Notes to significant accounting policies for preparing consolidated financial statements), 4. Accounting policies, (16) Hedge accounting.”

 

40


Table of Contents
(3)

Risk management framework for financial instruments

The fundamental matters on risk management for the entire Group are set forth in “Regulations on Comprehensive Risk Management.” The Company’s Management Committee establishes the basic risk management policy for the entire Group, based on the regulations, which is then approved by the Board of Directors. Each Group company has a risk management system based on the characteristics of its particular businesses and in accordance with the basic policy. Furthermore, the Group CRO is established to assess risk management across the Group unitarily and implement appropriate risk management. The Company is sharing information on group-wide risk management and strengthening related systems through the Group CRO Committee, which consists of the Group CRO and risk management representatives from strategically important Group companies.

 

  1)

Management of credit risk

The Company has established fundamental principles on credit risk management to thoroughly manage the credit risk of the entire Group. Each group company conducts integrated management of credit risk according to its operational characteristics, and the credit risk inherent in the entire portfolio as well as the risk in individual credits are managed quantitatively and continuously.

 

  (a)

Credit risk management system

The Group CRO formulates credit risk management policies each year based on the group-wide basic policies for risk management. Meanwhile, the Credit & Investment Planning Dept. is responsible for the comprehensive management of credit risk. This department drafts and administers credit risk regulations, including the Group’s credit policies, and performs credit portfolio management including non-performing loans. The Company has also established the Credit Risk Committee to serve as a body for deliberating on matters related to group-wide credit portfolios.

At SMBC, the Company’s major consolidated subsidiary, the Credit & Investment Planning Dept. of the Risk Management Unit is responsible for the comprehensive management of credit risk. This department establishes, revises or abolishes credit policies, the internal rating system, credit authority regulations, credit application regulations, and manages non-performing loans and other aspects of credit portfolio management. The department also controls SMBC’s total credit risk by quantifying credit risk (i.e. calculating risk capital and risk-weighted assets) in cooperation with the Corporate Risk Management Dept. Moreover, the Credit Portfolio Management Dept. within the Credit & Investment Planning Dept. works to stabilize SMBC’s overall credit portfolio through selling credit derivatives and loan claims.

The credit departments of each business unit together with branches conduct credit risk management for loans handled by their units and manage their units’ portfolios. Credit approval authority is generally determined based on the credit amounts and internal grades, and the credit departments focus on analysis and management of customers and transactions with relatively high credit risk. The Credit Administration Dept. is mainly responsible for formulating and implementing measures to reduce the exposure of non-performing loans. Through industrial and sector-specific surveys and studies of individual companies, the Corporate Research Dept. works to form an accurate idea of the circumstances of borrower companies and identify those with potentially troubled credit positions at early stage.

Moreover, the Credit Risk Committee, a cross-departmental consultative body, rounds out SMBC’s oversight systems for undertaking flexible and efficient control of credit risk and ensuring the overall soundness of SMBC’s loan operations.

In addition to these, the Internal Audit Unit, operating independently of the business units, audits asset quality, grading accuracy, self-assessment, and appropriateness of the credit risk management system, and reports the audit results to the Management Committee and the Audit Committee.

 

41


Table of Contents
  (b)

Method of credit risk management

The Company properly manages the credit risk inherent in individual loans and the entire portfolio by assessing and quantifying the credit risk of each borrower/loan using the internal rating system. In addition to management of individual loans through credit screening and monitoring, it manages the credit portfolio as described below in order to secure and improve the credit portfolio’s soundness and medium-term profitability.

 

   

Appropriate risk-taking within capital

To keep credit risk exposure to a permissible level relative to capital, the Company sets the upper limit of the permissible risk of overall risk capital, which represents the soundness of the risk appetite index, based on each business unit’s risk appetite and portfolio plan, and monitors the credit risk capital as part of permissible risk.

 

   

Controlling concentration of risk

Because concentration of credit risk in an industry or corporate group has the potential to impair the Company’s capital significantly, the Company implements measures to prevent excessive concentration of loan in a single industry and to control large exposure to individual borrowers by setting maximum loan amounts and conducting loan reviews thoroughly. To manage country risk, the Company also has credit limit guidelines based on each country’s creditworthiness.

 

   

Greater understanding of actual corporate conditions and balancing returns and risks

The Company runs credit operations on the basic principle of thoroughly understanding actual corporate conditions and gaining profit commensurate with the level of credit risk entailed, and makes every effort to improve profit at after-cost (credit cost, capital cost and overhead cost) level.

 

   

Reduction and prevention of non-performing loans

For non-performing loans and potential non-performing loans, the Company carries out loan reviews to clarify credit policies and action plans, enabling it to swiftly implement measures to prevent deterioration of borrowers’ business situations, support business recoveries, collect on loans, and enhance loan security.

In regard to financial instruments such as investments in certain funds, securitized products and credit derivatives that indirectly retain risks related to assets such as corporate bonds and loan claims (underlying assets), such instruments entail market and liquidity risks in addition to credit risk, since such instruments are traded on the market. Credit risk management for these instruments involving detailed analysis and evaluation of characteristics of underlying assets is performed while market risk is comprehensively managed within the framework for managing market and liquidity risks. Moreover, guidelines have been established based on the characteristics of each type of risk to appropriately manage risks of incurring losses.

In regard to credit risk of derivative transactions, the potential exposure based on the market price is regularly calculated and properly managed. When the counterparty is a financial institution with which the Company frequently conducts derivative transactions, measures such as a close-out netting provision, which provide offsetting credit exposures between two parties in a single net payment from one party to the other in case of bankruptcy or other default event, are implemented to reduce credit risk.

 

  2)

Management of market and liquidity risks

The Company manages market and liquidity risks across the entire Group by setting allowable risk limits; ensuring the transparency of the risk management process; and clearly separating front-office, middle-office, and back-office operations for a highly efficient system of mutual checks and balances.

 

42


Table of Contents
  (a)

Market and liquidity risk management systems

In accordance with the group-wide basic policies for risk management decided upon by the Management Committee, the Company determines important matters relating to the management of market and liquidity risks, such as basic policies and risk limits, in order to manage these risks. The ALM Committee meets four times a year, in principle, to report on the state of market and liquidity risk management and to discuss ALM operation policies. The Corporate Risk Management Dept., which is independent from the business units that directly handle market transactions, manages market and liquidity risks in an integrated manner. This department not only monitors the current risk situations but also reports regularly to the Management Committee and the Audit Committee. Furthermore, the ALM Committee at SMBC, the core bank of the Company, meets on a monthly basis to examine reports on the state of observance of limits on market and liquidity risks and to discuss ALM operation policies.

In addition, the Internal Audit Dept., which is independent of other departments, periodically performs comprehensive internal audits to verify that the risk management framework is properly functioning and reports the audit results to the Management Committee and the Audit Committee.

 

  (b)

Market and liquidity risk management methodology

 

   

Market risk management

The Company manages market risk by setting maximum loss and VaR (value at risk: maximum potential loss that may be incurred to a specific financial instrument for a given probability) within the market risk capital limit, which is set taking into account stockholders’ equity and other factors in accordance with the market transaction policies.

The Company uses the historical simulation method (a method for estimating the maximum loss by running simulations of changes in profit and loss on market fluctuations scenarios based on historical data) to measure VaR. Regarding banking activities (activities for generating profit through management of interest rates, terms, and other aspects such as loans and bonds in assets, deposits in liabilities) and trading activities (activities for generating profit by taking advantage of short-term fluctuations in market values and differences in value among markets), the Company calculates the maximum loss that may occur as a result of market fluctuations in 1 day with a probability of 1% based on 4 years of historical observation. With regard to the holding of shares (such as listed shares) for the purpose of strategic investment, the Company calculates the maximum loss that may occur as a result of market fluctuations in 1 year with a probability of 1% based on 10 years of historical observation.

Regarding risks associated with foreign exchange rates, interest rates, equity risk, option prices and other market risk factors, the Company manages such risks by setting a maximum limit on the indicator suited for each market risk factor such as BPV (basis point value: denotes the change in value of a financial instrument resulting from a 0.01 percentage-point change in the yield).

 

   

Quantitative information on market risks

As of March 31, 2021, total VaR of SMBC and its major consolidated subsidiaries was ¥55.0 billion for the banking activities, ¥20.7 billion for the trading activities and ¥1,284.1 billion for the holding of shares (such as listed shares) for the purpose of strategic investment.

However, it should be noted that these figures are statistical figures that change according to changes in assumptions and calculation methods, and may not cover the risk of future market conditions fluctuating drastically compared to market fluctuations of the past.

 

43


Table of Contents
   

Liquidity risk management

The Company manages liquidity risk based on the framework of “setting management levels of risk appetite indicators” and “developing contingency plans.” Risk appetite indicators are quantitative benchmarks that select the types and indicate the levels of risk that the Company is willing to take on or tolerate. As an example, the Company sets a lower limit on the number of days over which cash flows could be maintained under the stress conditions such as deposit outflow, so as to secure funding sources that do not fall below the benchmark to avoid excessive reliance on short term funding. In addition, the Company develops contingency plans consisting of instructions, reporting lines and action plans in case of emergency.

Moreover, to manage the liquidity risk of marketable instruments, derivative transactions, etc., the Company has trading limits for each business office classified by currency, instrument, transaction period, etc. As for financial futures, etc., risks are managed by restricting positions to within a certain percentage of open interest in the entire market.

 

(4)

Supplementary explanations about matters concerning fair value of financial instruments

Fair values of financial instruments are based on their market prices and, in cases where market prices are not available, on reasonably calculated prices. These prices have been calculated using certain assumptions, and may differ if calculated based on different assumptions.

 

44


Table of Contents

2. Matters concerning fair value of financial instruments and breakdown by input level

The amounts on the consolidated balance sheet and the fair value of financial instruments as well as the difference between them are as follows.

The amounts shown in the following tables do not include stocks with no market price, etc., and investments in partnerships (refer to Note 3).

The fair values of financial instruments are classified into the following three levels depending on the observability and significance of the input used in the fair value measurement.

Level 1: Fair value determined based on the (unadjusted) quoted price in an active market for the same asset or liability

Level 2: Fair value determined based on directly or indirectly observable inputs other than Level 1 inputs

Level 3: Fair value determined based on significant unobservable inputs

If multiple inputs with a significant impact are used for the fair value measurement of a financial instrument, the financial instrument is classified to the lowest priority level of fair value measurement in which each input belongs.

(1) Financial assets and liabilities at fair value on the consolidated balance sheets

 

             Millions of yen  
March 31, 2020    Consolidated balance  
sheet amount
 
   

Monetary claims bought

   ¥ 718,948     
   

Trading assets

  
   

Securities classified as trading purposes *1

     2,687,362     
   

Money held in trust

     353     
   

Securities

  
   

Other securities *1

     24,838,288     
      

 

 

 
   

Total assets

   ¥ 28,244,952     
      

 

 

 
   

Trading liabilities

  
   

Trading securities sold for short sales *1

   ¥ 1,927,964     
      

 

 

 
   

Total liabilities

   ¥ 1,927,964     
      

 

 

 
   

Derivative transactions *2, 3

  
   

Interest rate derivatives

   ¥ 826,249     
   

Currency derivatives

     (27,773)    
   

Equity derivatives

     (301)    
   

Bond derivatives

     9,174     
   

Commodity derivatives

     2,181     
   

Credit derivative transactions

     2,856     
      

 

 

 
   

Total derivative transactions

   ¥ 812,386     
      

 

 

 

 

*1

The amount of investment trusts for which transitional measures are applied in accordance with Paragraph 26 of the “Implementation Guidance on Accounting Standard for Fair Value Measurement” (ASBJ Guidance No.31, hereinafter, “Guidance for Application of Fair Value Measurement”) are not included in the table above. The amount of such investment trusts on the consolidated balance sheet includes financial assets of ¥711,938 million and financial liabilities of ¥84,511 million.

*2

The amounts collectively represent the derivative transactions which are recorded on “Trading assets,” “Trading liabilities,” “Other assets” and “Other liabilities.” Debts and credits arising from derivative transactions are presented on a net basis, with a net debt presented in round brackets.

*3

As for derivative transactions applying hedge accounting, ¥294,816 million is recorded on the consolidated balance sheet.

 

45


Table of Contents
             Millions of yen  
             Consolidated
balance sheet amount
 
March 31, 2021    Level 1      Level 2      Level 3      Total  
   

Monetary claims bought

   ¥ —         ¥ 276,989         ¥ 454,827         ¥ 731,817     
   

Trading assets

           
   

Securities classified as trading purposes *1

     2,473,813           591,976           270           3,066,060     
   

Money held in trust

     —           309           —           309     
   

Securities

           
   

Other securities *1

     25,055,919           8,840,677           52,193           33,948,790     
      

 

 

    

 

 

    

 

 

    

 

 

 
   

Total assets

   ¥ 27,529,732         ¥ 9,709,953         ¥ 507,291         ¥ 37,746,977     
      

 

 

    

 

 

    

 

 

    

 

 

 
   

Trading liabilities

           
   

Trading securities sold for short sales *1

   ¥ 1,997,985         ¥ 77,072         ¥ —         ¥ 2,075,058     
      

 

 

    

 

 

    

 

 

    

 

 

 
   

Total liabilities

   ¥ 1,997,985         ¥ 77,072         ¥ —         ¥ 2,075,058     
      

 

 

    

 

 

    

 

 

    

 

 

 
   

Derivative transactions *2, 3

           
   

Interest rate derivatives

   ¥ 24,638         ¥ 416,233         ¥ 1,013         ¥ 441,886     
   

Currency derivatives

     (560)          91,268           4,807           95,514     
   

Equity derivatives

     (29,846)          106           21,696           (8,043)    
   

Bond derivatives

     484           19           —           503     
   

Commodity derivatives

     532           1,486           —           2,019     
   

Credit derivative transactions

     —           (6,512)          796           (5,716)    
      

 

 

    

 

 

    

 

 

    

 

 

 
   

Total derivative transactions

   ¥ (4,751)        ¥ 502,601         ¥ 28,314         ¥ 526,164     
      

 

 

    

 

 

    

 

 

    

 

 

 

 

*1

The amount of investment trusts for which transitional measures are applied in accordance with Paragraph 26 of the Guidance for Application of Fair Value Measurement are not included in the table above. The amount of such investment trusts on the consolidated balance sheet includes financial assets of ¥1,200,314 million and financial liabilities of ¥1,510 million.

*2

The amounts collectively represent the derivative transactions which are recorded in “Trading assets,” “Trading liabilities,” “Other assets” and “Other liabilities.” Debts and credits arising from derivative transactions are presented on a net basis, with a net debt presented in round brackets.

*3

As for derivative transactions applying hedge accounting, ¥207,017 million is recorded on the consolidated balance sheet. These are interest rate swap and other derivative transactions designated as hedging instruments for stabilizing cash flows of loans and bills discounted, etc., that are hedged items. The Company has mainly applied deferred hedge accounting for those derivative transactions. For these hedging relationships, the Company has applied “Practical Solution on the Treatment of Hedge Accounting for Financial Instruments that Reference LIBOR” (PITF No.40, September 29, 2020).

 

46


Table of Contents

(2) Financial assets and liabilities which are not stated at fair value on the consolidated balance sheet

Cash and due from banks, Call loans and bills bought, Receivables under resale agreements, Receivables under securities borrowing transactions, Foreign exchanges, Call money and bills sold, Payable under repurchase agreements, Payable under securities lending transactions, Commercial papers, and Short-term bonds payable are not included in the following tables since they are mostly short-term, and their fair values approximate their carrying amounts.

 

             Millions of yen  
March 31, 2020    Consolidated
balance
sheet amount
     Fair value      Net unrealized
gains (losses)
 
   

Monetary claims bought *

   ¥ 3,837,831         ¥ 3,869,321         ¥ 31,490     
   

Securities

        
   

Bonds classified as held-to-maturity

     282,379           282,519           140     
   

Loans and bills discounted

     82,517,609                           
   

Reserve for possible loan losses *

     (301,752)                          
      

 

 

    

 

 

    

 

 

 
         82,215,856           84,118,833           1,902,976     
      

 

 

    

 

 

    

 

 

 
   

Lease receivables and investment assets *

     219,548           218,858           (690)    
      

 

 

    

 

 

    

 

 

 
   

Total assets

   ¥ 86,555,615         ¥ 88,489,532         ¥ 1,933,917     
      

 

 

    

 

 

    

 

 

 
   

Deposits

   ¥ 127,042,217         ¥ 127,049,743         ¥ 7,526     
   

Negotiable certificates of deposit

     10,180,435           10,187,496           7,060     
   

Borrowed money

     15,210,894           15,254,734           43,839     
   

Bonds

     9,235,639           9,360,807           125,167     
   

Due to trust account

     1,811,355           1,824,319           12,964     
      

 

 

    

 

 

    

 

 

 
   

Total liabilities

   ¥ 163,480,542         ¥ 163,677,101         ¥ 196,558     
      

 

 

    

 

 

    

 

 

 

 

*

General reserves and special reserves corresponding to loans are deducted. The reserve for possible loan losses on “Monetary claims bought” and “Lease receivables and investment assets” are deducted directly from consolidated balance sheet amount since they are immaterial.

 

March 31, 2021    Millions of yen  
   Fair Value      Consolidated
balance sheet
amount
     Net unrealized
gains (losses)
 
   Level 1      Level 2      Level 3      Total  
   

Monetary claims bought *

   ¥ —         ¥ —         ¥ 3,971,664         ¥ 3,971,664         ¥ 3,930,431         ¥ 41,233     
   

Securities

                 
   

Bonds classified as held-to-maturity

     22,239           —           —           22,239           22,300           (60)    
   

Loans and bills discounted

                 85,132,738        
   

Reserve for possible loan losses *

                 (456,861)       
      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
         —           —           86,450,361           86,450,361           84,675,876           1,774,484     
      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   

Lease receivables and investment assets *

     —           —           239,867           239,867           235,723           4,144     
      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   

Total assets

   ¥ 22,239         ¥ —         ¥ 90,661,893         ¥ 90,684,133         ¥ 88,864,331         ¥ 1,819,802     
      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   

Deposits

   ¥ —         ¥ 142,023,649         ¥ —         ¥ 142,023,649         ¥ 142,026,156         ¥ (2,507)    
   

Negotiable certificates of deposit

     —           12,579,851           —           12,579,851           12,570,617           9,233     
   

Borrowed money

     —           17,773,586           —           17,773,586           17,679,690           93,895     
   

Bonds

     —           8,621,373           702,346           9,323,720           9,043,031           280,688     
   

Due to trust account

     —           2,335,221           —           2,335,221           2,321,223           13,998     
      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   

Total liabilities

   ¥ —         ¥ 183,333,682         ¥ 702,346         ¥ 184,036,029         ¥ 183,640,720         ¥ 395,308