6-K 1 d612292d6k.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 December 2018

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-            

THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE INTO THE PROSPECTUS FORMING A PART OF SUMITOMO MITSUI FINANCIAL GROUP, INC.’S REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-209069) AND TO BE A PART OF SUCH PROSPECTUS FROM THE DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.

 

 

 


Table of Contents

EXHIBITS

 

Exhibit number

    
101. INS    XBRL Instance Document
101. SCH    XBRL Taxonomy Extension Schema
101. CAL    XBRL Taxonomy Extension Calculation Linkbase
101. DEF    XBRL Taxonomy Extension Definition Linkbase
101. LAB    XBRL Taxonomy Extension Label Linkbase
101. PRE    XBRL Taxonomy Extension Presentation Linkbase


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/ Jun Ohta

  Name:  Jun Ohta
 

Title:    Deputy President and Executive Officer

             Group Chief Financial Officer

Date: December 20, 2018


Table of Contents

This document contains a review of our financial condition and results of operations for the six months ended September 30, 2018.

TABLE OF CONTENTS

 

     Page  

Cautionary Statement Regarding Forward-Looking Statements

     1  

Financial Review

     2  

Recent Developments

     2  

Operating Environment

     2  

Developments Related to Our Business

     4  

Accounting Changes

     4  

Operating Results and Financial Condition

     5  

Executive Summary

     5  

Operating Results

     6  

Business Segment Analysis

     17  

Financial Condition

     22  

Liquidity

     34  

Capital Management

     36  

Financial Risk Management

     41  

Risk Management System

     41  

Credit Risk

     41  

Market Risk

     41  

Index to Unaudited Consolidated Financial Statements

     F-1  


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements” (as defined in the U.S. Private Securities Litigation Reform Act of 1995), regarding the intent, belief or current expectations of Sumitomo Mitsui Financial Group, Inc. (the “Company”) and its management with respect to the Company’s future financial condition and results of operations. In many cases but not all, these statements contain words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “probability,” “risk,” “project,” “should,” “seek,” “target,” “will,” and similar expressions. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ from those expressed in or implied by such forward-looking statements contained or deemed to be contained herein. The risks and uncertainties which may affect future performance include: deterioration of Japanese and global economic conditions and financial markets; declines in the value of the Company’s securities portfolio; incurrence of significant credit-related costs; the Company’s ability to successfully implement its business strategy through its subsidiaries, affiliates and alliance partners; and exposure to new risks as the Company expands the scope of its business. Given these and other risks and uncertainties, you should not place undue reliance on forward-looking statements, which speak only as of the date of this document. The Company undertakes no obligation to update or revise any forward-looking statements. Please refer to the Company’s most recent disclosure documents such as its annual report on Form 20-F and other documents submitted to the U.S. Securities and Exchange Commission, as well as its earnings press releases, for a more detailed description of the risks and uncertainties that may affect its financial conditions, its operating results, and investors’ decisions.

 

1


Table of Contents

FINANCIAL REVIEW

Sumitomo Mitsui Financial Group, Inc. (“we,” “us,” “our,” the “Company” or “SMFG”) is a holding company for Sumitomo Mitsui Banking Corporation (“SMBC”), SMBC Trust Bank Ltd. (“SMBC Trust Bank”), Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”), SMBC Nikko Securities Inc. (“SMBC Nikko Securities”), Sumitomo Mitsui Card Company, Limited (“Sumitomo Mitsui Card”), Cedyna Financial Corporation (“Cedyna”), SMBC Consumer Finance Co., Ltd. (“SMBC Consumer Finance”), The Japan Research Institute, Limited (“The Japan Research Institute”), Sumitomo Mitsui Asset Management Company, Limited (“SMAM”) and other subsidiaries and affiliates. Through our subsidiaries and affiliates, we offer a diverse range of financial services, including commercial banking, leasing, securities, consumer finance and other services. References to the “SMBC Group” are to us and our subsidiaries and affiliates taken as a whole.

RECENT DEVELOPMENTS

Operating Environment

Economic Environment

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

Japanese gross domestic product (“GDP”) increased by 0.7% on a quarter-on-quarter basis for the period from April to June 2018 based on data published in December 2018 by the Cabinet Office of the Government of Japan, primarily due to increases in private consumption and capital investments by businesses. However, for the period from July to September 2018, the quarter-on-quarter growth rate of Japanese GDP was minus 0.6%, primarily due to decreases in private consumption, capital investments by businesses and exports of goods and services.

Private consumption increased by 0.7% on a quarter-on-quarter basis for the period from April to June 2018, reflecting the steady improvement in the employment and income situation. However, for the period from July to September 2018, it decreased by 0.2% on a quarter-on-quarter basis, primarily due to natural disasters such as heavy rains, typhoons and earthquakes.

Private investment consists of capital investments by businesses and private residential investments. For the period from April to June 2018, capital investments by businesses increased by 2.8% on a quarter-on-quarter basis, since corporate earnings and business sentiment continued to improve. However, for the period from July to September 2018, they decreased by 2.8% on a quarter-on-quarter basis, primarily due to natural disasters. On the other hand, for the period from April to June 2018, private residential investments decreased by 1.9% on a quarter-on-quarter basis, reflecting the downward trend of both the number of dwelling units and the area of floor space for new construction starts of dwellings in the second half of the previous fiscal year. However, they increased by 0.7% on a quarter-on-quarter basis for the period from July to September 2018.

For both periods from April to June 2018 and July to September 2018, the contribution of changes in private inventories to Japanese GDP growth was neutral on a quarter-on-quarter basis.

Exports of goods and services increased by 0.3% on a quarter-on-quarter basis for the period from April to June 2018. However, for the period from July to September 2018, they decreased by 1.8% on a quarter-on-quarter basis, primarily due to supply-side constraints caused by natural disasters.

Imports of goods and services increased by 1.0% on a quarter-on-quarter basis for the period from April to June 2018. However, they decreased by 1.4% on a quarter-on-quarter basis for the period from July to September 2018.

 

2


Table of Contents

Industrial production, as a whole, increased moderately throughout the six months ended September 30, 2018.

The active job openings-to-applicants ratio continued to steadily improve. The unemployment rate remained relatively low, and it was 2.3% in September 2018, a decrease of 0.5 percentage points from the same month of the previous year, based on the Labor Force Survey by the Statistics Bureau in the Ministry of Internal Affairs and Communications. Compensation of employees increased by 1.6% on a quarter-on-quarter basis for the period from April to June 2018. For the period from July to September 2018, it decreased by 0.4% on a quarter-on-quarter basis but still increased by 1.3% on a year-to-year basis.

According to Teikoku Databank, a research institution in Japan, there were approximately 4,000 corporate bankruptcies in Japan for the six months ended September 30, 2018, a decrease of 4.4% from the same period in the previous year, involving approximately ¥0.8 trillion in total liabilities, a decrease of 53.4% from the same period in the previous year.

Interest rates in Japanese financial and capital markets are affected by the monetary policy measures of the Bank of Japan (“BOJ”). In 2016, in addition to the existing provision of ample funds, the BOJ introduced “quantitative and qualitative monetary easing with a negative interest rate” as part of its “quantitative and qualitative monetary easing,” and “quantitative and qualitative monetary easing with yield curve control.” Under this policy framework, the BOJ would keep short-term interest rates down by maintaining its policy of applying a negative interest rate of minus 0.1% to certain excess reserves of financial institutions held at the BOJ. Moreover, the BOJ indicated it would purchase Japanese government bonds so that the yield of the 10-year Japanese government bonds would be close to around 0% to control long-term interest rates. In July 2018, the BOJ decided to introduce forward guidance for policy rates, which states that the BOJ intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, and to conduct market operations as well as asset purchases in a more flexible manner, with a view to persistently continuing with powerful monetary easing. Under such circumstances, the uncollateralized overnight call rate, which is the benchmark short-term interest rate, remained negative for the six months ended September 30, 2018. The yield on newly issued Japanese government bonds with a maturity of 10 years, which is the benchmark long-term interest rate, was slightly above 0% for the same period.

The Nikkei Stock Average, which is a price-weighted average of 225 stocks listed on the Tokyo Stock Exchange First Section, rose from ¥21,454.30 at March 30, 2018 to ¥24,120.04 at September 28, 2018.

The yen depreciated against the U.S. dollar from ¥106.19 at March 30, 2018 to ¥113.44 at September 28, 2018, according to the statistical data published by the BOJ.

The global economy, as a whole, continued to recover gradually for the six months ended September 30, 2018. For the six months ended September 30, 2018, the U.S. economy expanded, supported by robust private consumption, reflecting the steady improvement in the employment and income situation. The European economy continued to recover gradually for the six months ended September 30, 2018, although its pace of growth slowed down. The Chinese economy was gradually picking up, but showed some signs of slowing down toward the end of the period. The growth momentum in other Asian economies, as a whole, gradually headed toward recovery for the six months ended September 30, 2018.

Regulatory Environment

In addition to economic factors and conditions, we expect that our results of operations and financial condition will be significantly affected by regulatory trends.

Capital Adequacy Requirements

Each year, the Financial Stability Board (“FSB”) publishes a list of global financial institutions that it has identified as Global Systemically Important Banks (“G-SIBs”) based on the methodology issued by the Basel

 

3


Table of Contents

Committee on Banking Supervision (“BCBS”). G-SIBs included on the list are required to maintain an amount of Common Equity Tier 1 (“CET1”) capital above the Basel III minimum requirement and applicable capital conservation buffer to discourage such financial institutions from becoming even more systemically important. This is commonly known as the G-SIB capital surcharge.

The G-SIB capital surcharge started to be phased in from January 2016 and, when fully implemented in January 2019, will range from 1% to 2.5% of risk-weighted assets depending upon a bank’s systemic importance as determined by the FSB.

We have been included in the list of G-SIBs each year since the initial list was published in November 2011, and were included on the list published in November 2018. Based on that list, the additional CET1 capital as a percentage of risk-weighted assets we are currently required to maintain under the phase-in requirement is 0.5% and will be 1% when the requirement is fully applied from January 2019.

U.S. Sanctions on Iran

On August 6, 2018, President Trump issued Executive Order 13846, which reinstates provisions of certain Executive Orders that had been revoked in January 2016 to implement Joint Comprehensive Plan of Action (“JCPOA”) agreed to by the five permanent members of the United Nations Security Council plus Germany and Iran, with the European Union. Executive Order 13846 also adds authorities to impose blocking or correspondent account sanctions on foreign financial institutions providing support or services to, or facilitating significant financial transactions on behalf of, certain sanctioned persons and expands the menu of available sanctions for certain significant transactions involving petroleum, petroleum products and petrochemical products that became sanctionable after November 5, 2018.

As of November 5, 2018, following the conclusion of the 90- and 180-day “wind-down” periods for activities permitted under or consistent with the JCPOA, all U.S. sanctions (both primary and secondary) that had been waived or lifted under the JCPOA were re-imposed and fully effective. On the same day, it was announced that Japan is one of the countries that was granted a significant reduction exception authorizing, among other things, financial institutions based in those countries to engage in certain transactions related to the purchase of petroleum or petroleum products from Iran for a period of 180 days.

Developments Related to Our Business

Changes in principal subsidiaries, associates and joint ventures

On April 1, 2018, pursuant to a business integration plan announced in March 2017, Kansai Mirai Financial Group, Inc. (“Kansai Mirai”), a bank holding company in Japan, became our equity-method associate upon the completion of share exchanges between Kansai Urban Banking Corporation and THE MINATO BANK, LTD., which are our equity-method associates, and Kansai Mirai.

On November 28, 2018, based on the final agreement concerning the reorganization of our joint leasing partnership announced in March 2018, we transferred a portion of our shares of Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”), a company jointly owned by us and Sumitomo Corporation (“Sumitomo Corp”), to SMFL. Upon the share transfer, our equity interest in SMFL decreased from 60% to 50% while Sumitomo Corp’s equity interest increased from 40% to 50%. As a result, SMFL ceased to be our consolidated subsidiary and became our joint venture, and its consolidated subsidiaries SMBC Aviation Capital Limited and SMFL Capital Company, Limited became our equity-method investees.

Accounting Changes

See Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this report.

 

4


Table of Contents

OPERATING RESULTS AND FINANCIAL CONDITION

The figures in our operating results and financial condition presented below are prepared in accordance with IFRS as issued by the International Accounting Standards Board, except for the risk-weighted capital ratios, the segment results of operation and some other specifically identified information, which are prepared in accordance with Japanese banking regulations or accounting principles generally accepted in Japan (“Japanese GAAP”), and expressed in Japanese yen, unless otherwise stated or the context otherwise requires.

On April 1, 2018, we adopted IFRS 9 “Financial Instruments” and IFRS 15 “Revenue from Contracts with Customers” retrospectively by adjusting the consolidated statement of financial position at the date of initial application, and have not restated comparatives as permitted by IFRS 9 or IFRS 15. See Note 2 “Summary of Significant Accounting Policies—Significant Accounting Policies” to our consolidated financial statements included elsewhere in this report.

Executive Summary

Under the economic and financial circumstances described in “Recent Developments—Operating Environment,” we made a profit through our business activities including commercial banking and other financial services businesses. Our total operating income decreased by ¥123,808 million from ¥1,755,737 million for the six months ended September 30, 2017 to ¥1,631,929 million for the six months ended September 30, 2018, primarily due to decreases in net interest income and net investment income, which were partially offset by an increase in net income (loss) from financial assets at fair value through profit or loss. Our net profit decreased by ¥64,826 million from ¥479,969 million for the six months ended September 30, 2017 to ¥415,143 million for the six months ended September 30, 2018, due to the decrease in total operating income described above, which was partially offset by a decrease in impairment charges on financial assets.

Our total assets increased by ¥7,194,995 million from ¥192,175,566 million at March 31, 2018 to ¥199,370,561 million at September 30, 2018, primarily due to increases in cash and deposits with banks and loans and advances.

Our total liabilities increased by ¥7,060,605 million from ¥179,679,767 million at March 31, 2018 to ¥186,740,372 million at September 30, 2018, primarily due to increases in deposits, repurchase agreements and cash collateral on securities lent and debt securities in issue.

Our total equity increased by ¥134,390 million from ¥12,495,799 million at March 31, 2018 to ¥12,630,189 million at September 30, 2018, primarily due to increases in retained earnings and other reserves, which were partially offset by a decrease in non-controlling interests.

 

5


Table of Contents

Operating Results

The following table presents information as to our income, expenses and net profit for the six months ended September 30, 2018 and 2017.

 

    For the six months ended
September 30,
 
    2018     2017  
    (In millions, except per share data)  

Interest income

  ¥ 1,151,910     ¥ 1,036,329  

Interest expense

    505,666       337,852  
 

 

 

   

 

 

 

Net interest income

    646,244       698,477  
 

 

 

   

 

 

 

Fee and commission income

    533,801       530,006  

Fee and commission expense

    97,306       99,052  
 

 

 

   

 

 

 

Net fee and commission income

    436,495       430,954  
 

 

 

   

 

 

 

Net trading income

    115,388       139,685  

Net income (loss) from financial assets at fair value through profit or loss

    116,361       (960

Net investment income

    42,384       222,377  

Other income

    275,057       265,204  
 

 

 

   

 

 

 

Total operating income

    1,631,929       1,755,737  
 

 

 

   

 

 

 

Impairment charges on financial assets

    25,260       66,992  
 

 

 

   

 

 

 

Net operating income

    1,606,669       1,688,745  
 

 

 

   

 

 

 

General and administrative expenses

    850,905       888,037  

Other expenses

    239,946       215,666  
 

 

 

   

 

 

 

Operating expenses

    1,090,851       1,103,703  
 

 

 

   

 

 

 

Share of post-tax profit of associates and joint ventures

    25,596       32,223  
 

 

 

   

 

 

 

Profit before tax

    541,414       617,265  
 

 

 

   

 

 

 

Income tax expense

    126,271       137,296  
 

 

 

   

 

 

 

Net profit

  ¥ 415,143     ¥ 479,969  
 

 

 

   

 

 

 

Profit attributable to:

   

Shareholders of Sumitomo Mitsui Financial Group, Inc.

  ¥ 357,436     ¥ 426,002  

Non-controlling interests

    51,807       49,252  

Other equity instruments holders

    5,900       4,715  

Earnings per share:

   

Basic

  ¥ 255.38     ¥ 302.06  

Diluted

    255.21       301.83  

Total operating income decreased by ¥123,808 million, or 7%, from ¥1,755,737 million for the six months ended September 30, 2017 to ¥1,631,929 million for the six months ended September 30, 2018, primarily due to decreases in net interest income and net investment income, which were partially offset by an increase in net income (loss) from financial assets at fair value through profit or loss. Although impairment charges on financial assets decreased, net operating income also decreased by ¥82,076 million from ¥1,688,745 million for the six months ended September 30, 2017, to ¥1,606,669 million for the six months ended September 30, 2018, due to the decrease in total operating income described above.

Net profit decreased by ¥64,826 million from ¥479,969 million for the six months ended September 30, 2017 to ¥415,143 million for the six months ended September 30, 2018, as a result of the decrease in net operating income described above and an increase in other expenses, which were partially offset by a decrease in general and administrative expenses.

 

6


Table of Contents

Net Interest Income

The following tables show the average balances of our statement of financial position items, related interest income, interest expense, net interest income and average annualized interest rates for the six months ended September 30, 2018 and 2017.

 

    For the six months ended September 30,  
  2018     2017  
  Average
balance(4)
    Interest
income
    Average
rate
    Average
balance(4)
    Interest
income
    Average
rate
 
  (In millions, except percentages)  

Interest-earning assets:

           

Interest-earning deposits with other banks(1):

           

Domestic offices

  ¥ 990,974     ¥ 1,662       0.34%     ¥ 830,268     ¥ 2,075       0.50%  

Foreign offices

    5,066,020       49,464       1.95%       4,346,465       32,204       1.48%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Total

    6,056,994       51,126       1.69%       5,176,733       34,279       1.32%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Call loans and bills bought, reverse repurchase agreements and cash
collateral on securities borrowed:

           

Domestic offices

    7,988,140       6,243       0.16%       8,427,962       7,499       0.18%  

Foreign offices

    2,927,194       20,715       1.42%       2,925,500       18,625       1.27%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Total

    10,915,334       26,958       0.49%       11,353,462       26,124       0.46%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Investment securities(1)(2):

           

Domestic offices

    9,112,616       23,975       0.53%       10,720,262       22,933       0.43%  

Foreign offices

    4,125,933       40,896       1.98%       3,185,670       25,071       1.57%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Total

    13,238,549       64,871       0.98%       13,905,932       48,004       0.69%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Loans and advances(1) (3):

           

Domestic offices

    61,368,597       509,375       1.66%       68,778,348       541,002       1.57%  

Foreign offices

    28,467,541       499,580       3.51%       27,713,101       386,920       2.79%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Total

    89,836,138       1,008,955       2.25%       96,491,449       927,922       1.92%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-earning assets:

           

Domestic offices

    79,460,327       541,255       1.36%       88,756,840       573,509       1.29%  

Foreign offices

    40,586,688       610,655       3.01%       38,170,736       462,820       2.42%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Total

  ¥ 120,047,015     ¥ 1,151,910       1.92%     ¥ 126,927,576     ¥ 1,036,329       1.63%  
 

 

 

   

 

 

     

 

 

   

 

 

   

 

7


Table of Contents
    For the six months ended September 30,  
    2018     2017  
    Average
balance(4)
    Interest
expense
    Average
rate
    Average
balance(4)
    Interest
expense
    Average
rate
 
    (In millions, except percentages)  

Interest-bearing liabilities:

           

Deposits:

           

Domestic offices

  ¥ 83,159,708     ¥ 27,194       0.07%     ¥ 86,357,832     ¥ 21,271       0.05%  

Foreign offices

    26,468,693       240,376       1.82%       25,257,428       154,212       1.22%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Total

    109,628,401       267,570       0.49%       111,615,260       175,483       0.31%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Call money and bills sold, repurchase agreements and cash collateral on securities lent and other interest-bearing liabilities:

           

Domestic offices

    7,059,355       13,213       0.37%       11,984,660       8,555       0.14%  

Foreign offices

    4,840,438       44,431       1.84%       4,442,234       20,890       0.94%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Total

    11,899,793       57,644       0.97%       16,426,894       29,445       0.36%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Borrowings(1):

           

Domestic offices

    11,321,914       38,025       0.67%       11,469,063       31,623       0.55%  

Foreign offices

    973,216       16,612       3.41%       1,057,662       10,938       2.07%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Total

    12,295,130       54,637       0.89%       12,526,725       42,561       0.68%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Debt securities in issue(1):

           

Domestic offices

    9,816,923       101,123       2.06%       9,083,150       78,734       1.73%  

Foreign offices

    2,806,373       24,692       1.76%       2,237,662       11,629       1.04%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Total

    12,623,296       125,815       1.99%       11,320,812       90,363       1.60%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-bearing liabilities:

           

Domestic offices

    111,357,900       179,555       0.32%       118,894,705       140,183       0.24%  

Foreign offices

    35,088,720       326,111       1.86%       32,994,986       197,669       1.20%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Total

  ¥ 146,446,620     ¥    505,666       0.69%     ¥ 151,889,691     ¥    337,852       0.44%  
 

 

 

   

 

 

     

 

 

   

 

 

   

Net interest income and interest rate spread

    ¥ 646,244       1.23%       ¥ 698,477       1.19%  
   

 

 

   

 

 

     

 

 

   

 

 

 

 

(1)

Interest-earning deposits with other banks, investment securities and loans and advances include those at SMFL, which are reclassified as assets held for sale. Borrowings and debt securities in issue include those at SMFL, which are reclassified as liabilities directly associated with the assets held for sale.

(2)

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

(3)

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

(4)

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

 

8


Table of Contents

The following tables show changes in our interest income, interest expense and net interest income based on changes in volume and changes in rate for the six months ended September 30, 2018 compared to the six months ended September 30, 2017.

 

     Six months ended September 30, 2018 compared to
six months ended September 30, 2017
Increase / (decrease)
 
         Volume             Rate             Net change      
           (In millions)        

Interest income:

      

Interest-earning deposits with other banks:

      

Domestic offices

   ¥ 353     ¥ (766   ¥ (413

Foreign offices

     5,904       11,356       17,260  
  

 

 

   

 

 

   

 

 

 

Total

     6,257       10,590       16,847  
  

 

 

   

 

 

   

 

 

 

Call loans and bills bought, reverse repurchase agreements and cash collateral on securities borrowed:

      

Domestic offices

     (382     (874     (1,256

Foreign offices

     11       2,079       2,090  
  

 

 

   

 

 

   

 

 

 

Total

     (371     1,205       834  
  

 

 

   

 

 

   

 

 

 

Investment securities:

      

Domestic offices

     (3,772     4,814       1,042  

Foreign offices

     8,404       7,421       15,825  
  

 

 

   

 

 

   

 

 

 

Total

     4,632       12,235       16,867  
  

 

 

   

 

 

   

 

 

 

Loans and advances:

      

Domestic offices

     (60,343     28,716       (31,627

Foreign offices

     10,784       101,876       112,660  
  

 

 

   

 

 

   

 

 

 

Total

     (49,559     130,592       81,033  
  

 

 

   

 

 

   

 

 

 

Total interest income:

      

Domestic offices

     (64,144     31,890       (32,254

Foreign offices

     25,103       122,732       147,835  
  

 

 

   

 

 

   

 

 

 

Total

   ¥ (39,041   ¥ 154,622     ¥ 115,581  
  

 

 

   

 

 

   

 

 

 

 

9


Table of Contents
     Six months ended September 30, 2018 compared to
six months ended September 30, 2017
Increase / (decrease)
 
         Volume             Rate             Net change      
           (In millions)        

Interest expense:

      

Deposits:

      

Domestic offices

   ¥ (827   ¥ 6,750     ¥ 5,923  

Foreign offices

     7,712       78,452       86,164  
  

 

 

   

 

 

   

 

 

 

Total

     6,885       85,202       92,087  
  

 

 

   

 

 

   

 

 

 

Call money and bills sold, repurchase agreements and cash collateral on securities lent and other interest-bearing liabilities:

      

Domestic offices

     (4,581     9,239       4,658  

Foreign offices

     2,025       21,516       23,541  
  

 

 

   

 

 

   

 

 

 

Total

     (2,556     30,755       28,199  
  

 

 

   

 

 

   

 

 

 

Borrowings:

      

Domestic offices

     (410     6,812       6,402  

Foreign offices

     (936     6,610       5,674  
  

 

 

   

 

 

   

 

 

 

Total

     (1,346     13,422       12,076  
  

 

 

   

 

 

   

 

 

 

Debt securities in issue:

      

Domestic offices

     6,707       15,682       22,389  

Foreign offices

     3,507       9,556       13,063  
  

 

 

   

 

 

   

 

 

 

Total

     10,214       25,238       35,452  
  

 

 

   

 

 

   

 

 

 

Total interest expense:

      

Domestic offices

     889       38,483       39,372  

Foreign offices

     12,308       116,134       128,442  
  

 

 

   

 

 

   

 

 

 

Total

   ¥ 13,197     ¥ 154,617     ¥ 167,814  
  

 

 

   

 

 

   

 

 

 

Net interest income:

      

Domestic offices

   ¥ (65,033   ¥ (6,593   ¥ (71,626

Foreign offices

     12,795       6,598       19,393  
  

 

 

   

 

 

   

 

 

 

Total

   ¥ (52,238   ¥ 5     ¥ (52,233
  

 

 

   

 

 

   

 

 

 

 

10


Table of Contents

Interest Income

Our interest income increased by ¥115,581 million, or 11%, from ¥1,036,329 million for the six months ended September 30, 2017 to ¥1,151,910 million for the six months ended September 30, 2018. This increase was primarily due to an increase in interest income on loans and advances. Interest income on loans and advances increased by ¥81,033 million, or 9%, from ¥927,922 million for the six months ended September 30, 2017 to ¥1,008,955 million for the six months ended September 30, 2018, primarily due to performance in our foreign offices, which was partially offset by a decrease at domestic offices reflecting the exclusion of loans and advances made by Kansai Urban Banking Corporation (“KUBC”) and THE MINATO BANK, LTD. (“The Minato Bank”), which ceased to be our subsidiaries and became our equity method associates for the fiscal year ended March 31, 2018. Interest income on loans and advances at foreign offices increased by ¥112,660 million, or 29%, from ¥386,920 million for the six months ended September 30, 2017 to ¥499,580 million for the six months ended September 30, 2018, due to increases in both the average rate and volume of loans to foreign customers.

Interest Expense

Our interest expense increased by ¥167,814 million, or 50%, from ¥337,852 million for the six months ended September 30, 2017 to ¥505,666 million for the six months ended September 30, 2018, primarily due to increases in interest expense on deposits and debt securities in issue. Our interest expense on deposits increased by ¥92,087 million, or 52%, from ¥175,483 million for the six months ended September 30, 2017 to ¥267,570 million for the six months ended September 30, 2018, due to an increase at foreign offices reflecting increases in both the average rate and volume. Interest expense on debt securities in issue increased by ¥35,452 million, or 39%, from ¥90,363 million for the six months ended September 30, 2017 to ¥125,815 million for the six months ended September 30, 2018, primarily due to increases in both the average rate and volume.

Net Interest Income

Our net interest income decreased by ¥52,233 million from ¥698,477 million for the six months ended September 30, 2017 to ¥646,244 million for the six months ended September 30, 2018. The decrease was primarily due to the exclusion of net interest income of KUBC and The Minato Bank, which ceased to be our subsidiaries and became our equity-method associates for the fiscal year ended March 31, 2018.

From the six months ended September 30, 2017 to the six months ended September 30, 2018, the average rate on loans and advances at domestic offices increased by 0.09 percentage points from 1.57% to 1.66%. The average rate on loans and advances at foreign offices increased by 0.72 percentage points from 2.79% to 3.51%, resulting in the total for loans and advances increasing by 0.33 percentage points from 1.92% to 2.25%. On the other hand, the average rate on deposits at domestic offices slightly increased by 0.02 percentage points from 0.05% to 0.07%, and the average rate on deposits at foreign offices increased by 0.60 percentage points from 1.22% to 1.82%, resulting in the total for deposits increasing by 0.18 percentage points from 0.31% to 0.49%.

 

11


Table of Contents

Net Fee and Commission Income

The following table sets forth our net fee and commission income for the six months ended September 30, 2018 and 2017.

 

     For the six months ended
September 30,
 
     2018      2017  
     (In millions)  

Fee and commission income from:

     

Loans

   ¥ 55,965      ¥ 52,379  

Credit card business

     132,106        135,402  

Guarantees

     31,527        30,853  

Securities-related business

     71,944        60,714  

Deposits

     6,196        8,119  

Remittances and transfers

     68,910        69,474  

Safe deposits

     2,301        2,832  

Trust fees

     2,169        1,864  

Investment trusts

     70,294        70,003  

Agency

     6,206        8,329  

Others

     86,183        90,037  
  

 

 

    

 

 

 

Total fee and commission income

     533,801        530,006  
  

 

 

    

 

 

 

Fee and commission expense from:

     

Remittances and transfers

     20,635        19,543  

Others

     76,671        79,509  
  

 

 

    

 

 

 

Total fee and commission expense

     97,306        99,052  
  

 

 

    

 

 

 

Net fee and commission income

   ¥ 436,495      ¥ 430,954  
  

 

 

    

 

 

 

Fee and commission income increased by ¥3,795 million, or 1%, from ¥530,006 million for the six months ended September 30, 2017 to ¥533,801 million for the six months ended September 30, 2018. Primary sources of fee and commission income are fees obtained through our credit card business, fees obtained through securities-related business, fees and commissions obtained through investment trusts, remittance and transfer fees, and loan transaction fees. The increase in fee and commission income was primarily due to an increase in fees obtained through securities-related business, mainly equity underwriting commissions.

Fee and commission expense decreased by ¥1,746 million, or 2%, from ¥99,052 million for the six months ended September 30, 2017 to ¥97,306 million for the six months ended September 30, 2018.

As a result, net fee and commission income increased by ¥5,541 million, or 1%, from ¥430,954 million for the six months ended September 30, 2017 to ¥436,495 million for the six months ended September 30, 2018.

 

12


Table of Contents

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

The following table sets forth our net income (loss) from trading, financial assets at fair value through profit or loss, and investment securities for the six months ended September 30, 2018 and 2017.

 

     For the six months ended
September 30,
 
     2018     2017  
     (In millions)  

Net trading income:

    

Interest rate

   ¥ 25,287     ¥ 96,972  

Foreign exchange

     65,119       15,103  

Equity

     21,124       22,177  

Credit

     3,400       5,275  

Others

     458       158  
  

 

 

   

 

 

 

Total net trading income

   ¥ 115,388     ¥ 139,685  
  

 

 

   

 

 

 

Net income (loss) from financial assets at fair value through profit or loss:

    

Net income (loss) from debt instruments

   ¥ 113,630     ¥ (1,446

Net income from equity instruments

     2,731       486  
  

 

 

   

 

 

 

Total net income (loss) from financial assets at fair value through profit or loss

   ¥ 116,361     ¥ (960
  

 

 

   

 

 

 

Net investment income:

    

Net gain (loss) from disposal of debt instruments

   ¥ (1,007   ¥ 11,360  

Net gain from disposal of equity instruments

     —         145,260  

Dividend income

     43,391       65,757  
  

 

 

   

 

 

 

Total net investment income

   ¥ 42,384     ¥ 222,377  
  

 

 

   

 

 

 

Net trading income, which includes income and losses from trading assets and liabilities and derivative financial instruments, decreased by ¥24,297 million from ¥139,685 million for the six months ended September 30, 2017 to ¥115,388 million for the six months ended September 30, 2018. The decrease was primarily due to a decrease in net trading income from interest rate related transactions related to the “economic hedges,” partially offset by an increase in net trading income from foreign exchange transactions.

We have carried out hedging transactions to hedge the interest rate risk of financial assets and liabilities. Of those hedges, the economic hedges are economically effective for risk management but are not accounted for as hedge accounting under IFRS. Hedged items include loans, borrowings and debt securities in issue, and hedging instruments are derivative financial instruments such as interest rate swaps.

The economic hedge transactions lead to accounting mismatches (i.e., when the gains or losses on the hedged items and hedging instruments do not arise at the same time, or the hedged items and hedging instruments do not offset each other either in profit or loss). Accordingly, large fluctuations in interest rates may result in significant fluctuations to net trading income from interest rate related transactions.

The decrease in net trading income from interest rate related transactions was primarily due to a decrease in fair values of interest rate hedging instruments for the economic hedges, reflecting an increase in U.S. interest rates during the six months ended September 30, 2018.

Net income (loss) from financial assets at fair value through profit or loss increased by ¥117,321 million from a net loss of ¥960 million for the six months ended September 30, 2017 to a net income of ¥116,361 million for the six months ended September 30, 2018. This was primarily due to the adoption of IFRS 9 from April 1,

 

13


Table of Contents

2018. With the adoption of IFRS 9, some of our financial assets classified as available-for-sale financial assets and loans and receivables under IAS 39 “Financial Instruments: Recognition and Measurement” were reclassified into financial assets measured at fair value through profit or loss. The changes in fair values and dividends from such financial assets were included in net income (loss) from financial assets at fair value through profit or loss under IFRS 9. This resulted in a significant increase of net income (loss) from financial assets at fair value through profit or loss.

Net investment income decreased by ¥179,993 million from ¥222,377 million for the six months ended September 30, 2017 to ¥42,384 million for the six months ended September 30, 2018. This was primarily due to the adoption of IFRS 9 from April 1, 2018. With the adoption of IFRS 9, some of our financial assets classified as available-for-sale financial assets under IAS 39 were reclassified into financial assets measured at fair value through profit or loss. Any profit or loss from such financial assets was included in net income (loss) from financial assets at fair value through profit or loss under IFRS 9. Additionally, we made an irrevocable election at initial recognition for particular equity instruments to present subsequent changes in fair values in other comprehensive income. Accordingly, net gains from the disposal of such equity instruments were no longer recognized in profit or loss. This resulted in a significant decrease of net investment income.

For further information about the impact of the adoption of IFRS 9, see Note 2 “Summary of Significant Accounting Policies—Significant Accounting Policies” to our consolidated financial statements included elsewhere in this report.

Other Income

The following table sets forth our other income for the six months ended September 30, 2018 and 2017.

 

     For the six months ended
September 30,
 
           2018                  2017        
     (In millions)  

Income from operating leases

   ¥ 148,069      ¥ 131,484  

Income related to disposal of assets leased

     74,361        82,575  

Income related to IT solution services

     17,074        13,475  

Gains on disposal of property, plant and equipment, and other intangible assets

     144        606  

Reversal of impairment losses of investments in associates and joint ventures

     —          5,682  

Others

     35,409        31,382  
  

 

 

    

 

 

 

Total other income

   ¥ 275,057      ¥ 265,204  
  

 

 

    

 

 

 

Other income increased by ¥9,853 million, or 4%, from ¥265,204 million for the six months ended September 30, 2017 to ¥275,057 million for the six months ended September 30, 2018, primarily due to an increase in income from operating leases, which was partially offset by a decrease in income related to disposal of assets leased.

 

14


Table of Contents

Impairment Charges on Financial Assets

The following table sets forth our impairment charges (reversals) on financial assets for the six months ended September 30, 2018 and 2017.

 

     For the six months ended
September 30,
 
           2018(1)                 2017(2)        
     (In millions)  

Loans and advances

   ¥ 34,207     ¥ 62,936  

Loan commitments

     (9,435     —    

Financial guarantees

     487       —    

Investment securities(3)

     1       4,056  
  

 

 

   

 

 

 

Total impairment charges on financial assets

   ¥ 25,260     ¥ 66,992  
  

 

 

   

 

 

 

 

(1)

For the six months ended September 30, 2018, impairment charges on the financial assets above are determined in accordance with IFRS 9.

(2)

For the six months ended September 30, 2017, impairment charges on loans and advances and investment securities were determined in accordance with IAS 39, while losses for loan commitments and financial guarantee contracts were determined in accordance with IAS 37.

(3)

Investment securities, which were formerly available-for-sale financial assets under IAS 39, include debt instruments measured at fair value through other comprehensive income and those measured at amortized cost under IFRS 9.

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

Impairment charges on financial assets decreased by ¥41,732 million from ¥66,992 million for the six months ended September 30, 2017 to ¥25,260 million for the six months ended September 30, 2018, primarily due to a decrease in impairment charges on loans and advances. The decrease was primarily due to a decrease in the provision for loan losses reflecting the reversal of allowance for loan losses of large borrowers resulting from improvement of financial performance. For detailed information on provision for loan losses, see “—Financial Condition—Allowance for Loan Losses.”

 

15


Table of Contents

General and Administrative Expenses

The following table sets forth our general and administrative expenses for the six months ended September 30, 2018 and 2017.

 

     For the six months ended
September 30,
 
   2018      2017  
   (In millions)  

Personnel expenses

   ¥ 410,177      ¥ 427,973  

Depreciation and amortization

     83,456        85,914  

Rent and lease expenses

     56,870        59,282  

Building and maintenance expenses

     3,661        4,329  

Supplies expenses

     7,654        7,984  

Communication expenses

     18,767        18,804  

Publicity and advertising expenses

     27,178        35,706  

Taxes and dues

     39,918        43,127  

Outsourcing expenses

     49,788        47,704  

Premiums for deposit insurance

     17,662        18,864  

Office equipment expenses

     24,819        26,536  

Others

     110,955        111,814  
  

 

 

    

 

 

 

Total general and administrative expenses

   ¥ 850,905      ¥ 888,037  
  

 

 

    

 

 

 

General and administrative expenses decreased by ¥37,132 million, or 4%, from ¥888,037 million for the six months ended September 30, 2017 to ¥850,905 million for the six months ended September 30, 2018. This was primarily due to the exclusion of general and administrative expenses of KUBC and The Minato Bank, which ceased to be our subsidiaries and became our equity-method associates for the fiscal year ended March 31, 2018. Excluding the above-mentioned effect, general and administrative expenses remained almost at the same level as that for the six months ended September 30, 2017, reflecting the continuous SMBC Group-wide expense control initiatives.

Other Expenses

The following table sets forth our other expenses for the six months ended September 30, 2018 and 2017.

 

     For the six months ended
September 30,
 
   2018      2017  
   (In millions)  

Cost of operating leases

   ¥ 74,100      ¥ 68,056  

Cost related to disposal of assets leased

     67,031        77,365  

Cost related to IT solution services and IT systems

     48,702        45,626  

Losses on disposal of property, plant and equipment, and other intangible assets

     2,885        801  

Impairment losses of property, plant and equipment

     1,954        3,072  

Impairment losses of investments in associates and joint ventures

     23,565        —    

Others

     21,709        20,746  
  

 

 

    

 

 

 

Total other expenses

   ¥ 239,946      ¥ 215,666  
  

 

 

    

 

 

 

Other expenses increased by ¥24,280 million, or 11%, from ¥215,666 million for the six months ended September 30, 2017 to ¥239,946 million for the six months ended September 30, 2018, primarily due to the recognition of impairment losses of investments in associates and joint ventures for the six months ended September 30, 2018.

 

16


Table of Contents

Share of Post-tax Profit of Associates and Joint Ventures

Share of post-tax profit of associates and joint ventures decreased by ¥6,627 million from ¥32,223 million for the six months ended September 30, 2017 to ¥25,596 million for the six months ended September 30, 2018. This was primarily because The Bank of East Asia, Limited recognized gains on sale of its subsidiary in the same period in the previous year. The decrease was partially offset by the impact of Kansai Mirai Financial Group, Inc. having become our equity-method associate in April 2018.

Income Tax Expense

Income tax expense decreased by ¥11,025 million from ¥137,296 million for the six months ended September 30, 2017 to ¥126,271 million for the six months ended September 30, 2018, reflecting decreases in both deferred tax expense and current tax expense. The decrease in deferred tax expense was primarily due to an increase of deductible temporary differences. The decrease in current tax expense was primarily due to the adoption of IFRS 9 from April 1, 2018, which was partially offset by the effect of an increase in taxable income. Under IFRS 9, gains and losses arising from the disposal of particular equity instruments previously included in net investment income are no longer recognized in profit or loss. Accordingly, the current tax expense related to the disposal of these equity instruments is also not recognized in profit or loss. For further information on the adoption of IFRS 9, see Note 2 “Summary of Significant Accounting Policies—Significant Accounting Policies” to our consolidated financial statements included elsewhere in this report.

Business Segment Analysis

Our business segment information is prepared based on the internal reporting system utilized by management to assess the performance of our business segments under Japanese GAAP.

We have four main business segments: the Wholesale Business Unit, the Retail Business Unit, the International Business Unit and the Global Markets Business Unit, with the remaining operations recorded in Head office account and others.

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

Description of Business Segments

Wholesale Business Unit

The Wholesale Business Unit provides financing, investment management, risk hedging, and settlement services as well as financial solutions that respond to wide-ranging client needs in relation to M&A and other advisory services and leasing, primarily for large-and mid-sized corporate clients in Japan. This business unit mainly consists of the wholesale businesses of SMBC, SMBC Nikko Securities, SMBC Trust Bank and SMFL.

Retail Business Unit

The Retail Business Unit provides financial services to both consumers residing in Japan and domestic small-sized companies, and mainly consists of the retail business of SMBC, SMBC Nikko Securities and SMBC Trust Bank together with the three consumer finance companies, Sumitomo Mitsui Card, Cedyna and SMBC Consumer Finance. This business unit offers a wide range of products and services for consumers, including wealth management, settlement services, consumer finance and housing loans, in order to address the financial needs of all individual customers. For small-sized companies, this business unit provides a wide array of financial products and services to comprehensively address business owners’ needs as both corporate managers and individuals such as business and asset succession.

 

17


Table of Contents

International Business Unit

The International Business Unit supports the global businesses of a diverse range of clients, such as Japanese companies operating overseas, non-Japanese companies, financial institutions, and government agencies and public corporations of various countries. This business unit provides a variety of tailored products and services to meet customer and market requirements, including loans, deposits, clearing services, trade finance, project finance, loan syndication, derivatives, global cash management services, global vendor financing, leasing and securities business such as bond underwriting. This business unit mainly consists of the international businesses of SMBC, SMBC Nikko Securities, SMBC Trust Bank, SMFL and their foreign subsidiaries.

Global Markets Business Unit

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

Head office account and others

The Head office account and others represent the difference between the aggregate of the Wholesale Business Unit, the Retail Business Unit, the International Business Unit and the Global Markets Business Unit, and the SMBC Group as a whole. It mainly consists of administrative expenses related to headquarters operations and other subsidiaries and equity-method associates, including The Japan Research Institute and SMAM. It also includes internal transactions between the SMBC Group companies, which are eliminated in our consolidated financial statements.

 

18


Table of Contents

Segmental Results of Operations

For the six months ended September 30, 2018:

 

    Wholesale
Business
Unit
    Retail
Business
Unit
    International
Business
Unit
    Global Markets
Business
Unit
    Head office
account and
others(3)
    Total  
    (In billions)  

Consolidated gross profit(1)

  ¥ 383.1     ¥ 633.0     ¥ 338.1     ¥ 200.2     ¥ (94.4   ¥ 1,460.0  

General and administrative expenses

    (171.1     (508.7     (156.0     (27.2     10.5       (852.5

Others(2)

    21.6       6.0       21.7       9.5       (25.9     32.9  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net business profit

  ¥ 233.6     ¥ 130.3     ¥ 203.8     ¥ 182.5     ¥ (109.8   ¥ 640.4  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated Gross Profit by Business Segment

(For the six months ended September 30, 2018)

 

LOGO

 

19


Table of Contents

For the six months ended September 30, 2017:

 

    Wholesale
Business
Unit
    Retail
Business
Unit
    International
Business
Unit
    Global Markets
Business
Unit
    Head office
account and
others(3)
    Total  
    (In billions)  

Consolidated gross profit(1)

  ¥ 362.0     ¥ 633.0     ¥ 311.0     ¥ 196.4     ¥ (36.6   ¥ 1,465.8  

General and administrative expenses

    (171.0     (506.1     (139.2     (26.6     (51.7     (894.6

Others(2)

    23.8       5.6       30.3       8.5       (38.1     30.1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net business profit

  ¥ 214.8     ¥ 132.5     ¥ 202.1     ¥ 178.3     ¥ (126.4   ¥ 601.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

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

(2)

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

(3)

The results of KUBC and The Minato Bank, which ceased to be our subsidiaries and became our equity-method associates in the fourth quarter of the previous fiscal year, are not included in consolidated gross profit and general and administrative expenses but included in others as share of profit or loss of equity-method associates for the six months ended September 30, 2018.

The following are explanations of our results of operations by business segment for the six months ended September 30, 2018. It also includes the changes from the same period of the previous year, which are adjusted by eliminating the impact of factors such as changes in interest rates and exchange rates that may distort the comparison.

Wholesale Business Unit

Consolidated gross profit for the six months ended September 30, 2018 was ¥383.1 billion and increased by ¥12.0 billion on an adjusted basis compared to the six months ended September 30, 2017. This was primarily due to an increase in consolidated gross profit related to structured finance of SMBC and security business.

General and administrative expenses for the six months ended September 30, 2018 was ¥171.1 billion and increased by ¥2.3 billion on an adjusted basis compared to the six months ended September 30, 2017.

Others for the six months ended September 30, 2018 was ¥21.6 billion.

As a result, consolidated net business profit for the six months ended September 30, 2018 was ¥233.6 billion and increased by ¥9.1 billion on an adjusted basis compared to the six months ended September 30, 2017.

Retail Business Unit

Consolidated gross profit for the six months ended September 30, 2018 was ¥633.0 billion and increased by ¥2.8 billion on an adjusted basis compared to the six months ended September 30, 2017. This was primarily due to an increase in consolidated gross profit related to credit card business, which was partially offset by a decrease in income on loans of SMBC.

General and administrative expenses for the six months ended September 30, 2018 was ¥508.7 billion and increased by ¥3.4 billion on an adjusted basis compared to the six months ended September 30, 2017.

Others for the six months ended September 30, 2018 was ¥6.0 billion.

As a result, consolidated net business profit for the six months ended September 30, 2018 was ¥130.3 billion and decreased by ¥0.1 billion on an adjusted basis compared to the six months ended September 30, 2017.

 

20


Table of Contents

International Business Unit

Consolidated gross profit for the six months ended September 30, 2018 was ¥338.1 billion and increased by ¥21.5 billion on an adjusted basis compared to the six months ended September 30, 2017. This was primarily due to increases in non-asset related income and loan related fees.

General and administrative expenses for the six months ended September 30, 2018 was ¥156.0 billion and increased by ¥12.3 billion on an adjusted basis compared to the six months ended September 30, 2017.

Others for the six months ended September 30, 2018 was ¥21.7 billion and decreased by ¥7.8 billion on an adjusted basis compared to the six months ended September 30, 2017. This was because The Bank of East Asia, Limited, which is our equity-method associate, recognized gains on sale of its subsidiary in the same period in the previous year.

As a result, consolidated net business profit for the six months ended September 30, 2018 was ¥203.8 billion and increased by ¥1.4 billion on an adjusted basis compared to the six months ended September 30, 2017.

Global Markets Business Unit

Consolidated gross profit for the six months ended September 30, 2018 was ¥200.2 billion and increased by ¥3.8 billion on an adjusted basis compared to the six months ended September 30, 2017. This was primarily due to a nimble portfolio rebalance based on the market environment.

General and administrative expenses for the six months ended September 30, 2018 was ¥27.2 billion and increased by ¥0.2 billion on an adjusted basis compared to the six months ended September 30, 2017.

Others for the six months ended September 30, 2018 was ¥9.5 billion.

As a result, consolidated net business profit for the six months ended September 30, 2018 was ¥182.5 billion and increased by ¥4.6 billion on an adjusted basis compared to the six months ended September 30, 2017.

Revenues by Region

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

 

     For the six months ended
September 30,
 
     2018     2017  

Region:

    

Japan

     66     72

Foreign:

    

Americas

     11     8

Europe and Middle East

     12     12

Asia and Oceania (excluding Japan)

     11     8
  

 

 

   

 

 

 

Total

     100     100
  

 

 

   

 

 

 

 

21


Table of Contents

Financial Condition

Assets

Our total assets increased by ¥7,194,995 million from ¥192,175,566 million at March 31, 2018 to ¥199,370,561 million at September 30, 2018, primarily due to increases in cash and deposits with banks and loans and advances.

Our assets at September 30, 2018 and March 31, 2018 were as follows:

 

    At September 30,
2018
    At March 31,
2018
 
    (In millions)  

Cash and deposits with banks

  ¥ 56,793,422     ¥ 54,696,069  

Call loans and bills bought

    2,360,765       1,881,880  

Reverse repurchase agreements and cash collateral on securities borrowed

    9,691,156       8,491,703  

Trading assets

    3,003,342       3,169,123  

Derivative financial instruments

    3,860,925       3,885,271  

Financial assets at fair value through profit or loss

    2,988,640       1,547,672  

Investment securities

    18,795,792       20,495,075  

Loans and advances

    88,560,861       85,129,070  

Investments in associates and joint ventures

    641,053       730,414  

Property, plant and equipment

    1,490,003       1,510,132  

Intangible assets

    818,219       835,902  

Other assets

    4,341,330       4,043,908  

Current tax assets

    50,631       87,961  

Deferred tax assets

    16,378       19,436  

Assets held for sale

    5,958,044       5,651,950  
 

 

 

   

 

 

 

Total assets

  ¥ 199,370,561     ¥ 192,175,566  
 

 

 

   

 

 

 

Loans and Advances

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

At September 30, 2018, our loans and advances were ¥88,560,861 million, or 44% of total assets, representing an increase of ¥3,431,791 million, or 4%, from ¥85,129,070 million at March 31, 2018. The increase in loans and advances was primarily due to an increase in loans and advances to foreign customers mainly in the United States. Loans and advances to domestic customers were on the same level with those at March 31, 2018, due to an increase in loans and advances to domestic corporate customers and a decrease by almost the same amount in domestic housing loans.

 

22


Table of Contents

Domestic

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

 

     At September 30,
2018
     At March 31,
2018
 
     (In millions)  

Manufacturing

   ¥ 8,222,550      ¥ 7,961,620  

Agriculture, forestry, fisheries and mining

     284,083        145,957  

Construction

     915,643        947,765  

Transportation, communications and public enterprises

     5,315,485        5,424,054  

Wholesale and retail

     5,211,458        5,288,767  

Finance and insurance

     2,932,505        2,777,862  

Real estate and goods rental and leasing

     9,061,575        9,017,664  

Services

     4,403,195        4,255,228  

Municipalities

     739,664        1,000,286  

Lease financing

     14,340        14,629  

Consumer(1)

     16,220,708        16,363,489  

Others(2)

     4,549,465        4,633,306  
  

 

 

    

 

 

 

Total domestic

   ¥ 57,870,671      ¥ 57,830,627  
  

 

 

    

 

 

 

 

(1)

The balance in Consumer mainly consists of housing loans. The housing loan balances amounted to ¥11,326,561 million and ¥11,482,678 million at September 30, 2018 and March 31, 2018, respectively.

(2)

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

Foreign

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

 

     At September 30,
2018
     At March 31,
2018
 
     (In millions)  

Public sector

   ¥ 400,653      ¥ 372,008  

Financial institutions

     5,351,699        4,496,646  

Commerce and industry

     23,316,324        21,023,885  

Lease financing

     330,428        357,660  

Others

     2,150,808        1,779,101  
  

 

 

    

 

 

 

Total foreign

   ¥ 31,549,912      ¥ 28,029,300  
  

 

 

    

 

 

 

Allowance for Loan Losses

We calculate the allowance for loan losses using the latest assignment of obligor grades (our internal credit rating) and supplementary data such as the borrowers’ operating cash flows, realizable value of collateral and recent economic conditions. For the six months ended September 30, 2018, a new model called expected credit loss (“ECL”) model was introduced by IFRS 9 for the measurement of allowance for loan losses. For additional information, see Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this report.

 

23


Table of Contents

For the six months ended September 30, 2018, the allowance for loan losses decreased by ¥45,214 million, or 7%, from ¥651,620 million at the beginning of the period to ¥606,406 million at the end of the period. The balance of the allowance for loan losses increases when a provision for loan losses is recognized and decreases when charge-offs are recognized through the sales of loans and write-offs. As we recorded a provision for loan losses of ¥34,207 million and charge-offs of ¥87,273 million for the six months ended September 30, 2018, and charge-offs exceeded the provision for loan losses, the overall allowance for loan losses decreased.

Provision for loan losses decreased by ¥28,729 million from ¥62,936 million for the six months ended September 30, 2017 to ¥34,207 million for the six months ended September 30, 2018. The decrease was primarily due to the reversal of allowance for loan losses of large borrowers resulting from improvement of financial performance.

Charge-offs increased by ¥1,659 million from ¥85,614 million for the six months ended September 30, 2017 to ¥87,273 million for the six months ended September 30, 2018. The overall charge-offs of domestic loans and advances decreased by ¥3,595 million from ¥71,519 million for the six months ended September 30, 2017 to ¥67,924 million for the six months ended September 30, 2018, primarily due to a decrease in charge-offs related to consumer loans. Charge-offs of foreign loans and advances increased by ¥5,254 million from ¥14,095 million for the six months ended September 30, 2017 to ¥19,349 million for the six months ended September 30, 2018.

The following table shows the analysis of our allowance for loan losses for the six months ended September 30, 2018 and 2017.

 

     For the six months ended
September 30,
 
   2018      2017  
   (In millions)  

Allowance for loan losses at beginning of period(1)

   ¥ 651,620      ¥ 680,456  

Provision for loan losses

     34,207        62,936  

Charge-offs:

     

Domestic

     67,924        71,519  

Foreign

     19,349        14,095  
  

 

 

    

 

 

 

Total

     87,273        85,614  
  

 

 

    

 

 

 

Recoveries:

     

Domestic

     4,854        5,031  

Foreign

     351        271  
  

 

 

    

 

 

 

Total

     5,205        5,302  
  

 

 

    

 

 

 

Net charge-offs

     82,068        80,312  

Others(2)

     2,647        4,878  
  

 

 

    

 

 

 

Allowance for loan losses at end of period

   ¥ 606,406      ¥ 667,958  
  

 

 

    

 

 

 

 

(1)

Allowance for loan losses at beginning of period for the six months ended September 30, 2018 is calculated under IFRS 9. For additional information, refer to Note 2 “Summary of Significant Accounting Policies.”

(2)

Others mainly include foreign exchange translations for the six months ended September 30, 2018 and 2017.

Impaired Loans and Advances

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

 

24


Table of Contents

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

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

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

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

 

25


Table of Contents

The following table shows the distribution of impaired loans and advances by “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” “restructured (loans),” and “other impaired (loans and advances)” at September 30, 2018 and March 31, 2018 by domicile and type of industry of the borrowers. At September 30, 2018, gross impaired loans and advances were ¥844,313 million, a decrease of ¥34,555 million from ¥878,868 million at March 31, 2018. The ratio of gross impaired loans and advances to outstanding loans and advances before deducting the allowance for loan losses, and adjusting unearned income, unamortized premiums-net and deferred loan fees-net was 0.9% at September 30, 2018, a decrease of 0.1 percentage points from 1.0% at March 31, 2018.

 

    At September 30,
2018
    At March 31,
2018
 
    (In millions)  

Potentially bankrupt, effectively bankrupt and bankrupt (loans and advances):

   

Domestic:

   

Manufacturing

  ¥ 52,491     ¥ 62,322  

Agriculture, forestry, fisheries and mining

    6,559       6,369  

Construction

    9,640       10,439  

Transportation, communications and public enterprises

    14,718       15,494  

Wholesale and retail

    70,723       74,332  

Finance and insurance

    21,368       3,021  

Real estate and goods rental and leasing

    28,552       32,634  

Services

    49,729       50,858  

Consumer

    165,438       157,221  

Others

    20,996       23,081  
 

 

 

   

 

 

 

Total domestic

    440,214       435,771  
 

 

 

   

 

 

 

Foreign:

   

Financial institutions

    189       30  

Commerce and industry

    106,713       144,975  

Others

    23,865       22,383  
 

 

 

   

 

 

 

Total foreign

    130,767       167,388  
 

 

 

   

 

 

 

Total

    570,981       603,159  
 

 

 

   

 

 

 

Past due three months or more (loans):

   

Domestic

    29,947       21,649  

Foreign

    3,532       —    
 

 

 

   

 

 

 

Total

    33,479       21,649  
 

 

 

   

 

 

 

Restructured (loans):

   

Domestic

    135,388       136,582  

Foreign

    17,189       17,567  
 

 

 

   

 

 

 

Total

    152,577       154,149  
 

 

 

   

 

 

 

Other impaired (loans and advances):

   

Domestic

    79,965       93,175  

Foreign

    7,311       6,736  
 

 

 

   

 

 

 

Total

    87,276       99,911  
 

 

 

   

 

 

 

Gross impaired loans and advances

    844,313       878,868  
 

 

 

   

 

 

 

Less: Allowance for loan losses for impaired loans and advances

    (338,889     (369,386
 

 

 

   

 

 

 

Net impaired loans and advances

  ¥ 505,424     ¥ 509,482  
 

 

 

   

 

 

 

 

26


Table of Contents

Investment Securities

Our investment securities, including debt instruments at amortized cost, debt instruments at fair value through other comprehensive income and equity instruments at fair value through other comprehensive income, totaled ¥18,795,792 million at September 30, 2018, a decrease of ¥1,699,283 million, or 8%, from ¥20,495,075 million at March 31, 2018. Our investment securities consisted of held-to-maturity investments and available-for-sale financial assets at March 31, 2018. The decrease in our investment securities was primarily due to a decrease in our holdings of Japanese government bonds, and the reclassification of some financial assets classified as available-for-sale financial assets under IAS 39 to financial assets measured at fair value through profit or loss under IFRS 9. The decrease was partially offset by an increase in our holdings of U.S. Treasury securities. For more information about the impact of the adoption of IFRS 9, see Note 2 “Summary of Significant Accounting Policies—Significant Accounting Policies” to our consolidated financial statements included elsewhere in this report.

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

Our debt instruments at amortized cost amounted to ¥300,338 million at September 30, 2018, a decrease of ¥72,121 million, or 19%, from ¥372,459 million at March 31, 2018. Our debt instruments were classified as held-to-maturity investments under IAS 39 at March 31, 2018. The decrease was primarily due to redemptions at maturity of Japanese government bonds.

Domestic debt instruments at fair value through other comprehensive income amounted to ¥5,851,058 million at September 30, 2018, a decrease of ¥2,177,878 million, or 27%, from ¥8,028,936 million at March 31, 2018. Our debt instruments were classified as available-for-sale financial assets under IAS 39 at March 31, 2018. The decrease was primarily due to a decrease in our holdings of Japanese government bonds. As for our foreign debt instruments at fair value through other comprehensive income, we had ¥7,963,711 million of foreign debt instruments at September 30, 2018, which was an increase of ¥1,709,941 million, or 27%, from ¥6,253,770 million at March 31, 2018. Most of our foreign debt instruments, including mortgage-backed securities, are issued or guaranteed by foreign governments, government agencies or official institutions. The increase was primarily due to an increase in our holdings of U.S. Treasury securities.

We had ¥4,238,604 million of domestic equity instruments and ¥442,081 million of foreign equity instruments at September 30, 2018, for which we made an irrevocable election at initial recognition to present subsequent changes in fair value in other comprehensive income under IFRS 9. These equity instruments were classified as available-for-sale financial assets under IAS 39 at March 31, 2018. Our domestic equity instruments, which consisted principally of publicly traded Japanese stocks and included common and preferred stocks issued by our customers, decreased by ¥923,130 million, or 18%, from ¥5,161,734 million at March 31, 2018. Our foreign equity instruments also decreased by ¥236,095 million, or 35%, from ¥ 678,176 million at March 31, 2018. These decreases were primarily due to the adoption of IFRS 9 from April 1, 2018. With the adoption of IFRS 9, some of financial assets classified as available-for-sale financial assets under IAS 39 were reclassified as financial assets measured at fair value through profit or loss.

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

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

 

27


Table of Contents

The following tables show the amortized cost, gross unrealized gains and losses, and fair value of our investment securities, which were classified as debt instruments at amortized cost, debt instruments at fair value through other comprehensive income and equity instruments at fair value through other comprehensive income at September 30, 2018 and held-to-maturity investments and available-for-sale financial assets at March 31, 2018.

 

     At September 30, 2018  
     Amortized
cost(1)
     Gross
unrealized
gains
     Gross
unrealized
losses
     Fair value  
     (In millions)  

Debt instruments at amortized cost:

           

Domestic:

           

Japanese government bonds

   ¥ 300,338      ¥ 1,087      ¥ —        ¥ 301,425  

Foreign

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 300,338      ¥ 1,087      ¥ —        ¥ 301,425  
  

 

 

    

 

 

    

 

 

    

 

 

 

Debt instruments at fair value through other comprehensive income:

           

Domestic:

           

Japanese government bonds

   ¥ 5,478,289      ¥ 8,436      ¥ 11,206      ¥ 5,475,519  

Japanese municipal bonds

     55,702        27        162        55,567  

Japanese corporate bonds

     319,925        616        594        319,947  

Other debt instruments

     25        —          —          25  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total domestic

     5,853,941        9,079        11,962        5,851,058  
  

 

 

    

 

 

    

 

 

    

 

 

 

Foreign:

           

U.S. Treasury and other U.S. government agency bonds

     4,848,530        49        178,945        4,669,634  

Bonds issued by other governments and official institutions

     2,596,811        620        14,238        2,583,193  

Mortgage-backed securities

     526,977        31        27,543        499,465  

Other debt instruments

     211,183        478        242        211,419  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total foreign

     8,183,501        1,178        220,968        7,963,711  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 14,037,442      ¥ 10,257      ¥ 232,930      ¥ 13,814,769  
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity instruments at fair value through other comprehensive income:

           

Domestic

   ¥ 1,659,742      ¥ 2,631,068      ¥ 52,206      ¥ 4,238,604  

Foreign

     94,897        366,045        18,861        442,081  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 1,754,639      ¥ 2,997,113      ¥ 71,067      ¥ 4,680,685  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

 

28


Table of Contents
     At March 31, 2018  
     Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
     Fair value  
     (In millions)  

Held-to-maturity investments:

           

Domestic:

           

Japanese government bonds

   ¥ 372,459      ¥ 2,138      ¥ —        ¥ 374,597  

Foreign

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 372,459      ¥ 2,138      ¥ —        ¥ 374,597  
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale financial assets:

           

Domestic:

           

Japanese government bonds

   ¥ 7,675,028      ¥ 14,554      ¥ 4,279      ¥ 7,685,303  

Japanese municipal bonds

     47,079        49        96        47,032  

Japanese corporate bonds

     295,503        1,221        123        296,601  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total domestic debt instruments

     8,017,610        15,824        4,498        8,028,936  

Equity instruments

     2,237,143        2,946,737        22,146        5,161,734  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total domestic

     10,254,753        2,962,561        26,644        13,190,670  
  

 

 

    

 

 

    

 

 

    

 

 

 

Foreign:

           

U.S. Treasury and other U.S. government agency bonds

     3,387,109        1,723        142,186        3,246,646  

Bonds issued by other governments and official institutions

     2,192,099        4,203        8,852        2,187,450  

Mortgage-backed securities

     509,104        31        20,952        488,183  

Other debt instruments

     331,321        507        337        331,491  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total foreign debt instruments

     6,419,633        6,464        172,327        6,253,770  

Equity instruments

     342,155        340,366        4,345        678,176  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total foreign

     6,761,788        346,830        176,672        6,931,946  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 17,016,541      ¥ 3,309,391      ¥ 203,316      ¥ 20,122,616  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

29


Table of Contents

The following tables show the fair value and gross unrealized losses of our investment securities, aggregated by the length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2018 and March 31, 2018. At March 31, 2018, none of the available-for-sale equity instruments have been in a continuous unrealized loss position for twelve months or more, since a significant or prolonged decline in the fair value of an available-for-sale equity instrument below its cost is considered to be an objective evidence of impairment and in such case the unrealized losses are reclassified from equity to profit or loss.

 

    At September 30, 2018  
    Less than twelve months     Twelve months or more     Total  
    Fair value     Gross
unrealized
losses
    Fair value     Gross
unrealized
losses
    Fair value     Gross
unrealized
losses
 
    (In millions)  

Debt instruments at amortized cost:

           

Domestic:

           

Japanese government bonds

  ¥ —       ¥ —       ¥ —       ¥ —       ¥ —       ¥ —    

Foreign

    —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥ —       ¥ —       ¥ —       ¥ —       ¥ —       ¥ —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Debt instruments at fair value through other comprehensive income:

           

Domestic:

           

Japanese government bonds

  ¥ 1,079,115     ¥ 5,709     ¥ 2,059,926     ¥ 5,497     ¥ 3,139,041     ¥ 11,206  

Japanese municipal bonds

    35,810       86       19,180       76       54,990       162  

Japanese corporate bonds

    158,547       412       47,401       182       205,948       594  

Other debt instruments

    —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total domestic

    1,273,472       6,207       2,126,507       5,755       3,399,979       11,962  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign:

           

U.S. Treasury and other U.S. government agency bonds

    3,247,171       44,290       1,397,262       134,655       4,644,433       178,945  

Bonds issued by other governments and official institutions

    2,067,065       5,530       176,060       8,708       2,243,125       14,238  

Mortgage-backed securities

    32,258       423       462,763       27,120       495,021       27,543  

Other debt instruments

    89,720       59       17,322       183       107,042       242  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total foreign

    5,436,214       50,302       2,053,407       170,666       7,489,621       220,968  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥ 6,709,686     ¥ 56,509     ¥ 4,179,914     ¥ 176,421     ¥ 10,889,600     ¥ 232,930  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity instruments at fair value through other comprehensive income:

           

Domestic

  ¥ 36,571     ¥ 6,976     ¥ 175,127     ¥ 45,230     ¥ 211,698     ¥ 52,206  

Foreign

    —         2       22,955       18,859       22,955       18,861  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥ 36,571     ¥ 6,978     ¥ 198,082     ¥ 64,089     ¥ 234,653     ¥ 71,067  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents
    At March 31, 2018  
    Less than twelve months     Twelve months or more     Total  
    Fair value     Gross
unrealized
losses
    Fair value     Gross
unrealized
losses
    Fair value     Gross
unrealized
losses
 
    (In millions)  

Held-to-maturity investments:

           

Domestic:

           

Japanese government bonds

  ¥ 2,001     ¥ —       ¥ —       ¥ —       ¥ 2,001     ¥ —    

Foreign

    —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥ 2,001     ¥ —       ¥ —       ¥ —       ¥ 2,001     ¥ —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Available-for-sale financial assets:

           

Domestic:

           

Japanese government bonds

  ¥ 2,847,250     ¥ 559     ¥ 1,353,121     ¥ 3,720     ¥ 4,200,371     ¥ 4,279  

Japanese municipal bonds

    964       1       31,916       95       32,880       96  

Japanese corporate bonds

    6,801       2       72,061       121       78,862       123  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total domestic debt instruments

    2,855,015       562       1,457,098       3,936       4,312,113       4,498  

Equity instruments

    506,969       22,146       —         —         506,969       22,146  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total domestic

    3,361,984       22,708       1,457,098       3,936       4,819,082       26,644  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign:

           

U.S. Treasury and other U.S. government agency bonds

    1,509,509       41,946       1,229,979       100,240       2,739,488       142,186  

Bonds issued by other governments and official institutions

    1,039,848       739       219,608       8,113       1,259,456       8,852  

Mortgage-backed securities

    1,124       1       482,141       20,951       483,265       20,952  

Other debt instruments

    141,058       161       17,269       176       158,327       337  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total foreign debt instruments

    2,691,539       42,847       1,948,997       129,480       4,640,536       172,327  

Equity instruments

    65,105       4,345       —         —         65,105       4,345  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total foreign

    2,756,644       47,192       1,948,997       129,480       4,705,641       176,672  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥ 6,118,628     ¥ 69,900     ¥ 3,406,095     ¥ 133,416     ¥   9,524,723     ¥ 203,316  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Trading Assets

The following table shows our trading assets at September 30, 2018 and March 31, 2018. Our trading assets were ¥3,003,342 million at September 30, 2018, a decrease of ¥165,781 million from ¥3,169,123 million at March 31, 2018. The decrease was primarily due to a decrease in our holdings of Japanese government bonds.

 

     At September 30,
2018
     At March 31,
2018
 
     (In millions)  

Debt instruments

   ¥ 2,545,666      ¥ 2,841,148  

Equity instruments

     457,676        327,975  
  

 

 

    

 

 

 

Total trading assets

   ¥     3,003,342      ¥     3,169,123  
  

 

 

    

 

 

 

 

31


Table of Contents

Financial Assets at Fair Value Through Profit or Loss

The following table shows the fair value of our financial assets at fair value through profit or loss at September 30, 2018 and March 31, 2018. The fair value was ¥2,988,640 million at September 30, 2018, an increase of ¥1,440,968 million from ¥1,547,672 million at March 31, 2018. The increase was primarily due to the adoption of IFRS 9 at April 1, 2018. For more information about the impact of the adoption of IFRS 9, see Note 2 “Summary of Significant Accounting Policies—Significant Accounting Policies” to our consolidated financial statements included elsewhere in this report.

 

     At September 30,
2018
     At March 31,
2018
 
     (In millions)  

Debt instruments

   ¥ 2,967,435      ¥ 1,528,921  

Equity instruments

     21,205        18,751  
  

 

 

    

 

 

 

Total financial assets at fair value through profit or loss

   ¥     2,988,640      ¥     1,547,672  
  

 

 

    

 

 

 

Liabilities

Our total liabilities increased by ¥7,060,605 million from ¥179,679,767 million at March 31, 2018 to ¥186,740,372 million at September 30, 2018, primarily due to increases in deposits, repurchase agreements and cash collateral on securities lent and debt securities in issue.

The following table shows our liabilities at September 30, 2018 and March 31, 2018.

 

     At September 30,
2018
     At March 31,
2018
 
     (In millions)  

Deposits

   ¥ 131,657,778      ¥ 128,461,527  

Call money and bills sold

     2,013,278        1,190,929  

Repurchase agreements and cash collateral on securities lent

     13,693,129        12,022,593  

Trading liabilities

     1,851,229        2,143,899  

Derivative financial instruments

     3,725,693        3,498,016  

Borrowings

     10,980,538        10,652,481  

Debt securities in issue

     11,607,347        10,569,117  

Provisions

     176,422        188,267  

Other liabilities

     6,802,963        6,882,740  

Current tax liabilities

     40,137        55,516  

Deferred tax liabilities

     446,617        397,741  

Liabilities directly associated with the assets held for sale

     3,745,241        3,616,941  
  

 

 

    

 

 

 

Total liabilities

   ¥ 186,740,372      ¥ 179,679,767  
  

 

 

    

 

 

 

Deposits

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

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

 

32


Table of Contents

Our deposit balances at September 30, 2018 were ¥131,657,778 million, an increase of ¥3,196,251 million, or 2%, from ¥128,461,527 million at March 31, 2018, primarily due to increases in interest-bearing demand deposits at domestic offices and deposits at notice at foreign offices.

The following table shows a breakdown of our domestic and foreign offices’ deposits at September 30, 2018 and March 31, 2018.

 

     At September 30,
2018
     At March 31,
2018
 
     (In millions)  

Domestic offices:

     

Non-interest-bearing demand deposits

   ¥ 20,353,853      ¥ 20,370,064  

Interest-bearing demand deposits

     51,236,763        49,580,166  

Deposits at notice

     868,572        855,978  

Time deposits

     18,201,893        18,185,591  

Negotiable certificates of deposit

     5,302,918        5,408,021  

Others

     7,201,422        7,338,619  
  

 

 

    

 

 

 

Total domestic offices

     103,165,421        101,738,439  
  

 

 

    

 

 

 

Foreign offices:

     

Non-interest-bearing demand deposits

     1,277,127        1,241,450  

Interest-bearing demand deposits

     2,638,021        2,574,099  

Deposits at notice

     10,679,802        9,499,686  

Time deposits

     7,576,876        7,469,541  

Negotiable certificates of deposit

     6,187,236        5,812,264  

Others

     133,295        126,048  
  

 

 

    

 

 

 

Total foreign offices

     28,492,357        26,723,088  
  

 

 

    

 

 

 

Total deposits

   ¥ 131,657,778      ¥ 128,461,527  
  

 

 

    

 

 

 

Borrowings

Borrowings include unsubordinated borrowings, subordinated borrowings, liabilities associated with securitization transactions of our own assets, and lease obligations. At September 30, 2018, our borrowings were ¥10,980,538 million, an increase of ¥328,057 million, or 3%, from ¥10,652,481 million at March 31, 2018, primarily due to an increase in unsubordinated borrowings.

The following table shows the balances with respect to our borrowings at September 30, 2018 and March 31, 2018.

 

     At September 30,
2018
     At March 31,
2018
 
     (In millions)  

Unsubordinated borrowings

   ¥ 9,444,200      ¥ 9,158,844  

Subordinated borrowings

     279,788        279,749  

Liabilities associated with securitization transactions

     1,247,588        1,204,722  

Lease obligations

     8,962        9,166  
  

 

 

    

 

 

 

Total borrowings

   ¥   10,980,538      ¥   10,652,481  
  

 

 

    

 

 

 

 

33


Table of Contents

Debt Securities in Issue

Debt securities in issue at September 30, 2018 were ¥11,607,347 million, an increase of ¥1,038,230 million, or 10%, from ¥10,569,117 million at March 31, 2018, primarily due to an increase in bonds reflecting our efforts to expand foreign currency funding sources.

 

     At September 30,
2018
     At March 31,
2018
 
     (In millions)  

Commercial paper

   ¥ 2,736,066      ¥ 2,467,645  

Bonds

     7,240,798        6,490,965  

Subordinated bonds

     1,630,483        1,610,507  
  

 

 

    

 

 

 

Total debt securities in issue

   ¥ 11,607,347      ¥ 10,569,117  
  

 

 

    

 

 

 

Total Equity

Our total equity increased by ¥134,390 million from ¥12,495,799 million at March 31, 2018 to ¥12,630,189 million at September 30, 2018, primarily due to increases in retained earnings and other reserves, which were partially offset by a decrease in non-controlling interests resulting from the redemption of preferred securities. Our net profit contributed to the increase in retained earnings, which was partially offset by the impact of adoption of IFRS 9 impairment, and a rise in the fair value of equity instruments measured at fair value through other comprehensive income contributed to the increase in other reserves.

In addition to the above, with the adoption of IFRS 9, impairment losses recognized under IAS 39 on equity instruments whose subsequent changes in fair value were presented in other comprehensive income under IFRS 9 were reclassified from retained earnings to other reserves at April 1, 2018, which resulted in an increase in retained earnings and a decrease in other reserves. For more information about the impact of the adoption of IFRS 9, see Note 2 “Summary of Significant Accounting Policies—Significant Accounting Policies” to our consolidated financial statements included elsewhere in this report.

 

     At September 30,
2018
    At March 31,
2018
 
     (In millions)  

Capital stock

   ¥ 2,339,443     ¥ 2,338,743  

Capital surplus

     839,479       863,505  

Retained earnings

     5,629,654       5,149,193  

Other reserves

     2,104,670       2,324,349  

Treasury stock

     (16,292     (12,493
  

 

 

   

 

 

 

Equity attributable to shareholders of Sumitomo Mitsui Financial Group, Inc.

     10,896,954       10,663,297  

Non-controlling interests

     1,133,507       1,232,980  

Equity attributable to other equity instruments holders

     599,728       599,522  
  

 

 

   

 

 

 

Total equity

   ¥ 12,630,189     ¥ 12,495,799  
  

 

 

   

 

 

 

Liquidity

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

 

34


Table of Contents

As shown in the following table, total deposits increased by ¥3,196,251 million, or 2%, from ¥128,461,527 million at March 31, 2018 to ¥131,657,778 million at September 30, 2018. The balance of deposits at September 30, 2018 exceeded the balance of loans and advances by ¥43,096,917 million, primarily due to the stable deposit base in Japan. Our loan-to-deposit ratio (total loans and advances divided by total deposits) in the same period was 67%, which contributed greatly to the reduction of our liquidity risk. Our balances of large-denomination domestic yen time deposits are stable due to historically high rollover rates of our corporate customers and individual depositors.

 

     At September 30,
2018
     At March 31,
2018
 
     (In millions)  

Loans and advances

   ¥ 88,560,861      ¥ 85,129,070  

Deposits

     131,657,778        128,461,527  

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

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

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

We maintain management and control systems to support our ability to access liquidity on a stable and cost-effective basis.

We believe we are able to access such sources of liquidity on a stable and flexible basis by keeping credit ratings at a high level. The following table shows credit ratings assigned to the Company by Moody’s Japan K.K., (“Moody’s”), S&P Global Ratings Japan Inc. (“S&P”) and Fitch Ratings Japan Limited (“Fitch”) at November 30, 2018.

 

At November 30, 2018

Moody’s

 

S&P

 

Fitch

Long-term

 

Outlook

 

Short-term

 

Long-term

 

Outlook

 

Short-term

 

Long-term

 

Outlook

 

Short-term

A1

  S   P-1   A-   P   —     A   S   F1

The following table shows credit ratings assigned to SMBC by Moody’s, S&P and Fitch at November 30, 2018.

 

At November 30, 2018

Moody’s

 

S&P

 

Fitch

Long-term

 

Outlook

 

Short-term

 

Long-term

 

Outlook

 

Short-term

 

Long-term

 

Outlook

 

Short-term

A1

  S   P-1   A   P   A-1   A   S   F1

 

35


Table of Contents

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

The guidelines published by the Financial Services Agency of Japan (“FSA”) for liquidity coverage ratio (“LCR”) applicable to banks with international operations are based on the full text of the LCR standard issued by the Basel Committee on Banking Supervision (“BCBS”) in January 2013. Under these guidelines, banks with international operations must maintain LCR of at least 100% on both a consolidated basis and a nonconsolidated basis, while the minimum LCR requirements are being phased in between March 31, 2015 and March 31, 2019 with an increase of 10% in each year starting from 60%. The following table shows the LCRs of the Company and SMBC for the three months ended September 30, 2018. Each figure is calculated based on our financial statements prepared in accordance with Japanese GAAP, as required by the FSA’s LCR guidelines.

 

     For the three months
ended September 30,
2018(1)
 

SMFG (consolidated)

     132.8

SMBC (consolidated)

     137.8

SMBC (nonconsolidated)

     140.7

 

(1)

Under the FSA’s LCR guidelines, LCR is set as the three-month average of the daily LCR for the three months ended September 30, 2018, which is calculated by dividing the balance of high-quality liquid assets by the total net cash outflows on a daily basis for the same three months.

For further information, see “Item 4.B. Business Overview—Regulations in Japan—Regulations Regarding Capital Adequacy and Liquidity—Liquidity Requirement” of our annual report on Form 20-F for the fiscal year ended March 31, 2018.

Capital Management

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

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

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

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

 

36


Table of Contents

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

These capital reforms increase the minimum common equity requirement from 2% to 4.5% and require banks to hold a capital conservation buffer, which started to be phased in from January 2016 with the initial ratio of 0.625% and will reach 2.5% by January 2019, to withstand future periods of stress, bringing the total common equity requirement to 7%. The Tier 1 capital requirement was also increased from 4% to 6%, resulting in a total requirement of 8.5% when combined with the above-mentioned conservation buffer. The total capital requirement remains at the existing level of 8% but will increase to 10.5% by January 2019 due to the capital conservation buffer. Furthermore, a countercyclical buffer within a range of 0% to 2.5% of common equity or other fully loss absorbing capital has been implemented according to national circumstances. The Group of Central Bank Governors and Heads of Supervision (“GHOS”) also agreed on transitional arrangements for implementing the new requirements.

In addition to the above-mentioned minimum capital requirements and capital buffer requirements under Basel III, organizations identified by the Financial Stability Board (“FSB”) as G-SIBs, which includes us, are required to maintain an additional 1% to 2.5% of Common Equity Tier 1 capital as a percentage of risk-weighted assets, which is commonly referred to as the G-SIB capital surcharge, based on the organization’s size, interconnectedness, substitutability, complexity and cross-jurisdictional activity as determined by the FSB. The amount of G-SIB capital surcharge that applies to us based on the FSB’s determination will be 1% of risk-weighted assets when the requirements are fully applied from 2019. Under the phase-in arrangement for the G-SIB capital surcharge, we are currently required to maintain 0.75% of Common Equity Tier 1 capital as a percentage of risk-weighted assets.

To reflect the Basel III framework, the FSA changed its capital adequacy guidelines. Under the FSA capital adequacy guidelines, the new capital requirements are being phased in from March 31, 2013 through March 31, 2019. The minimum Common Equity Tier 1 capital requirement and Tier 1 capital requirement have been 4.5% and 6%, respectively, since March 2015. The capital conservation buffer, countercyclical buffer and the G-SIB capital surcharge started to be phased in from March 31, 2016 under the FSA capital adequacy guidelines.

On December 7, 2017, the GHOS endorsed the outstanding Basel III regulatory reforms. For further details regarding the finalized Basel III reforms, see “Item 4.B. Business Overview—Regulations in Japan—Regulations Regarding Capital Adequacy and Liquidity—Capital Adequacy Requirement” of our annual report on Form 20-F for the fiscal year ended March 31, 2018.

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

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

On December 7, 2017, the definition and requirements of the leverage ratio were revised as part of the finalized Basel III reforms, under which the leverage ratio will be based on a Tier 1 definition of capital and the minimum leverage ratio will be 3%. Under the finalized Basel III reforms, G-SIBs are required to meet a leverage ratio buffer, which will take the form of a Tier 1 capital buffer set at 50% of the applicable G-SIB capital surcharge, and various refinements are made to the definition of the leverage ratio exposure measure. The leverage ratio requirements under the definition and requirements based on the framework issued by the BCBS in

 

37


Table of Contents

January 2014 took effect in January 2018, and those under the finalized definition and requirements and the leverage ratio buffer requirement for the G-SIBs will take effect from January 1, 2022.

The table below presents our risk-weighted capital ratios, total capital, risk-weighted assets and leverage ratio under Japanese GAAP at September 30, 2018 and March 31, 2018, based on the Basel III rules.

 

     At September 30,
2018
    At March 31,
2018
 
     (In billions, except percentages)  

SMFG Consolidated:

  

Total risk-weighted capital ratio

     19.75     19.36

Tier 1 risk-weighted capital ratio

     17.16     16.69

Common Equity Tier 1 risk-weighted capital ratio

     14.92     14.50

Total capital
(Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital)

   ¥ 12,572.6     ¥ 12,304.1  

Tier 1 capital
(Common Equity Tier 1 capital + Additional Tier 1 capital)

     10,922.9       10,610.2  

Common Equity Tier 1 capital

     9,497.6       9,217.4  

Risk-weighted assets

     63,630.2       63,540.3  

The amount of minimum total capital requirements(1)

     5,090.4       5,083.2  

Leverage ratio

     4.94     5.01

 

(1)

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

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

Non-controlling interests arising from the issue of common shares by a fully consolidated subsidiary of a bank may receive recognition in Common Equity Tier 1 capital only if: (1) the instrument giving rise to the non-controlling interest would, if issued by the bank, meet all of the criteria set forth in the FSA capital adequacy guidelines for classification as common shares for regulatory capital purposes; and (2) the subsidiary that issued the instrument is itself a bank or other financial institution subject to similar capital adequacy guidelines.

Non-controlling interests that no longer qualify as Common Equity Tier 1 capital, Additional Tier 1 capital, or Tier 2 capital under Basel III started to be excluded from March 31, 2014 by increments of 20% and were fully phased out on March 31, 2018.

Regulatory adjustments such as goodwill and other intangibles, deferred tax assets, investment in the common equity capital of banking, financial and insurance entities and defined benefit pension fund assets and liabilities are applied mainly to the calculation of Common Equity Tier 1 capital in the form of a deduction. Such regulatory adjustments were phased in from March 31, 2014 through March 31, 2018.

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

Tier 2 capital consists primarily of subordinated debt securities.

Capital instruments such as preferred securities and subordinated debt issued on or after March 31, 2013 must meet the new requirements to be included in regulatory capital. Capital instruments issued prior to March 31, 2013 that do not meet the requirements set forth in the FSA capital adequacy guidelines no longer qualify as Additional Tier 1 or Tier 2 capital. However, if those capital instruments meet the requirements for transitional arrangements set forth in such guidelines, they can qualify as Additional Tier 1 or Tier 2 capital

 

38


Table of Contents

during the phase-out period beginning March 31, 2013. The remaining balance of those non-qualifying capital instruments recognized as Additional Tier 1 or Tier 2 capital are being reduced in annual 10% increments and will be fully phased out by March 31, 2022.

At September 30, 2018, our consolidated total capital was ¥12,573 billion, Tier 1 capital was ¥10,923 billion, and Common Equity Tier 1 capital was ¥9,498 billion. Our total risk-weighted assets at September 30, 2018 were ¥63,630 billion.

On a consolidated basis, our total risk-weighted capital ratio was 19.75% at September 30, 2018 compared to 19.36% at March 31, 2018, Tier 1 risk-weighted capital ratio was 17.16% at September 30, 2018 compared to 16.69% at March 31, 2018, Common Equity Tier 1 risk-weighted capital ratio was 14.92% at September 30, 2018 compared to 14.50% at March 31, 2018 and leverage ratio was 4.94% at September 30, 2018 compared to 5.01% at March 31, 2018.

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

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

 

39


Table of Contents

Set forth below is a table of risk-weighted capital ratios, total capital, risk-weighted assets and leverage ratio of SMBC at September 30, 2018 and March 31, 2018 on a consolidated and nonconsolidated basis.

 

     At September 30,
2018
    At March 31,
2018
 
     (In billions, except percentages)  

SMBC Consolidated:

  

Total risk-weighted capital ratio

     21.02     21.14

Tier 1 risk-weighted capital ratio

     18.09     18.22

Common Equity Tier 1 risk-weighted capital ratio

     15.34     15.29

Total capital
(Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital)

   ¥ 11,048.2     ¥ 10,931.1  

Tier 1 capital
(Common Equity Tier 1 capital + Additional Tier 1 capital)

     9,512.1       9,423.7  

Common Equity Tier 1 capital

     8,065.3       7,908.7  

Risk-weighted assets

     52,560.1       51,707.5  

The amount of minimum total capital requirements(1)

     4,204.8       4,136.6  

Leverage ratio

     4.71     4.84

SMBC Nonconsolidated:

    

Total risk-weighted capital ratio

     20.79     21.11

Tier 1 risk-weighted capital ratio

     17.73     18.11

Common Equity Tier 1 risk-weighted capital ratio

     14.88     15.07

Total capital
(Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital)

   ¥ 10,373.4     ¥ 10,346.1  

Tier 1 capital
(Common Equity Tier 1 capital + Additional Tier 1 capital)

     8,848.9       8,875.3  

Common Equity Tier 1 capital

     7,425.8       7,384.9  

Risk-weighted assets

     49,887.4       49,001.9  

The amount of minimum total capital requirements(1)

     3,991.0       3,920.1  

 

(1)

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

Our securities subsidiary in Japan, SMBC Nikko Securities is also subject to capital adequacy requirements under the Financial Instruments and Exchange Act of Japan. At September 30, 2018, the capital adequacy ratio was 405.0% for SMBC Nikko Securities, and sufficiently above 140%, below which level it would be required to file daily reports with the Commissioner of the FSA.

 

40


Table of Contents

FINANCIAL RISK MANAGEMENT

Risk Management System

Our risk management system is described in the “Quantitative and Qualitative Information about Risk Management” section within Item 11, “Quantitative and Qualitative Disclosures about Credit, Market and Other Risk,” of our annual report on Form 20-F for the fiscal year ended March 31, 2018. There were no material changes in our risk management system for the six months ended September 30, 2018.

Credit Risk

Our credit risk management system is described in the “Credit Risk” section within Item 11 of our annual report on Form 20-F for the fiscal year ended March 31, 2018. There were no material changes in our credit risk management system for the six months ended September 30, 2018.

Market Risk

Our market risk management system is described in the “Market Risk and Liquidity Risk” section within Item 11 of our annual report on Form 20-F for the fiscal year ended March 31, 2018.

Our market risk can be divided into various factors: interest rates, foreign exchange rates, equity prices and option risks. We manage each of these risks by employing the VaR method as well as supplemental indicators suitable for managing each risk, such as the basis point value (“BPV”).

VaR is the largest predicted loss that is possible given a fixed confidence interval. For example, our VaR indicates the largest loss that is possible for a holding period of one day and a confidence interval of 99.0%. BPV is the amount of change in assessed value as a result of a one-basis-point (0.01%) movement in interest rates.

The principal SMBC Group companies’ internal VaR model makes use of historical data to prepare scenarios for market fluctuations and, by conducting simulations of gains and losses on a net position basis, the model estimates the maximum losses that may occur. The VaR calculation method we employ for both trading and non-trading activities is based mainly on the following:

 

   

the historical simulation method;

 

   

a one-sided confidence interval of 99.0%;

 

   

a one-day holding period (a one-year holding period for the strategic equity investment portfolio); and

 

   

an observation period of four years (ten years for the strategic equity investment portfolio).

 

This

method is reviewed periodically and refined, if necessary.

 

41


Table of Contents

VaR Summary

The following tables set forth our VaR for trading activities and non-trading activities by risk categories for the six months ended September 30, 2018.

VaR for Trading Activities

 

      Interest rate  
risk
    Foreign
exchange risk
    Equities and
commodities
risk
        Others             Total(1)      
    (In billions)  

For the six months ended September 30, 2018:

         

SMBC Consolidated

         

Maximum

  ¥ 4.8     ¥ 6.2     ¥ 2.5     ¥ 4.6     ¥ 13.5  

Minimum

    2.3       3.0       0.1       3.1       6.1  

Daily average

    3.3       3.9       1.1       3.9       8.4  

At September 30, 2018

    4.3       3.7       1.1       4.2       7.2  

At March 31, 2018

    2.6       3.6       0.0       3.2       8.1  

SMFG Consolidated

         

Maximum

  ¥ 19.0     ¥ 6.9     ¥ 6.8     ¥ 4.6     ¥ 31.8  

Minimum

    8.5       3.2       3.2       3.1       15.5  

Daily average

    13.4       4.3       4.5       3.9       22.2  

At September 30, 2018

    10.0       3.9       3.8       4.2       15.7  

At March 31, 2018

    11.3       4.3       4.3       3.2       21.5  

 

(1)

Total for “Maximum,” “Minimum” and “Daily average” represent the maximum, minimum and daily average of the total of the trading book. For certain subsidiaries, we employ the standardized method and/or the historical simulation method for the VaR calculation method.

VaR for Non-Trading Activities

• Banking

 

      Interest rate  
risk
    Foreign
exchange risk
    Equities and
commodities
risk
        Others             Total(1)      
    (In billions)  

For the six months ended September 30, 2018:

         

SMBC Consolidated

         

Maximum

  ¥ 33.0     ¥ 0.0     ¥ 33.7     ¥ 0.0     ¥ 48.4  

Minimum

    29.4       0.0       17.8       0.0       36.6  

Daily average

    30.8       0.0       25.1       0.0       41.2  

At September 30, 2018

    33.0       0.0       20.5       0.0       40.4  

At March 31, 2018

    31.3       0.0       28.1       0.0       45.7  

SMFG Consolidated

         

Maximum

  ¥ 35.6     ¥ 0.0     ¥ 33.7     ¥ 0.0     ¥ 50.6  

Minimum

    31.9       0.0       17.8       0.0       38.9  

Daily average

    33.1       0.0       25.1       0.0       43.6  

At September 30, 2018

    35.6       0.0       20.5       0.0       42.9  

At March 31, 2018

    33.7       0.0       28.1       0.0       48.2  

 

(1)

Total for “Maximum,” “Minimum” and “Daily average” represent the maximum, minimum and daily average of the total of the banking book.

 

42


Table of Contents

• Strategic Equity Investment

 

     Equities risk  
     (In billions)  

For the six months ended September 30, 2018:

  

SMBC Consolidated

  

Maximum

   ¥ 1,430.4  

Minimum

     1,271.5  

Daily average

     1,359.6  

At September 30, 2018

     1,356.2  

At March 31, 2018

     1,389.4  

SMFG Consolidated

  

Maximum

   ¥ 1,622.5  

Minimum

     1,451.0  

Daily average

     1,542.5  

At September 30, 2018

     1,545.1  

At March 31, 2018

     1,603.6  

Back-testing

The relationship between the VaR calculated with the model and the profit and loss data is back-tested periodically. There were no significant excess losses in the back-testing results including the trading accounts.

Stress Tests

To prepare for unexpected market swings, we perform stress tests on a monthly basis based on various scenarios.

Interest Rate Risk

To supplement the above limitations of VaR methodologies, the SMBC Group adopts various indices to measure and monitor the sensitivity of interest rates, including delta, gamma and vega risks. The SMBC Group considers BPV as one of the most significant indices to manage interest rate risk. BPV is the amount of change in the value to the banking and trading book as a result of a one-basis-point (0.01%) movement in interest rates. The principal SMBC Group companies use BPV to monitor interest rate risk, not only on a net basis, but also by term to prevent the concentration of interest rate risk in a specific period. In addition, as previously addressed, the SMBC Group enhances the risk management methods of VaR and BPV by using them in combination with back-testing and stress tests.

Interest rate risk substantially changes depending on the method used for recognizing the expected maturity dates of demand deposits that can be withdrawn at any time or the method used for estimating the timing of cancellation prior to maturity of time deposits and consumer housing loans. At SMBC, the maturity of demand deposits that are expected to be left with SMBC for a prolonged period is regarded to be at the longest five years (2.5 years on average), and the cancellation prior to maturity of time deposits and consumer housing loans is estimated based on historical data.

Based on the standards for interest rate risk in the banking book issued by the BCBS in April 2016, the FSA revised the related regulatory guidelines pertaining to monitoring of interest rate risks in the banking book in December 2017. The revised disclosure requirements with respect to the changes in economic value of equity (“DEVE”) and changes in net interest income (“DNII”) in the banking book as a result of interest rate shocks have been applied from March 31, 2018. The tables below present DEVE and DNII of SMBC and SMFG on a consolidated basis at September 30, 2018 and March 31, 2018, respectively.

 

43


Table of Contents

DEVE is defined as a decline in economic value as a result of an interest rate shock. It is calculated by multiplying the interest rate sensitivity (excluding credit spread) and interest rate change. The FSA implements a “materiality test” to identify banks taking excessive interest rate risks. Under the materiality test, the FSA monitors the ratio of DEVE to Tier 1 capital based on a set of prescribed interest rate shock scenarios. The threshold applied by the FSA is 15%, and the ratios for SMBC on a consolidated basis at September 30, 2018 and March 31, 2018 were 7.5% and 4.8%, respectively and those for SMFG on a consolidated basis at September 30, 2018 and March 31, 2018 were 6.5% and 4.2%, respectively.

DNII is defined as a decline in interest income over a 12-month period as a result of an interest rate shock. It is calculated assuming a constant balance sheet over a forward-looking 12-month period.

 

     At September 30, 2018     At March 31, 2018  
     DEVE      DNII     DEVE      DNII  
     (In billions)  

SMBC Consolidated

          

Parallel shock up

   ¥ 709.1      ¥ (258.9   ¥ 450.8      ¥ (283.2

Parallel shock down

     0.0        415.7       0.0        433.6  

Steepener shock

     361.9        —         234.6        —    

Flattener shock

     19.6        —         14.5        —    

Short rate shock up

     140.5        —         69.9        —    

Short rate shock down

     0.0        —         0.2        —    

Maximum

     709.1        415.7       450.8        433.6  
     At September 30, 2018     At March 31, 2018  
     (In billions)  

Tier 1 Capital

     ¥9,512.1       ¥9,423.7  

 

     At September 30, 2018     At March 31, 2018  
     DEVE      DNII     DEVE      DNII  
     (In billions)  

SMFG Consolidated

          

Parallel shock up

   ¥ 709.1      ¥ (258.9   ¥ 450.8      ¥ (283.2

Parallel shock down

     0.0        415.7       0.0        433.6  

Steepener shock

     361.9        —         234.6        —    

Flattener shock

     19.6        —         14.5        —    

Short rate shock up

     140.5        —         69.9        —    

Short rate shock down

     0.0        —         0.2        —    

Maximum

     709.1        415.7       450.8        433.6  
     At September 30, 2018     At March 31, 2018  
     (In billions)  

Tier 1 Capital

     ¥10,922.9       ¥10,610.2  

 

Note:

DEVE and DNII are calculated by currency at the SMBC consolidated level and the results are aggregated across the various currencies. For DNII, only Japanese yen and U.S. dollars are included in the calculation. These are the material currencies where interest rate sensitive assets and liabilities are more than 5% of total assets and liabilities.

 

44


Table of Contents

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

 

     Page  

Consolidated Statements of Financial Position (Unaudited)

     F-2  

Consolidated Income Statements (Unaudited)

     F-3  

Consolidated Statements of Comprehensive Income (Unaudited)

     F-4  

Consolidated Statements of Changes in Equity (Unaudited)

     F-5  

Consolidated Statements of Cash Flows (Unaudited)

     F-6  

Notes to Consolidated Financial Statements (Unaudited)

     F-7  
    1    General Information      F-7  
    2    Summary of Significant Accounting Policies      F-7  
    3    Critical Accounting Estimates and Judgments      F-17  
    4    Segment Analysis      F-17  
    5    Derivative Financial Instruments and Hedge Accounting      F-20  
    6    Investment Securities      F-23  
    7    Loans and Advances      F-24  
    8    Borrowings      F-25  
    9    Debt Securities in Issue      F-26  
    10    Provisions      F-26  
    11    Shareholders’ Equity      F-27  
    12    Non-Controlling Interests and Equity Attributable to Other Equity Instruments Holders      F-27  
    13    Fee and commission income      F-29  
    14    Impairment Charges on Financial Assets      F-29  
    15    Earnings Per Share      F-30  
    16    Dividends Per Share      F-30  
    17    Contingency and Capital Commitments      F-30  
    18    Fair Value of Financial Assets and Liabilities      F-31  
    19    Event after the Statement of Financial Position Date      F-41  

 

F-1


Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statements of Financial Position (Unaudited)

 

     Note      At September 30,
2018
    At March 31,
2018
 
            (In millions)  

Assets:

       

Cash and deposits with banks

      ¥ 56,793,422     ¥ 54,696,069  

Call loans and bills bought

        2,360,765       1,881,880  

Reverse repurchase agreements and cash collateral on securities borrowed

        9,691,156       8,491,703  

Trading assets

        3,003,342       3,169,123  

Derivative financial instruments

     5        3,860,925       3,885,271  

Financial assets at fair value through profit or loss

        2,988,640       1,547,672  

Investment securities

     6        18,795,792       20,495,075  

Loans and advances

     7        88,560,861       85,129,070  

Investments in associates and joint ventures

        641,053       730,414  

Property, plant and equipment

        1,490,003       1,510,132  

Intangible assets

        818,219       835,902  

Other assets

        4,341,330       4,043,908  

Current tax assets

        50,631       87,961  

Deferred tax assets

        16,378       19,436  

Assets held for sale

        5,958,044       5,651,950  
     

 

 

   

 

 

 

Total assets

      ¥ 199,370,561     ¥ 192,175,566  
     

 

 

   

 

 

 

Liabilities:

       

Deposits

      ¥ 131,657,778     ¥ 128,461,527  

Call money and bills sold

        2,013,278       1,190,929  

Repurchase agreements and cash collateral on securities lent

        13,693,129       12,022,593  

Trading liabilities

        1,851,229       2,143,899  

Derivative financial instruments

     5        3,725,693       3,498,016  

Borrowings

     8        10,980,538       10,652,481  

Debt securities in issue

     9        11,607,347       10,569,117  

Provisions

     10        176,422       188,267  

Other liabilities

        6,802,963       6,882,740  

Current tax liabilities

        40,137       55,516  

Deferred tax liabilities

        446,617       397,741  

Liabilities directly associated with the assets held for sale

        3,745,241       3,616,941  
     

 

 

   

 

 

 

Total liabilities

        186,740,372       179,679,767  
     

 

 

   

 

 

 

Equity:

       

Capital stock

     11        2,339,443       2,338,743  

Capital surplus

        839,479       863,505  

Retained earnings

        5,629,654       5,149,193  

Other reserves

        2,104,670       2,324,349  

Treasury stock

     11        (16,292     (12,493
     

 

 

   

 

 

 

Equity attributable to shareholders of Sumitomo Mitsui Financial Group, Inc.

        10,896,954       10,663,297  

Non-controlling interests

     12        1,133,507       1,232,980  

Equity attributable to other equity instruments holders

     12        599,728       599,522  
     

 

 

   

 

 

 

Total equity

        12,630,189       12,495,799  
     

 

 

   

 

 

 

Total equity and liabilities

      ¥ 199,370,561     ¥ 192,175,566  
     

 

 

   

 

 

 

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

 

F-2


Table of Contents

Consolidated Income Statements (Unaudited)

 

           For the six months ended
September 30,
 
    Note      2018      2017  
           (In millions, except per share data)  

Interest income

     ¥ 1,151,910      ¥ 1,036,329  

Interest expense

       505,666        337,852  
    

 

 

    

 

 

 

Net interest income

       646,244        698,477  
    

 

 

    

 

 

 

Fee and commission income

    13        533,801        530,006  

Fee and commission expense

       97,306        99,052  
    

 

 

    

 

 

 

Net fee and commission income

       436,495        430,954  
    

 

 

    

 

 

 

Net trading income

       115,388        139,685  

Net income (loss) from financial assets at fair value through profit or loss

       116,361        (960

Net investment income

       42,384        222,377  

Other income

       275,057        265,204  
    

 

 

    

 

 

 

Total operating income

       1,631,929        1,755,737  
    

 

 

    

 

 

 

Impairment charges on financial assets

    14        25,260        66,992  
    

 

 

    

 

 

 

Net operating income

       1,606,669        1,688,745  
    

 

 

    

 

 

 

General and administrative expenses

       850,905        888,037  

Other expenses

       239,946        215,666  
    

 

 

    

 

 

 

Operating expenses

       1,090,851        1,103,703  
    

 

 

    

 

 

 

Share of post-tax profit of associates and joint ventures

       25,596        32,223  
    

 

 

    

 

 

 

Profit before tax

       541,414        617,265  
    

 

 

    

 

 

 

Income tax expense

       126,271        137,296  
    

 

 

    

 

 

 

Net profit

     ¥ 415,143      ¥ 479,969  
    

 

 

    

 

 

 

Profit attributable to:

       

Shareholders of Sumitomo Mitsui Financial Group, Inc.

     ¥ 357,436      ¥ 426,002  

Non-controlling interests

       51,807        49,252  

Other equity instruments holders

       5,900        4,715  

Earnings per share:

       

Basic

    15      ¥ 255.38      ¥ 302.06  

Diluted

    15        255.21        301.83  

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

 

F-3


Table of Contents

Consolidated Statements of Comprehensive Income (Unaudited)

 

     For the six months ended
September 30,
 
     2018     2017  
     (In millions)  

Net profit

   ¥ 415,143     ¥ 479,969  

Other comprehensive income:

    

Items that will not be reclassified to profit or loss:

    

Remeasurements of defined benefit plans:

    

Gains (losses) arising during the period, before tax

     81,384       76,692  

Equity instruments designated at fair value through other comprehensive income:

    

Gains (losses) arising during the period, before tax

     275,545       —    

Share of other comprehensive income (loss) of associates and joint ventures

     1,908       117  

Income tax relating to items that will not be reclassified

     (107,683     (23,417
  

 

 

   

 

 

 

Total items that will not be reclassified to profit or loss, net of tax

     251,154       53,392  

Items that may be reclassified subsequently to profit or loss:

    

Available-for-sale financial assets:

    

Gains (losses) arising during the period, before tax

     —         558,315  

Reclassification adjustments for (gains) losses included in net profit, before tax

     —         (152,564

Debt instruments at fair value through other comprehensive income:

    

Gains (losses) arising during the period, before tax

     (69,618     —    

Reclassification adjustments for (gains) losses included in net profit, before tax

     1,007       —    

Exchange differences on translating foreign operations:

    

Gains (losses) arising during the period, before tax

     60,099       (12,248

Share of other comprehensive income (loss) of associates and joint ventures

     (26,231     (7,677

Income tax relating to items that may be reclassified

     16,774       (124,952
  

 

 

   

 

 

 

Total items that may be reclassified subsequently to profit or loss, net of tax

     (17,969     260,874  
  

 

 

   

 

 

 

Other comprehensive income, net of tax

     233,185       314,266  
  

 

 

   

 

 

 

Total comprehensive income

   ¥ 648,328     ¥ 794,235  
  

 

 

   

 

 

 

Total comprehensive income attributable to:

    

Shareholders of Sumitomo Mitsui Financial Group, Inc.

   ¥ 562,210     ¥ 723,181  

Non-controlling interests

     80,218       66,339  

Other equity instruments holders

     5,900       4,715  

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

 

F-4


Table of Contents

Consolidated Statements of Changes in Equity (Unaudited)

 

    Capital
stock
    Capital
surplus
    Retained
earnings
    Remeasure-
ments of
defined
benefit
plans
    Available-
for-sale
financial
assets
    Financial
instruments
measured at
fair value
through
other
comprehensive
income
(“FVOCI”)
    Exchange
differences
on
translating
foreign
operations
    Treasury
stock
    Equity
attributable
to SMFG’s
shareholders
    Non-
controlling
interests
    Equity
attributable
to other
equity
instruments
holders
    Total
equity
 
    (In millions)  

Balance at April 1, 2017

  ¥ 2,337,896     ¥ 864,052     ¥ 4,609,496     ¥ 22,774     ¥ 1,929,894     ¥ —       ¥ 181,374     ¥ (12,913   ¥ 9,932,573     ¥ 1,505,001     ¥ 449,709     ¥ 11,887,283  

Comprehensive income:

                       

Net profit

    —         —         426,002       —         —         —         —         —         426,002       49,252       4,715       479,969  

Other comprehensive income

    —         —         —         52,802       271,588       —         (27,211     —         297,179       17,087       —         314,266  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

    —         —         426,002       52,802       271,588       —         (27,211     —         723,181       66,339       4,715       794,235  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Issuance of shares under share-based payment transactions

    847       848       —         —         —         —         —         —         1,695       —         —         1,695  

Acquisition and disposal of subsidiaries and businesses-net

    —         —         —         —         —         —         —         —         —         (194     —         (194

Dividends to shareholders

    —         —         (105,752     —         —         —         —         —         (105,752     (36,801     —         (142,553

Coupons on other equity instruments

    —         —         —         —         —         —         —         —         —         —         (4,715     (4,715

Purchase of treasury stock

    —         —         —         —         —         —         —         (54     (54     —         —         (54

Sale of treasury stock

    —         —         —         —         —         —         —         487       487       —         —         487  

Loss on sale of treasury stock

    —         (44     —         —         —         —         —         —         (44     —         —         (44

Share-based payment transactions

    —         (1,490     —         —         —         —         —         —         (1,490     —         —         (1,490

Others

    —         —         46       —         —         —         —         —         46       159       103       308  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2017

  ¥ 2,338,743     ¥ 863,366     ¥ 4,929,792     ¥ 75,576     ¥ 2,201,482     ¥ —       ¥ 154,163     ¥ (12,480   ¥ 10,550,642     ¥ 1,534,504     ¥ 449,812     ¥ 12,534,958  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2018

  ¥ 2,338,743     ¥ 863,505     ¥ 5,149,193     ¥ 76,102     ¥ 2,122,260     ¥ —       ¥ 125,987     ¥ (12,493   ¥ 10,663,297     ¥ 1,232,980     ¥ 599,522     ¥ 12,495,799  

Effect of changes in accounting policies

    —         —         270,414       —         (2,122,260     1,718,937       —         —         (132,909     250       —         (132,659
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at April 1, 2018

    2,338,743       863,505       5,419,607       76,102       —         1,718,937       125,987       (12,493     10,530,388       1,233,230       599,522       12,363,140  

Comprehensive income:

                       

Net profit

    —         —         357,436       —         —         —         —         —         357,436       51,807       5,900       415,143  

Other comprehensive income

    —         —         —         56,419       —         126,668       21,687       —         204,774       28,411       —         233,185  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

    —         —         357,436       56,419       —         126,668       21,687       —         562,210       80,218       5,900       648,328  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Issuance of shares under share-based payment transactions

    700       699       —         —         —         —         —         —         1,399       —         —         1,399  

Acquisition and disposal of subsidiaries and businesses-net

    —         —         —         —         —         —         —         —         —         8       —         8  

Transaction with non-controlling interest shareholders

    —         (18     —         —         —         —         —         —         (18     964       —         946  

Dividends to shareholders

    —         —         (126,950     —         —         —         —         —         (126,950     (31,805     —         (158,755

Coupons on other equity instruments

    —         —         —         —         —         —         —         —         —         —         (5,900     (5,900

Redemption of preferred securities

    —         —         —         —         —         —         —         —         —         (149,108     —         (149,108

Purchase of treasury stock

    —         —         —         —         —         —         —         (70,048     (70,048     —         —         (70,048

Sale of treasury stock

    —         —         —         —         —         —         —         327       327       —         —         327  

Loss on sale of treasury stock

    —         (55     —         —         —         —         —         —         (55     —         —         (55

Cancellation of treasury stock

    —         (24,231     (41,691     —         —         —         —         65,922       —         —         —         —    

Share-based payment transactions

    —         (381     —         —         —         —         —         —         (381     —         —         (381

Transfer of gains and losses on financial instruments designated at FVOCI to retained earnings-net

    —         —         21,130       —         —         (21,130     —         —         —         —         —         —    

Others

    —         (40     122       —         —         —         —         —         82       —         206       288  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2018

  ¥ 2,339,443     ¥ 839,479     ¥ 5,629,654     ¥ 132,521     ¥ —       ¥ 1,824,475     ¥ 147,674     ¥ (16,292   ¥ 10,896,954     ¥ 1,133,507     ¥ 599,728     ¥ 12,630,189  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

 

F-5


Table of Contents

Consolidated Statements of Cash Flows (Unaudited)

 

    For the six months ended
September 30,
 
    2018     2017  
    (In millions)  

Operating Activities:

   

Profit before tax

  ¥ 541,414     ¥ 617,265  

Adjustments for:

   

Gains on financial assets at fair value through profit or loss and investment securities

    (48,127     (151,604

Foreign exchange (gains) losses

    834,533       (309,268

Provision for loan losses

    34,207       62,936  

Depreciation and amortization

    107,762       153,933  

Share of post-tax profit of associates and joint ventures

    (25,596     (32,223

Net changes in assets and liabilities:

   

Net (increase) decrease of term deposits with original maturities over three months

    231,141       (263,515

Net increase of call loans and bills bought

    (492,733     (62,670

Net increase of reverse repurchase agreements and cash collateral on securities borrowed

    (1,227,888     (693,515

Net increase of loans and advances

    (3,754,742     (1,781,043

Net change of trading assets and liabilities, and derivative financial instruments

    152,345       (251,871

Net increase of deposits

    2,891,618       3,307,828  

Net increase (decrease) of call money and bills sold

    832,635       (206,805

Net increase of repurchase agreements and cash collateral on securities lent

    1,695,158       2,539,490  

Net increase of other unsubordinated borrowings and debt securities in issue

    1,202,234       523,754  

Income taxes paid—net

    (101,042     41,350  

Other operating activities—net

    (972,492     (177,888
 

 

 

   

 

 

 

Net cash and cash equivalents provided by operating activities

    1,900,427       3,316,154  
 

 

 

   

 

 

 

Investing Activities:

   

Purchases of investment securities

    (12,058,559     —    

Proceeds from sale of investment securities

    7,843,607       —    

Proceeds from maturities of investment securities

    5,041,190       —    

Purchases of financial assets at fair value through profit or loss and available-for-sale financial assets

    —         (12,851,411

Proceeds from sale of financial assets at fair value through profit or loss and available-for-sale financial assets

    —         8,685,366  

Proceeds from maturities of financial assets at fair value through profit or loss and available-for-sale financial assets

    —         3,103,302  

Proceeds from maturities of held-to-maturity investments

    —         460,192  

Acquisitions of the subsidiaries and businesses, net of cash and cash equivalents acquired

    —         (160,862

Investments in associates and joint ventures

    (5,542     (812