6-K 1 d943652d6k.htm FORM 6-K Form 6-K
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF THE

SECURITIES EXCHANGE ACT OF 1934

For the month of July 2020

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-                     


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The information, documents and exhibits set forth in this Form 6-K shall be deemed to be incorporated by reference into the prospectus forming a part of Sumitomo Mitsui Financial Group, Inc.’s Registration Statement on Form F-3 (File No. 333-228913) and to be a part of such prospectus from the date of the filing thereof, to the extent not superseded by documents or reports subsequently filed or furnished.

TABLE OF DOCUMENT(S) SUBMITTED

 

1.

Consolidated Financial Statements of Sumitomo Mitsui Financial Group, Inc. as of and for the years ended March 31, 2019 and 2020

 

2.

Independent Auditor’s Report on the Consolidated Financial Statements of Sumitomo Mitsui Financial Group, Inc. as of and for the years ended March 31, 2019 and 2020

EXHIBIT INDEX

 

Exhibit
No.

  

Description

15.1    Consent of KPMG AZSA LLC


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Sumitomo Mitsui Financial Group, Inc.
By:   

/s/ Toru Nakashima

  Name:   Toru Nakashima
  Title:  

Senior Managing Executive Officer

Group Chief Financial Officer

Date: July 2, 2020


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AUDITED CONSOLIDATED JAPANESE GAAP FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED MARCH 31, 2019 AND 2020

On June 26, 2020, we published our consolidated financial statements as of and for the years ended March 31, 2019 and 2020 prepared in accordance with accounting principles generally accepted in Japan, or Japanese GAAP, as part of our annual securities report (yukashoken hokokusho) for the year ended March 31, 2020 filed by us with the relevant Japanese authorities. This document includes such audited consolidated financial statements and the notes thereto. Japanese GAAP differs in certain respects from International Financial Reporting Standards as issued by the International Accounting Standards Board, or IFRS, and generally accepted accounting principles in the United States. For a description of certain differences between IFRS and Japanese GAAP, see “Item 5.A Operating Results—Reconciliation with Japanese GAAP” in our most recent annual report on Form 20-F filed with the SEC.


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CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

 

March 31

  

Millions of yen

     Millions of
U.S. dollars
 
  

2019

    

2020

     2020  

Assets:

                                                                                                                                                                                         

Cash and due from banks

   *8    ¥     57,411,276         *8    ¥ 61,768,573         $       567,674     

Call loans and bills bought

        2,465,744              896,739           8,241     

Receivables under resale agreements

        6,429,365              8,753,816           80,450     

Receivables under securities borrowing transactions

        4,097,473              5,005,103           45,999     

Monetary claims bought

   *8      4,594,578              4,559,429           41,903     

Trading assets

   *8      5,328,778         *8      7,361,253           67,652     

Money held in trust

        390              353           3     

Securities

   *1, *2, *8, *16      24,338,005         *1, *8, *16      27,128,751           249,322     

Loans and bills discounted

   *3, *4, *5, *6, *7, *8, *9      77,979,190         *3, *4, *5, *6, *7, *8, *9      82,517,609           758,364     

Foreign exchanges

   *7      1,719,402         *7      2,063,284           18,962     

Lease receivables and investment assets

        247,835              219,733           2,019     

Other assets

   *8      7,307,305         *8      8,298,393           76,265     

Tangible fixed assets

   *10, *11, *12      1,504,703         *10, *11, *12      1,450,323           13,329     

Assets for rent

        573,292              506,755           4,657     

Buildings

        345,420              341,505           3,139     

Land

        427,484              423,346           3,891     

Lease assets

        25,548              28,933           266     

Construction in progress

        37,663              46,138           424     

Other tangible fixed assets

        95,293              103,645           953     

Intangible fixed assets

        769,231              753,579           6,926     

Software

        431,135              440,407           4,047     

Goodwill

        193,127              194,289           1,786     

Lease assets

        990              986           9     

Other intangible fixed assets

        143,977              117,896           1,084     

Net defined benefit asset

        329,434              230,573           2,119     

Deferred tax assets

        40,245              26,314           242     

Customers’ liabilities for acceptances and guarantees

        9,564,993              9,308,882           85,552     

Reserve for possible loan losses

        (468,808)             (479,197)          (4,404)    
     

 

 

       

 

 

    

 

 

 

Total assets

      ¥   203,659,146            ¥   219,863,518         $    2,020,619     
     

 

 

       

 

 

    

 

 

 

 

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(Continued)

March 31

  

Millions of yen

     Millions of
U.S. dollars
 
  

2019

    

2020

     2020  

Liabilities and net assets:

                                                                                                                                                                                          

Liabilities:

              

Deposits

   *8    ¥     122,325,038         *8    ¥ 127,042,217         $ 1,167,560     

Negotiable certificates of deposit

        11,165,486              10,180,435           93,562     

Call money and bills sold

        1,307,778              3,740,539           34,377     

Payables under repurchase agreements

   *8      11,462,559         *8      13,237,913           121,661     

Payables under securities lending transactions

   *8      1,812,820         *8      2,385,607           21,925     

Commercial paper

        2,291,813              1,409,249           12,951     

Trading liabilities

        4,219,293              6,084,528           55,919     

Borrowed money

   *8, *13      10,656,897         *8, *13      15,210,894           139,793     

Foreign exchanges

        1,165,141              1,461,308           13,430     

Short-term bonds

        84,500              379,000           3,483     

Bonds

   *14      9,227,367         *14      9,235,639           84,879     

Due to trust account

   *8, *15      1,352,773         *8, *15      1,811,355           16,647     

Other liabilities

        4,873,630              7,011,967           64,442     

Reserve for employee bonuses

        70,351              73,868           679     

Reserve for executive bonuses

        3,091              3,362           31     

Net defined benefit liability

        31,816              35,777           329     

Reserve for executive retirement benefits

        1,374              1,270           12     

Reserve for point service program

        23,948              26,576           244     

Reserve for reimbursement of deposits

        7,936              4,687           43     

Reserve for losses on interest repayment

        147,594              142,890           1,313     

Reserves under the special laws

        2,847              3,145           29     

Deferred tax liabilities

        378,220              257,384           2,365     

Deferred tax liabilities for land revaluation

   *10      30,259         *10      30,111           277     

Acceptances and guarantees

   *8      9,564,993         *8      9,308,882           85,552     
     

 

 

       

 

 

    

 

 

 

Total liabilities

        192,207,534              209,078,615           1,921,502     
     

 

 

       

 

 

    

 

 

 

Net assets:

              

Capital stock

        2,339,443              2,339,964           21,505     

Capital surplus

        739,047              692,003           6,360     

Retained earnings

        5,992,247              6,336,311           58,233     

Treasury stock

        (16,302)             (13,983)          (129)    
     

 

 

       

 

 

    

 

 

 

Total stockholders’ equity

        9,054,436              9,354,296           85,969     
     

 

 

       

 

 

    

 

 

 

Net unrealized gains (losses) on other securities

        1,688,852              1,371,407           12,604     

Net deferred gains (losses) on hedges

        (54,650)             82,257           756     

Land revaluation excess

   *10      36,547         *10      36,878           339     

Foreign currency translation adjustments

        50,379              (32,839)          (302)    

Accumulated remeasurements of defined benefit plans

        (7,244)              (92,030)          (846)    
     

 

 

       

 

 

    

 

 

 

Total accumulated other comprehensive income

        1,713,884              1,365,673           12,551     
     

 

 

       

 

 

    

 

 

 

Stock acquisition rights

        4,750              2,064           19     

Non-controlling interests

        678,540              62,869           578     
     

 

 

       

 

 

    

 

 

 

Total net assets

        11,451,611              10,784,903           99,117     
     

 

 

       

 

 

    

 

 

 

Total liabilities and net assets

      ¥   203,659,146            ¥ 219,863,518         $    2,020,619     
     

 

 

       

 

 

    

 

 

 

 

2


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CONSOLIDATED STATEMENTS OF INCOME

 

     Millions of yen      Millions of
U.S. dollars
 

Year ended March 31

   2019      2020      2020  

Ordinary income

      ¥   5,735,312             ¥    5,314,313          $         48,840     

Interest income

       2,488,904              2,456,364           22,575     

Interest on loans and discounts

       1,666,283              1,693,016           15,559     

Interest and dividends on securities

       364,685              346,822           3,187     

Interest on call loans and bills bought

       16,551              15,890           146     

Interest on receivables under resale agreements

       20,457              31,449                           289     

Interest on receivables under securities borrowing  transactions

       17,784              21,247           195     

Interest on deposits with banks

       103,135              80,924           744     

Interest on lease transactions

       47,573                            7,307           67     

Other interest income

       252,433              259,705           2,387     

Trust fees

       4,656              4,701           43     

Fees and commissions

       1,240,917              1,287,538           11,833     

Trading income

       194,676              262,826           2,415     

Other operating income

       1,578,159              1,050,065           9,650     

Lease-related income

       233,675              39,123           360     

Installment-related income

       981,090              752,775           6,918     

Other

       363,393                           258,166           2,373     

Other income

                    227,997              252,816           2,323     

Gains on reversal of reserve for possible loan losses

       5,729              —           —     

Recoveries of written-off claims

       11,047              12,414           114     

Other

     *1       211,220           *1        240,401           2,209     

Ordinary expenses

       4,600,012              4,382,249           40,274     

Interest expenses

       1,157,482              1,179,770           10,842     

Interest on deposits

       463,989              441,477           4,057     

Interest on negotiable certificates of deposit

       136,178              131,849           1,212     

Interest on call money and bills sold

       14,270              10,284           95     

Interest on payables under repurchase agreements

       119,733              131,320           1,207     

Interest on payables under securities lending transactions

       1,272              1,111           10     

Interest on commercial paper

       45,356              31,525           290     

Interest on borrowed money

       75,883              57,632           530     

Interest on short-term bonds

       60              29           0     

Interest on bonds

               226,536              220,874           2,030     

Other interest expenses

       74,201              153,666           1,412     

Fees and commissions payments

       181,019              204,188           1,877     

Trading losses

       3,305              —           —     

Other operating expenses

       1,319,328              908,951           8,354     

Lease-related expenses

       120,097              26,514           244     

Installment-related expenses

       930,884              722,440           6,639     

Other

       268,347              159,997           1,470     

General and administrative expenses

     *2       1,715,050           *2        1,739,603           15,988     

Other expenses

       223,825              349,734           3,214     

Provision for reserve for possible loan losses

       —              70,571           649     

Other

     *3       223,825           *3        279,163           2,566     
    

 

 

       

 

 

    

 

 

 

Ordinary profit

       1,135,300              932,064           8,566     
    

 

 

       

 

 

    

 

 

 

 

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

Year ended March 31

   2019      2020      2020  

Extraordinary gains

      ¥         2,826             ¥           23,896          $             220     

Gains on disposal of fixed assets

       541                            1,855           17     

Other extraordinary gains

     *4       2,285           *4        22,040                           203     

Extraordinary losses

       14,547              67,314           619     

Losses on disposal of fixed assets

       4,485              1,910           18     

Losses on impairment of fixed assets

     *5       9,610           *5                    65,106           598     

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

                    450                             297           3     
    

 

 

       

 

 

    

 

 

 

Income before income taxes

       1,123,579              888,646           8,167     
    

 

 

       

 

 

    

 

 

 

Income taxes-current

       276,329              213,526           1,962     

Income taxes-deferred

       55,095              (45,842)          (421)    
    

 

 

       

 

 

    

 

 

 

Income taxes

       331,424              167,684           1,541     
    

 

 

       

 

 

    

 

 

 

Profit

               792,155              720,962           6,626     
    

 

 

       

 

 

    

 

 

 

Profit attributable to non-controlling interests

       65,474              17,078           157     
    

 

 

       

 

 

    

 

 

 

Profit attributable to owners of parent

      ¥      726,681             ¥      703,883          $           6,469     
    

 

 

       

 

 

    

 

 

 

 

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

Year ended March 31

   2019      2020      2020  

Profit

      ¥       792,155             ¥       720,962          $           6,626     

Other comprehensive income (losses)

     *1       3,035           *1        (347,990)          (3,198)    

Net unrealized gains (losses) on other securities

                        31,157                           (314,792)          (2,893)    

Net deferred gains (losses) on hedges

       29,981              166,177           1,527     

Land revaluation excess

       —              (39)          (0)    

Foreign currency translation adjustments

       10,396              (74,052)          (681)    

Remeasurements of defined benefit plans

       (65,530)             (84,420)          (776)    

Share of other comprehensive income of affiliates

       (2,970)             (40,864)          (376)    
    

 

 

       

 

 

    

 

 

 

Total comprehensive income

       795,191            372,971           3,428     
    

 

 

       

 

 

    

 

 

 

Comprehensive income attributable to owners of parent

       687,690              355,302           3,265     

Comprehensive income attributable to non-controlling interests

       107,500                          17,669                           162     

 

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CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

 

Year ended March 31, 2019

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

Balance at the beginning of the fiscal year

   ¥   2,338,743         ¥   758,215         ¥   5,552,573         ¥   (12,493)        ¥   8,637,039     

Changes in the fiscal year

         

Issuance of new stock

    699          699              1,398     

Cash dividends

        (245,576)           (245,576)    

Profit attributable to owners of parent

        726,681            726,681     

Purchase of treasury stock

          (70,094)         (70,094)    

Disposal of treasury stock

      (68)           363          294     

Cancellation of treasury stock

      (65,922)           65,922          —     

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

      4,419              4,419     

Increase due to increase in subsidiaries

        0            0     

Increase due to decrease in subsidiaries

        4            4     

Decrease due to increase in subsidiaries

        (11)           (11)    

Decrease due to decrease in subsidiaries

        (23)           (23)    

Reversal of land revaluation excess

        302            302     

Transfer from retained earnings to capital surplus

      41,704          (41,704)           —     

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

         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

    699          (19,167)         439,673          (3,809)         417,396     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Year ended March 31, 2019

 

 

Millions of yen

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

Balance at the beginning of the fiscal year

   ¥ 1,688,842         ¥ (68,543)         ¥ 37,097         ¥ 36,906         ¥ 59,121         ¥ 1,753,424     

Changes in the fiscal year

           

Issuance of new stock

           

Cash dividends

           

Profit attributable to owners of parent

           

Purchase of treasury stock

           

Disposal of treasury stock

           

Cancellation of treasury stock

           

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

           

Increase due to increase in subsidiaries

           

Increase due to decrease in subsidiaries

           

Decrease due to increase in subsidiaries

           

Decrease due to decrease in subsidiaries

           

Reversal of land revaluation excess

           

Transfer from retained earnings to capital surplus

           

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

    10          13,893          (549)         13,473         (66,366)         (39,540)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

    10          13,893          (549)         13,473         (66,366)         (39,540)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

6


Table of Contents

Year ended March 31, 2019

  Millions of yen
  Stock
acquisition
rights
    Non- controlling
interests
   

Total
net assets

Balance at the beginning of the fiscal year

   ¥ 2,823         ¥  1,219,604         ¥  11,612,892   

Changes in the fiscal year

     

Issuance of new stock

      1,398   

Cash dividends

      (245,576)  

Profit attributable to owners of parent

      726,681   

Purchase of treasury stock

      (70,094)  

Disposal of treasury stock

      294   

Cancellation of treasury stock

      —   

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

      4,419   

Increase due to increase in subsidiaries

      0   

Increase due to decrease in subsidiaries

      4   

Decrease due to increase in subsidiaries

      (11)  

Decrease due to decrease in subsidiaries

      (23)  

Reversal of land revaluation excess

      302   

Transfer from retained earnings to capital surplus

      —   

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

    1,926           (541,063)       (578,677)  
 

 

 

   

 

 

   

 

Net changes in the fiscal year

    1,926           (541,063)       (161,280)  
 

 

 

   

 

 

   

 

Balance at the end of the fiscal year

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

 

 

   

 

 

   

 

 

7


Table of Contents

(Continued)

 

Year ended March 31, 2020

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

Balance at the beginning of the fiscal year

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

Changes in the fiscal year

         

Issuance of new stock

    521          521              1,043     

Cash dividends

        (255,834)           (255,834)    

Profit attributable to owners of parent

        703,883            703,883     

Purchase of treasury stock

          (100,088)         (100,088)    

Disposal of treasury stock

      (250)           733          483     

Cancellation of treasury stock

      (101,673)           101,673          —     

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

      (47,565)             (47,565)    

Decrease due to decrease in subsidiaries

        (945)           (945)    

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

        (679)           (679)    

Reversal of land revaluation excess

        (435)           (435)    

Transfer from retained earnings to capital surplus

      101,923          (101,923)           —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Year ended March 31, 2020

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

Balance at the beginning of the fiscal year

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

Changes in the fiscal year

           

Issuance of new stock

           

Cash dividends

           

Profit attributable to owners of parent

           

Purchase of treasury stock

           

Disposal of treasury stock

           

Cancellation of treasury stock

           

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

           

Decrease due to decrease in subsidiaries

           

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

           

Reversal of land revaluation excess

           

Transfer from retained earnings to capital surplus

           
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

8


Table of Contents

Year ended March 31, 2020

  Millions of yen
  Stock
acquisition
rights
    Non-
controlling
interests
   

Total
net assets

Balance at the beginning of the fiscal year

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

Changes in the fiscal year

     

Issuance of new stock

      1,043   

Cash dividends

      (255,834)  

Profit attributable to owners of parent

      703,883   

Purchase of treasury stock

      (100,088)  

Disposal of treasury stock

      483   

Cancellation of treasury stock

      —   

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

      (47,565)  

Decrease due to decrease in subsidiaries

      (945)  

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

      (679)  

Reversal of land revaluation excess

      (435)  

Transfer from retained earnings to capital surplus

      —   
 

 

 

   

 

 

   

 

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

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

 

 

   

 

 

   

 

Net changes in the fiscal year

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

 

 

   

 

 

   

 

Balance at the end of the fiscal year

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

 

 

   

 

 

   

 

 

9


Table of Contents

(Continued)

 

Year ended March 31, 2020

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

Balance at the beginning of the fiscal year

   $   21,500         $ 6,792         $ 55,071         $ (150)        $ 83,213     

Changes in the fiscal year

         

Issuance of new stock

    5          5           

Cash dividends

        (2,351)           (2,351)    

Profit attributable to owners of parent

        6,469            6,469     

Purchase of treasury stock

          (920)         (920)    

Disposal of treasury stock

      (2)           7          4     

Cancellation of treasury stock

      (934)           934          —    

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

      (437)             (437)    

Decrease due to decrease in subsidiaries

        (9)           (9)    

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

        (6)           (6)    

Reversal of land revaluation excess

        (4)           (4)    

Transfer from retained earnings to capital surplus

      937          (937)           —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

    5          (432)         3,162          21          2,756     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

   $ 21,505         $ 6,360         $       58,233         $ (129)        $ 85,969     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Year ended March 31, 2020

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

Balance at the beginning of the fiscal year

   $ 15,521         $ (502)        $ 336         $ 463         $ (67)        $ 15,751     

Changes in the fiscal year

           

Issuance of new stock

           

Cash dividends

           

Profit attributable to owners of parent

           

Purchase of treasury stock

           

Disposal of treasury stock

           

Cancellation of treasury stock

        —          

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

           

Decrease due to decrease in subsidiaries

           

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

           

Reversal of land revaluation excess

           

Transfer from retained earnings to capital surplus

           
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    (2,917)         1,258          3          (765)         (779)         (3,200)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

    (2,917)         1,258          3          (765)         (779)         (3,200)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

   $ 12,604         $ 756         $ 339         $ (302)        $ (846)       $         12,551     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

10


Table of Contents

Year ended March 31, 2020

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

Balance at the beginning of the fiscal year

   $              44         $ 6,236         $ 105,244     

Changes in the fiscal year

     

Issuance of new stock

        10     

Cash dividends

        (2,351)    

Profit attributable to owners of parent

        6,469     

Purchase of treasury stock

        (920)    

Disposal of treasury stock

        4     

Cancellation of treasury stock

        —    

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

        (437)    

Decrease due to decrease in subsidiaries

        (9)    

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

        (6)    

Reversal of land revaluation excess

        (4)    

Transfer from retained earnings to capital surplus

        —    
 

 

 

   

 

 

   

 

 

 

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

    (25)         (5,658)         (8,883)    
 

 

 

   

 

 

   

 

 

 

Net changes in the fiscal year

    (25)         (5,658)         (6,127)    
 

 

 

   

 

 

   

 

 

 

Balance at the end of the fiscal year

   $                     19         $               578         $       99,117     
 

 

 

   

 

 

   

 

 

 

 

11


Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Year ended March 31

  

Millions of yen

     Millions of
U.S. dollars
 
  

            2019             

    

            2020             

     2020  

Cash flows from operating activities:

              

Income before income taxes

      ¥ 1,123,579              ¥        888,646           $               8,167       

Depreciation

        269,010                209,198             1,923       

Losses on impairment of fixed assets

        9,610                65,106             598       

Amortization of goodwill

        25,919                17,533             161       

Gains on step acquisitions

        (2,285)               (22,040)            (203)      

Equity in losses of affiliates

        (61,145)               (56,051)            (515)      

Net change in reserve for possible loan losses

        (60,213)               13,411             123       

Net change in reserve for employee bonuses

        (16,467)               3,103             29       

Net change in reserve for executive bonuses

        (757)               201             2       

Net change in net defined benefit asset and liability

        (25,570)               101,532             933       

Net change in reserve for executive retirement benefits

        (196)               (84)            (1)      

Net change in reserve for point service program

        1,704                2,627             24       

Net change in reserve for reimbursement of deposits

        (9,828)               (3,249)            (30)      

Net change in reserve for losses on interest repayment

        2,830                (4,703)            (43)      

Interest income

        (2,488,904)               (2,456,364)            (22,575)      

Interest expenses

        1,157,482                1,179,770             10,842       

Net (gains) losses on securities

        (101,219)               (143,877)            (1,322)      

Net (gains) losses from money held in trust

        (0)               (0)            (0)      

Net exchange (gains) losses

        (148,278)               118,815             1,092       

Net (gains) losses from disposal of fixed assets

             3,944                     54             0       

Net change in trading assets

        477,890                (1,859,195)            (17,087)      

Net change in trading liabilities

        (1,603,188)               1,930,360            17,741       

Net change in loans and bills discounted

        (3,152,247)               (4,839,243)            (44,474)      

Net change in deposits

        5,039,495                5,064,595            46,545       

Net change in negotiable certificates of deposit

        (73,017)               (982,400)            (9,029)      

Net change in borrowed money (excluding subordinated borrowings)

        1,418,493                4,844,384             44,521       

Net change in deposits with banks

        1,520,423                (1,455,747)            (13,379)      

Net change in call loans and bills bought and others

        (6,235,713)               (812,970)            (7,471)      

Net change in receivables under securities borrowing transactions

        4,240,226                (907,630)            (8,341)      

Net change in call money and bills sold and others

        6,097,354                 4,256,015             39,114       

Net change in commercial paper

        (95,014)               (882,878)            (8,114)      

Net change in payables under securities lending transactions

        (5,374,040)               572,787             5,264       

Net change in foreign exchanges (assets)

        446,136                (346,503)            (3,184)      

Net change in foreign exchanges (liabilities)

        298,550                296,890             2,729       

Net change in lease receivables and investment assets

        (53,975)               17,309             159       

Net change in short-term bonds (liabilities)

        (51,200)               294,500             2,707       

Issuance and redemption of bonds (excluding subordinated bonds)

        467,587                152,729             1,404       

Net change in due to trust account

        24,502                458,581             4,215       

Interest received

        2,435,453                2,471,480             22,714       

Interest paid

        (1,116,584)               (1,201,792)            (11,045)      

Other, net

        489,142                386,091             3,548       
     

 

 

       

 

 

    

 

 

 

Subtotal

        4,879,488                7,370,996             67,742       
     

 

 

       

 

 

    

 

 

 

Income taxes paid

        (283,245)               (283,536)            (2,606)      
     

 

 

       

 

 

    

 

 

 

Net cash provided by (used in) operating activities

            4,596,242                7,087,460                  65,136       
     

 

 

       

 

 

    

 

 

 

 

12


Table of Contents

(Continued)

 

Year ended March 31

  

Millions of yen

     Millions of
U.S. dollars
 
  

            2019             

    

            2020             

                 2020              

Cash flows from investing activities:

              

Purchases of securities

      ¥ (26,615,239)             ¥ (35,544,708)          $ (326,668)      

Proceeds from sale of securities

        17,969,410                23,204,983             213,261       

Proceeds from redemption of securities

        10,078,569                9,550,000             87,768       

Purchases of money held in trust

        (2)               (284)            (3)      

Proceeds from sale of money held in trust

        1,094                321             3       

Purchases of tangible fixed assets

        (510,213)               (103,052)            (947)      

Proceeds from sale of tangible fixed assets

        104,451                19,206             177       

Purchases of intangible fixed assets

        (139,329)               (147,784)            (1,358)      

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

   *2      (57,182)               (17,365)            (160)      

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

   *3      174,702                27,021                             248       
     

 

 

       

 

 

    

 

 

 

Net cash provided by (used in) investing activities

        1,006,260                (3,011,660)            (27,678)      
     

 

 

       

 

 

    

 

 

 

Cash flows from financing activities:

              

Repayment of subordinated borrowings

        (8,000)               (8,000)            (74)      

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

        —                139,405             1,281       

Redemption of subordinated bonds and bonds with stock acquisition rights

        (27,539)               (113,000)            (1,039)      

Dividends paid

        (245,594)               (255,771)            (2,351)      

Repayments to non-controlling stockholders

        (212,537)               (436,500)            (4,012)      

Dividends paid to non-controlling stockholders

        (77,185)               (16,922)            (156)      

Purchases of treasury stock

        (70,094)               (100,088)            (920)      

Proceeds from disposal of treasury stock

        294                483             4       

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

        —                (234,159)            (2,152)      

Proceeds from sale of stocks of subsidiaries not resulting in change in scope of consolidation

        7,837                —             —       
     

 

 

       

 

 

    

 

 

 

Net cash provided by (used in) financing activities

        (632,819)               (1,024,554)            (9,416)      
     

 

 

       

 

 

    

 

 

 

Effect of exchange rate changes on cash and cash equivalents

        166,646                (74,480)            (685)      
     

 

 

       

 

 

    

 

 

 

Net change in cash and cash equivalents

        5,136,329                2,976,764             27,357       
     

 

 

       

 

 

    

 

 

 

Cash and cash equivalents at the beginning of the fiscal year

        47,983,114                53,120,963             488,199       

Net change in cash and cash equivalents resulting from business combinations between subsidiaries

        —                79             1       

Increase in cash and cash equivalents resulting from inclusion of subsidiaries in consolidation

        1,519                —             —       
     

 

 

       

 

 

    

 

 

 

Cash and cash equivalents at the end of the fiscal year

   *1    ¥   53,120,963           *1    ¥    56,097,807           $      515,557       
     

 

 

       

 

 

    

 

 

 

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Basis of presentation)

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

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

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

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

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

The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2020 which was ¥108.81 to US$1. These translations should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at that rate.

 

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(Significant accounting policies for preparing consolidated financial statements)

1. Scope of consolidation

 

(1)

Consolidated subsidiaries

The number of consolidated subsidiaries at March 31, 2020 is 174.

Principal companies:

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

Changes in the consolidated subsidiaries in the fiscal year ended March 31, 2020 are as follows:

TT International Asset Management Ltd and 15 other companies were newly included in the scope of consolidation as a result of acquisition of shares and for other reasons.

SMM Auto Finance, Inc. and 14 other companies were excluded from the scope of consolidation as they ceased to be subsidiaries due to the sale of their stocks and for other reasons.

 

(2)

Unconsolidated subsidiaries

 

Principal company:

  

SBCS Co., Ltd.

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

2. Application of the equity method

 

(1)

Unconsolidated subsidiaries accounted for by the equity method

The number of unconsolidated subsidiaries accounted for by the equity method at March 31, 2020 is 5.

 

Principal company:

  

SBCS Co., Ltd.

 

(2)

Equity method affiliates

The number of affiliates accounted for by the equity method at March 31, 2020 is 96.

 

Principal companies:

  

Sumitomo Mitsui Finance and Leasing Company, Limited

  

Sumitomo Mitsui Auto Service Company, Limited

Changes in the equity method affiliates in the fiscal year ended March 31, 2020 are as follows:

3 companies became equity method affiliates due to new establishment.

Daiwa SB Investments Ltd. and 16 other companies were excluded from the scope of equity method affiliates as they ceased to be affiliates due to merger and for other reasons.

 

(3)

Unconsolidated subsidiaries that are not accounted for by the equity method

There are no corresponding companies.

 

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(4)

Affiliates that are not accounted for by the equity method

 

Principal company:

  

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

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

3. The balance sheet dates of consolidated subsidiaries

 

(1)

The balance sheet dates of the consolidated subsidiaries at March 31, 2020 are as follows:

 

June 30

     4     

October 31

     2     

December 31

     82     

January 31

     1     

March 31

     85     

 

(2)

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

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

4. Accounting policies

 

(1)

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

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

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

“Trading income” and “Trading losses” include interest received or paid during the fiscal year. The year-on-year valuation differences of securities and monetary claims are also recorded in the above-mentioned accounts. As for the derivatives, assuming that the settlement will be made in cash, the year-on-year valuation differences are also recorded in the above-mentioned accounts.

 

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(2)

Standards for recognition and measurement of securities

 

  1)

Debt securities that consolidated subsidiaries have the positive intent and ability to hold to maturity are classified as held-to-maturity securities and are carried at amortized cost (based on straight-line method) using the moving-average method. Investments in affiliates that are not accounted for by the equity method are carried at cost using the moving-average method. Securities other than trading purpose securities, held-to-maturity securities and investments in unconsolidated subsidiaries and affiliates are classified as “other securities “(available-for-sale securities). Stocks (including foreign stocks) in other securities are carried at their average market prices during the final month of the fiscal year, and bonds and others are carried at their fiscal year-end market prices (cost of securities sold is calculated using primarily the moving-average method). Other securities which are extremely difficult to determine fair value are carried at cost using the moving-average method.

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

 

  2)

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

 

(3)

Standards for recognition and measurement of derivative transactions

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

 

(4)

Depreciation

 

  1)

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

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

 

Buildings:

 

7 to 50 years

 

Others:

 

2 to 20 years

 

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

 

  2)

Intangible fixed assets

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

 

  3)

Assets for rent

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

 

  4)

Lease assets

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

 

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(5)

Reserve for possible loan losses

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

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

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

For other claims, a reserve is primarily provided by setting the potential losses in the next one year or three years. The potential losses are calculated by determining the loss ratio based on the historical loan-loss ratio derived from actual loan losses or bankruptcies in the past one year or three years, or average (of a certain period) probability of bankruptcies, and by making necessary adjustments including future estimations.

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

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

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

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

For collateralized or guaranteed claims on bankrupt borrowers and effectively bankrupt borrowers, the amount exceeding the estimated value of collateral and guarantees is deemed to be uncollectible and written off against the total outstanding amount of the claims. The amount of write-off for the years ended March 31, 2019 and 2020 were ¥139,981 million and ¥142,834 million, respectively.

 

(6)

Reserve for employee bonuses

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

 

(7)

Reserve for executive bonuses

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

 

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(8)

Reserve for executive retirement benefits

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

 

(9)

Reserve for point service program

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

 

(10)

Reserve for reimbursement of deposits

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

 

(11)

Reserve for losses on interest repayment

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

 

(12)

Reserve under the special laws

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

 

(13)

Employee retirement benefits

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

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

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

 

(14)

Translation of foreign currency assets and liabilities

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

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

 

(15)

Lease transactions

 

  1)

Recognition of income on finance leases

Interest income is allocated to each period.

 

  2)

Recognition of income on operating leases

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

 

  3)

Recognition of income and expenses on installment sales

Primarily, installment-sales-related income and installment-sales-related expenses are recognized on a due-date basis over the full period of the installment sales.

 

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(16)

Hedge accounting

 

  1)

Hedging against interest rate changes

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

SMBC applies deferred hedge accounting stipulated in “Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry” (JICPA Industry Audit Committee Report No. 24, February 13, 2002) to portfolio hedges on groups of large-volume, small-value monetary claims and debts.

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

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

 

  2)

Hedging against currency fluctuations

SMBC, which is a consolidated subsidiary of the Company, applies deferred hedge accounting stipulated in “Treatment of Accounting and Auditing Concerning Accounting for Foreign Currency Transactions in Banking Industry” (JICPA Industry Audit Committee Report No. 25, July 29, 2002) to currency swap and foreign exchange swap transactions executed for the purpose of lending or borrowing funds in different currencies.

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

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

 

  3)

Hedging against share price fluctuations

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

 

  4)

Transactions between consolidated subsidiaries

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

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

 

(17)

Amortization of goodwill

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

 

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(18)

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

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

 

(19)

Consumption taxes

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

 

(20)

Adoption of the consolidated corporate-tax system

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

(Unapplied Accounting Standards and Others)

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

 

(1)

Outline

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

 

(2)

Date of Application

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

 

(3)

Effects of Application of the Accounting Standard etc.

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

2.“Accounting Standard for Fair Value Measurement” (ASBJ Statement No.30) etc. (issued July 4, 2019)

 

(1)

Outline

The accounting standard etc. provide the guidance regarding methods of measuring fair values to improve comparability with those stipulated by international accounting standards.

 

(2)

Date of Application

The Company applies the standard etc. from the beginning of the fiscal year commencing on April 1, 2020.

 

(3)

Effects of Application of the Accounting Standard etc.

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

3.“Accounting Standard for Disclosure of Accounting Estimates ” (ASBJ Statement No.31) (issued March 31, 2020)

 

(1)

Outline

The accounting standard aims to disclose information to help users of financial statements to understand accounting estimates for items with risks that could have significant effects on consolidated financial statements of the following fiscal year, among the amounts determined by the accounting estimates on consolidated financial statements of the current fiscal year.

 

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(2)

Date of Application

The Company will apply the standard etc. from the end of the fiscal year ending on March 31, 2021.

4.“Revised Accounting Standard for Accounting Policy Disclosures, Accounting Changes and Error Corrections and its Implementation Guidance” (ASBJ Statement No.24) (revised March 31, 2020)

 

(1)

Outline

The accounting standard aims to provide the outline of adopted accounting principles and procedures in case that provisions of related accounting standards etc. are not evident.

 

(2)

Date of Application

The Company will apply the standard etc. from the end of the fiscal year ending on March 31, 2021.

(Additional information)

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

The estimates of reserve for possible loan losses related to the increased impact of COVID-19 are reflected in the consolidated financial statements using the following method.

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

In addition, for potential losses for specific portfolios that are based on the future prospects with high probability, which cannot be reflected in any of individual borrower’s classification, a reserve is provided in the amount deemed necessary based on an overall assessment in light of impacts such as fluctuations in market indices including crude oil price due to factors such as COVID-19.

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

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

 

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(Notes to consolidated balance sheets)

 

*1

Stocks and investments in unconsolidated subsidiaries and affiliates

Stocks and investments in unconsolidated subsidiaries and affiliates at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

   2019      2020  

Stocks

   ¥               969,481              ¥               943,980          

Investments

                     6,368                                   661          

Stocks of jointly controlled entities were as follows:

 

     Millions of yen  

March 31

   2019      2020  

Stocks of jointly controlled entities

   ¥               340,821              ¥               322,598          

 

*2

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

The amount of unsecured loaned securities for which borrowers have the right to sell or pledge at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

   2019      2020  

Japanese government bonds in “Securities”

   ¥                  902                  ¥                   —            

As for the unsecured borrowed securities, securities under resale agreements and securities borrowed with cash collateral with rights to sell or pledge without restrictions, those securities pledged, those securities lent and those securities held without being disposed at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

   2019      2020  

Securities pledged

   ¥            7,270,140              ¥          11,030,067          

Securities lent

     140,772                171,224          

Securities held without being disposed

     2,232,706                2,546,017          

 

*3

Bankrupt loans and non-accrual loans

Bankrupt loans and non-accrual loans at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

   2019      2020  

Bankrupt loans

   ¥                 12,806              ¥                 13,978          

Non-accrual loans

     456,802                378,173          

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

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

 

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*4

Past due loans (3 months or more)

Past due loans (3 months or more) at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

   2019      2020  

Past due loans (3 months or more)

   ¥                 13,444              ¥                 14,400          

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

 

*5

Restructured loans

Restructured loans at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

   2019      2020  

Restructured loans

   ¥               193,427              ¥               221,288          

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

 

*6

Risk-monitored loans

The total amount of bankrupt loans, non-accrual loans, past due loans (3 months or more) and restructured loans at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

   2019      2020  

Risk-monitored loans

   ¥               676,481              ¥               627,840          

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

 

*7

Bills discounted

Bills discounted are accounted for as financial transactions in accordance with the “Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry” (JICPA Industry Audit Committee Report No. 24, February 13, 2002). SMBC and its banking subsidiaries have rights to sell or pledge bank acceptance bought, commercial bills discounted, documentary bills and foreign exchanges bought without restrictions, etc. The total face value at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

   2019      2020  

Bills discounted

   ¥               906,636              ¥               850,324          

 

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*8

Assets pledged as collateral

Assets pledged as collateral at March 31, 2019 and 2020 consisted of the following:

 

March 31, 2019

     Millions of yen       

March 31, 2020

     Millions of yen    

Assets pledged as collateral:

      Assets pledged as collateral:   

Cash and due from banks

   ¥              7,353         

Cash and due from banks

   ¥                78,112          

Monetary claims bought

     11,459         

Trading assets

     834,864          

Trading assets

     514,328         

Securities

             10,502,767          

Securities

         6,286,499         

Loans and bills discounted

     10,679,243          

Loans and bills discounted

     9,086,500            

Liabilities corresponding to assets pledged as collateral:

     

Liabilities corresponding to assets pledged as collateral:

  

Deposits

                       26,089         

Deposits

                   21,908          

Payables under repurchase agreements

     5,762,587         

Payables under repurchase agreements

     6,670,132          

Payables under securities lending transactions

     1,582,791         

Payables under securities lending transactions

     2,334,251          

Borrowed money

     7,922,955         

Borrowed money

     10,587,419          

Trust account

     124,550         

Trust account

     432,135          

Acceptances and guarantees

     167,027         

Acceptance and guarantees

     103,886          

In addition to the assets presented above, the following assets were pledged as collateral for cash settlements, and substitution for margins of futures transactions and certain other purposes at March 31, 2019 and 2020:

 

March 31, 2019

     Millions of yen       

March 31, 2020

     Millions of yen    

Cash and due from banks

   ¥              41,584          Cash and due from banks    ¥              12,543          

Trading assets

             1,591,280          Trading assets      1,179,599          

Securities

     4,812,271          Securities      3,570,617          

Loans and bills discounted

                   853,603          Loans and bills discounted                    10,350          

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

 

March 31, 2019

     Millions of yen       

March 31, 2020

     Millions of yen    

Collateral money deposited for financial instruments

   ¥         1,630,600          Collateral money deposited for financial instruments    ¥         2,240,739          

Surety deposits

                     92,281          Surety deposits                    87,976          

Margins of futures markets

     64,340          Margins of futures markets      101,838          

Other margins

     43,365          Other margins      46,569          

 

25


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*9

Commitment line contracts on overdrafts and loans

Commitment line contracts on overdrafts and loans are agreements to lend to customers, up to a prescribed amount, as long as there is no violation of any condition established in the contracts. The amounts of unused commitments at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

   2019      2020  

The amounts of unused commitments

   ¥       62,409,943               ¥       61,881,806           

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

     44,048,947                 44,330,598           

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

 

*10

Land revaluation excess

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

Certain equity method affiliates also revalued its own land for business activities in accordance with the Act. The Company’s share of the net unrealized gains and net of deferred taxes are reported as “Land revaluation excess” in “Net assets.”

Date of the revaluation

SMBC: March 31, 1998 and March 31, 2002

Certain equity method affiliates: March 31, 1999 and March 31, 2002

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

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

Certain equity method affiliates: Fair values were determined based on the values stipulated in Article 2-3 and 2-5 of “Order for Enforcement of Act on Revaluation of Land” (Cabinet Order No. 119 effective March 31, 1998).

 

*11

Accumulated depreciation on tangible fixed assets

Accumulated depreciation on tangible fixed assets at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

   2019      2020  

Accumulated depreciation

   ¥         741,648               ¥            783,544           

 

26


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*12

Deferred gain on tangible fixed assets deductible for tax purposes

Deferred gain on tangible fixed assets deductible for tax purposes at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

           2019                      2020          

Deferred gain on tangible fixed assets deductible for tax purposes

   ¥                62,127               ¥              62,099           

[The consolidated fiscal year concerned]

     [—]                [—]          

 

*13

Subordinated borrowings

The balance of subordinated borrowings in “Borrowed money” at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

           2019                      2020          

Subordinated borrowings

   ¥              257,000               ¥            249,000           

 

*14

Subordinated bonds

The balance of subordinated bonds included in “Bonds” at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

           2019                      2020          

Subordinated bonds

   ¥           2,195,130               ¥         2,216,743           

 

*15

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

The amount of borrowings from trust account in relation to covered bonds issued by trust account included in “Due to trust account” at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

           2019                      2020          

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

   ¥              124,550                 ¥            432,135           

 

*16

Guaranteed amount to privately-placed bonds

The amount guaranteed by SMBC and its banking subsidiaries to privately-placed bonds (stipulated by Article 2-3 of the Financial Instruments and Exchange Act) in “Securities” at March 31, 2019 and 2020 were as follows:

 

     Millions of yen  

March 31

           2019                      2020          

Guaranteed amount to privately-placed bonds

   ¥           1,662,777               ¥         1,603,941           

 

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(Notes to consolidated statements of income)

 

*1

Other income

“Other” in “Other income” for the fiscal years ended March 31, 2019 and 2020 included the following:

 

Year ended March 31, 2019

  

    Millions of yen    

  

Year ended March 31, 2020

  

    Millions of yen    

Gains on sales of stocks

   ¥  134,748           

Gains on sales of stocks

   ¥    154,735      

 

*2

General and administrative expenses

“General and administrative expenses” for the fiscal years ended March 31, 2019 and 2020 included the following:

 

Year ended March 31, 2019

  

    Millions of yen    

  

Year ended March 31, 2020

  

    Millions of yen    

Salaries and related expenses

   ¥  641,844           

Salaries and related expenses

   ¥    618,071      

Research and development costs

   167           

Depreciation expense

   180,765      
     

Research and development costs

   77      

 

*3

Other expenses

“Other expenses” for the fiscal years ended March 31, 2019 and 2020 included the following:

 

Year ended March 31, 2019

  

    Millions of yen    

  

Year ended March 31, 2020

  

    Millions of yen    

Write-off of loans

   ¥  105,429           

Write-off of loans

   ¥    105,307      
     

Write-off of stocks and others

   45,374      

 

*4

Other extraordinary gains

“Other extraordinary gains” for the fiscal year ended March 31, 2019 and 2020 including the following gains:

 

Year ended March 31, 2019

  

    Millions of yen    

  

Year ended March 31, 2020

  

    Millions of yen    

Gains on step acquisitions

   ¥      2,285           

Gains on step acquisitions

   ¥      22,040      

 

28


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*5

Losses on impairment of fixed assets

The differences between the recoverable amounts and the book value of the following asset is recognized as “Losses on impairment of fixed assets,” and included in “Extraordinary losses” for the fiscal year ended March 31, 2019 and 2020.

 

Year ended March 31, 2019

                  Millions of yen          

Area

 

Purpose of use

 

Type

  Impairment loss  

Tokyo metropolitan area

  Branches (14 items)   Land and buildings, etc.   ¥                  205          
  Idle assets (64 items)       2,335          

Kinki area

  Branches (7 items)   Land and buildings, etc.     77          
  Idle assets (40 items)       2,139          

Other

  Branches (2 items)   Land and buildings, etc.     258          
  Idle assets (19 items)       889          

—  

  —     Intangible fixed assets     3,703          

Year ended March 31, 2020

                  Millions of yen          

Area

 

Purpose of use

 

Type

  Impairment loss  

Tokyo metropolitan area

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

Kinki area

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

Other area in Japan

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

Americas

  Lease assets for freight cars   Assets for rent     13,805          

—  

  —     Goodwill and other intangible fixed assets     39,958          

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

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

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

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

For goodwill and other intangible fixed assets, a consolidated subsidiary is the main unit of asset group. For the fiscal year ended March 31, 2020, SMBC Trust Bank Ltd. reviewed its future cash flows in view of the current market environment. As a result, all of the unamortized balance of goodwill and other intangible fixed assets at the end of the fiscal year ended March 31, 2020 were included in “Extraordinary losses” as “Losses on impairment of intangible fixed assets,” as the carrying amounts of the aforementioned assets associated with its PRESTIA business were considered not to be recoverable. The recoverable amount is measured by value in use, which is calculated by discounting future cash flows by 6%.

 

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Table of Contents

(Notes to consolidated statements of comprehensive income)

 

*1

Reclassification adjustment and tax effect of other comprehensive income

 

Year ended March 31

   Millions of yen  
   2019      2020  

Net unrealized gains (losses) on other securities:

         

Amount arising during the fiscal year

   ¥ 67,769                 ¥ (203,676           

Reclassification adjustments

     (142,464        (211,281  
  

 

 

    

 

 

 

Before adjustments to tax effect

     (74,694        (414,958  

Tax effect

     105,852          100,166    
  

 

 

    

 

 

 

Net unrealized gains (losses) on other securities

     31,157          (314,792  
  

 

 

    

 

 

 

Net deferred gains (losses) on hedges:

         

Amount arising during the fiscal year

     381          128,887    

Reclassification adjustments

     40,513          110,070    
  

 

 

    

 

 

 

Before adjustments to tax effect

     40,895          238,957    

Tax effect

     (10,914        (72,779  
  

 

 

    

 

 

 

Net deferred gains (losses) on hedges

     29,981          166,177    
  

 

 

    

 

 

 

Land revaluation excess:

         

Amount arising during the fiscal year

                 

Reclassification adjustments

                 
  

 

 

    

 

 

 

Before adjustments to tax effect

                 

Tax effect

              (39  
  

 

 

    

 

 

 

Land revaluation excess

              (39  
  

 

 

    

 

 

 

Foreign currency translation adjustments:

         

Amount arising during the fiscal year

     13,212          (74,067  

Reclassification adjustments

     (2,815        15    
  

 

 

    

 

 

 

Before adjustments to tax effect

     10,396          (74,052  

Tax effect

                 
  

 

 

    

 

 

 

Foreign currency translation adjustments

     10,396          (74,052  
  

 

 

    

 

 

 

Remeasurements of defined benefit plans:

         

Amount arising during the fiscal year

     (80,149        (125,218  

Reclassification adjustments

     (15,063        5,429    
  

 

 

    

 

 

 

Before adjustments to tax effect

     (95,212        (119,789  

Tax effect

     29,682                        35,369    
  

 

 

    

 

 

 

Remeasurements of defined benefit plans

     (65,530        (84,420  
  

 

 

    

 

 

 

Share of other comprehensive income of affiliates:

         

Amount arising during the fiscal year

     (22,857        (42,843  

Reclassification adjustments

                   19,886          1,979    
  

 

 

    

 

 

 

Before adjustments to tax effect

     (2,970        (40,864  

Tax effect

                 
  

 

 

    

 

 

 

Share of other comprehensive income of affiliates

     (2,970        (40,864  
  

 

 

    

 

 

 

Total other comprehensive income

   ¥ 3,035        ¥ (347,990  
  

 

 

    

 

 

 

 

30


Table of Contents

(Notes to consolidated statements of changes in net assets)

Fiscal year ended March 31, 2019

1. Type and number of shares issued and treasury stock

 

Year ended March 31, 2019

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

Shares issued

              

Common stock

     1,414,443,390            326,330            15,368,300            1,399,401,420          1,2
  

 

 

    

 

 

    

 

 

    

 

 

    

 

Total

     1,414,443,390                          326,330            15,368,300            1,399,401,420         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

Treasury stock

              

Common stock

     3,884,968            15,390,528            15,474,578            3,800,918          3,4
  

 

 

    

 

 

    

 

 

    

 

 

    

 

Total

     3,884,968            15,390,528            15,474,578            3,800,918         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

Notes:

   1.    The increase of 326,330 shares in the total number of shares issued was due to issuance of new stocks as stock-based compensation.
   2.    The decrease of 15,368,300 shares in the total number of shares issued was due to cancellation of treasury stock.
   3.    The increase of 15,390,528 shares in the number of treasury common stock comprises the increase of 22,228 shares due to purchase of fractional shares, and the increase of 15,368,300 shares due to purchase of treasury stock.
   4.    The decrease of 15,474,578 shares in the number of treasury common stock comprises the decrease of 106,278 shares due to sales of fractional shares as well as exercise of stock option, and the decrease of 15,368,300 shares due to cancellation of treasury stock.

2. Information on stock acquisition rights

Year ended March 31, 2019

               Number of shares      Millions of yen         
  

Details of stock
acquisition rights

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

The Company

   Stock acquisition rights
as stock options
       —          —          —          —          —      ¥       2,539       

 

  

 

  

 

 

    

 

 

    

 

 

 

Consolidated subsidiaries

          —          —          —          —          —        2,210       
  

 

  

 

 

    

 

 

    

 

 

 

Total

                     ¥       4,750       
                    

 

 

    

3. Information on dividends

 

  (1)

Dividends paid in the fiscal year

 

Date of resolution

  

Type of shares

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

Ordinary General Meeting of Shareholders held on June 28, 2018

   Common stock    ¥     126,950          ¥         90            March 31, 2018    June 29, 2018

Meeting of the Board of Directors
held on November 13, 2018

   Common stock          118,626            85            September 30, 2018    December 4, 2018

 

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

 

Date of resolution

  

Type of shares

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

Ordinary General Meeting of Shareholders held on June 27, 2019

   Common stock    ¥     132,582           

Retained

earnings

 

 

   ¥           95          March 31, 2019    June 28, 2019

 

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Table of Contents

Fiscal year ended March 31, 2020

1. Type and number of shares issued and treasury stock

 

     Number of shares       

Year ended March 31, 2020

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

Shares issued

              

Common stock

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

 

 

    

 

 

    

 

  

 

 

    

 

Total

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

 

 

    

 

 

    

 

  

 

 

    

 

Treasury stock

              

Common stock

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

 

 

    

 

 

    

 

  

 

 

    

 

Total

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

 

 

    

 

 

    

 

  

 

 

    

 

 

Notes:

     1.     

The increase of 272,536 shares in the total number of shares issued was due to issuance of new stocks as stock-based compensation.

     2.     

The decrease of 26,502,400 shares in the total number of shares issued was due to cancellation of treasury stock.

     3.     

The increase of 26,525,707 shares in the number of treasury common stock comprises the increase of 23,307 shares due to purchase of fractional shares, and the increase of 26,502,400 shares due to purchase of treasury stock.

     4.     

The decrease of 26,681,582 shares in the number of treasury common stock comprises the decrease of 179,182 shares due to sales of fractional shares as well as exercise of stock option, and the decrease of 26,502,400 shares due to cancellation of treasury stock.

2. Information on stock acquisition rights

 

               Number of shares    Millions of yen     

Year ended March 31, 2020

  

Details of stock
acquisition rights

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

The Company

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

 

  

 

  

 

  

 

Total

                     ¥      2,064       
                    

 

  

3. Information on dividends

 

(1)    Dividends paid in the fiscal year

     Type of shares    Millions of yen, except per share amount

Date of resolution

   Cash dividends      Cash dividends
per share
     Record date    Effective date

Ordinary General Meeting of Shareholders
held on June 27, 2019

   Common stock    ¥     132,582          ¥         95            March 31, 2019    June 28, 2019

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

   Common stock          123,252                  90            September 30, 2019    December 3, 2019

 

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

 

     Type of shares    Millions of yen, except per share amount

Date of resolution

   Cash
          dividends        
     Source of
dividends
     Cash
dividends
per share
     Record date    Effective date

Ordinary General Meeting of Shareholders
held on June 26, 2020

  
Common stock
   ¥     136,952           
Retained
earnings

 
   ¥         100          March 31, 2020    June 29, 2020

 

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(Notes to consolidated statements of cash flows)

 

*1

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

 

     Millions of yen  

Year ended March 31

   2019      2020  

Cash and due from banks

   ¥            57,411,276                  ¥          61,768,573                

Interest earning deposits with banks

(excluding the deposit with the Bank of Japan)

     (4,290,312)                           (5,670,766)               
  

 

 

    

 

 

 

Cash and cash equivalents

   ¥              53,120,963                  ¥ 56,097,807                
  

 

 

    

 

 

 

 

*2

The major components of assets and liabilities for the companies newly consolidated by stock acquisition and for other reasons

The major components of assets and liabilities at the commencement of consolidation due to consolidation of PT Bank Tabungan Pensiunan Nasional Tbk (“BTPN”) and 1 other company by SMBC’s stock acquisition and the relation between the acquisition cost of the shares and expenditure to acquire were as follows:

 

Year ended March 31, 2019

   Millions of yen         

Assets

   ¥                    837,523                                                                  

Loans and bills discounted

                  522,918                  

Liabilities

                 (643,346)                 

Deposits

                 (538,529)                 

Foreign currency translation adjustments

                  5,049                  

Stock acquisition rights

                 (2,141)                 

Non-controlling interests

                 (12,402)                 

Goodwill

                  4,707                  
  

 

 

    

Acquisition cost of 2 companies

                  189,390                  

Cash and cash equivalents included in acquired assets of 2 companies

                 (54,182)                 

Fair value of BTPN’s common stocks immediately prior to the business combination

                 (78,025)                 
  

 

 

    

Expenditure for acquisition of 2 companies

   ¥              57,182                  
  

 

 

    

 

33


Table of Contents
*3

The major components of assets and liabilities of companies which were excluded from the scope of consolidation by sale of the shares

The major components of assets and liabilities of Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”) and 184 other companies which were excluded from the scope of consolidation due to the partial sale of SMFL’s stock by the Company and the relation between the selling price of the shares and the income for sales were as follows:

 

Year ended March 31, 2019

   Millions of yen       

Assets

   ¥                6,154,253                                                             

Lease receivables and investment assets

                2,157,141                  

Tangible fixed assets

                2,267,524                  

Liabilities

               (5,435,353)                 

Borrowed money

               (3,101,458)                 

Non-controlling interests

               (258,602)                 

Investment account after sales of stocks

               (301,028)                 

Gains (losses) on sales of stocks

               17,014                  
  

 

 

    

Selling price of 185 companies

     176,284                  

Cash and cash equivalents included in disposed assets of 185 companies

     (1,582)                 
  

 

 

    

Income for sales of 185 companies

   ¥                 174,702                  
  

 

 

    

 

34


Table of Contents

(Notes to lease transactions)

1. Finance leases

 

  (1)

Lessee side

 

  1)

Lease assets

 

  (a)

Tangible fixed assets

 

    

Tangible fixed assets mainly consisted of branches and equipment.

 

  (b)

Intangible fixed assets

 

    

Intangible fixed assets are software.

 

  2)

Depreciation method of lease assets

Depreciation method of lease assets is reported in 4. Accounting policies (4) Depreciation.

 

  (2)

Lessor side

 

  1)

Breakdown of lease investment assets

 

March 31

   Millions of yen  
   2019      2020  

Lease receivables

   ¥        269,214           ¥        258,052       

Residual value

     65,094             47,285       

Unearned interest income

     (86,474)            (85,604)      
  

 

 

    

 

 

 

Total

   ¥ 247,835           ¥ 219,733       
  

 

 

    

 

 

 

 

  2)

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

 

March 31

   Millions of yen  
   2019      2020  

Within 1 year

   ¥          43,411           ¥          26,938       

More than 1 year to 2 years

     24,003             26,318       

More than 2 years to 3 years

     21,214             23,880       

More than 3 years to 4 years

     20,682             16,453       

More than 4 years to 5 years

     13,813             13,612       

More than 5 years

     146,089             150,848       
  

 

 

    

 

 

 

Total

   ¥ 269,214           ¥ 258,052       
  

 

 

    

 

 

 

 

  3)

Non-transfer ownership finance leases, which commenced in fiscal years beginning before April 1, 2008, are valued at their appropriate book value, net of accumulated depreciation, as of March 31, 2008, and recorded as the beginning balance of “Lease receivables and investment assets.”

Moreover, interest on such non-transfer ownership finance leases during the remaining term of the leases is allocated over the lease term using the straight-line method.

As a result of this accounting treatment, “Income before income taxes” for the fiscal years ended March 31, 2019 was ¥1,332 million more than it would have been if such transactions had been treated in a similar way to sales of the underlying assets.

 

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Table of Contents

2. Operating leases

 

  (1)

Lessee side

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

 

March 31

   Millions of yen  
   2019      2020  

Due within 1 year

   ¥ 44,385              ¥ 42,384          

Due after 1 year

     271,612                247,206          
  

 

 

    

 

 

 

Total

   ¥        315,997              ¥         289,591          
  

 

 

    

 

 

 

 

  (2)

Lessor side

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

 

March 31

   Millions of yen  
   2019      2020  

Due within 1 year

   ¥ 35,936              ¥ 31,498          

Due after 1 year

     85,242                72,655          
  

 

 

    

 

 

 

Total

   ¥         121,178              ¥         104,154          
  

 

 

    

 

 

 

 

36


Table of Contents

(Notes to financial instruments)

1. Status of financial instruments

 

(1)

Policies on financial instruments

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

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

 

(2)

Details of financial instruments and associated risks

 

  1)

Financial assets

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

 

  2)

Financial liabilities

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

 

  3)

Derivative transactions

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

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

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

 

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Table of Contents
(3)

Risk management framework for financial instruments

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

 

  1)

Management of credit risk

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

 

  (a)

Credit risk management system

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

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

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

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

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

 

  (b)

Method of credit risk management

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

 

   

Appropriate risk-taking within capital

To keep credit risk exposure to a permissible level relative to capital, the Company sets credit risk capital limit for internal control purposes. Under these limits, separate guidelines are issued for each business unit and marketing unit. The Company regularly monitors compliance with these guidelines.

 

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Table of Contents
   

Controlling concentration of risk

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

 

   

Greater understanding of actual corporate conditions and balancing returns and risks

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

 

   

Reduction and prevention of non-performing loans

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

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

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

 

  2)

Management of market and liquidity risks

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

 

  (a)

Market and liquidity risk management systems

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

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

 

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Table of Contents
  (b)

Market and liquidity risk management methodology

 

   

Market risk management

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

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

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

 

   

Quantitative information on market risks

As of March 31, 2020, total VaR of SMBC and its major consolidated subsidiaries was ¥50.5 billion for the banking activities, ¥16.2 billion for the trading activities and ¥942.4 billion for the holding of shares (such as listed shares) for the purpose of strategic investment.

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

 

   

Liquidity risk management

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

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

 

(4)

Supplementary explanations about matters concerning fair value of financial instruments

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

 

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Table of Contents

2. Fair value of financial instruments

 

(1)

“Consolidated balance sheet amount,” “Fair value” and “Net unrealized gains (losses)” of financial instruments as of March 31, 2019 and 2020 are as follows:

The amounts shown in the following tables do not include financial instruments (see (3) below) whose fair values are extremely difficult to determine, such as unlisted stocks classified as other securities, and stocks of subsidiaries and affiliates.

 

                 Millions of yen  
March 31, 2019    Consolidated balance  
sheet amount
               Fair value                    Net unrealized    
gains (losses)
 
    1)    

Cash and due from banks *1

   ¥ 57,404,619         ¥ 57,414,384         ¥ 9,765     
    2)    

Call loans and bills bought *1

     2,463,660           2,466,418           2,757     
    3)    

Receivables under resale agreements

     6,429,365           6,429,231           (133)    
    4)    

Receivables under securities borrowing transactions *1

     4,097,238           4,097,502           263     
    5)    

Monetary claims bought *1

     4,591,920           4,609,409           17,489     
    6)    

Trading assets

        
   

Securities classified as trading purposes

     2,755,519           2,755,519           —     
    7)    

Money held in trust

     390           390           —     
    8)    

Securities

        
   

Bonds classified as held-to-maturity

     280,247           281,136           888     
   

Other securities

     22,696,091           22,696,091           —     
    9)    

Loans and bills discounted

     77,979,190           
   

Reserve for possible loan losses *1

     (301,809)          
      

 

 

    

 

 

    

 

 

 
         77,677,380           79,713,860           2,036,479     
      

 

 

    

 

 

    

 

 

 
    10)    

Foreign exchanges *1

     1,717,469           1,720,319           2,850     
    11)    

Lease receivables and investment assets *1

     247,550           242,941           (4,609)    
      

 

 

    

 

 

    

 

 

 
   

Total assets

   ¥     180,361,453         ¥     182,427,205         ¥         2,065,752     
      

 

 

    

 

 

    

 

 

 
    1)    

Deposits

   ¥ 122,325,038         ¥ 122,320,963         ¥ (4,074)    
    2)    

Negotiable certificates of deposit

     11,165,486           11,170,627           5,140     
    3)    

Call money and bills sold

     1,307,778           1,307,710           (68)    
    4)    

Payables under repurchase agreements

     11,462,559           11,462,559           —     
    5)    

Payables under securities lending transactions

     1,812,820           1,812,820           —     
    6)    

Commercial paper

     2,291,813           2,291,785           (27)    
    7)    

Trading liabilities

        
   

Trading securities sold for short sales

     1,992,314           1,992,314           —     
    8)    

Borrowed money

     10,656,897           10,706,117           49,219     
    9)    

Foreign exchanges

     1,165,141           1,165,141           —     
    10)    

Short-term bonds

     84,500           84,500           —     
    11)    

Bonds

     9,227,367           9,387,562           160,195     
    12)    

Due to trust account

     1,352,773           1,354,823           2,050     
      

 

 

    

 

 

    

 

 

 
   

Total liabilities

   ¥ 174,844,490         ¥ 175,056,926         ¥ 212,435     
      

 

 

    

 

 

    

 

 

 
   

Derivative transactions *2

        
   

Hedge accounting not applied

   ¥ 391,707         ¥ 391,707         ¥ —     
   

Hedge accounting applied

     [45,676]          [45,676]          —     
      

 

 

    

 

 

    

 

 

 
   

Total

   ¥ 346,030         ¥ 346,030         ¥ —     
      

 

 

    

 

 

    

 

 

 

 

*1

The amounts do not include general reserve for possible loan losses and specific reserve for possible loan losses. The reserves for possible losses on “Cash and due from banks,” “Call loans and bills bought,” “Receivables under securities borrowing transactions,” “Monetary claims bought,” “Foreign exchanges” and “Lease receivables and investment assets” are deducted directly from consolidated balance sheet amount since they are immaterial.

*2

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

 

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Table of Contents
           Millions of yen  
March 31, 2020      Consolidated balance  
sheet amount
               Fair value                    Net unrealized    
gains (losses)
 
    1)    

Cash and due from banks *1

   ¥ 61,763,910         ¥ 61,765,323         ¥ 1,412     
    2)    

Call loans and bills bought *1

     894,743           896,463           1,720     
    3)    

Receivables under resale agreements

     8,753,816           8,753,505           (311)    
    4)    

Receivables under securities borrowing transactions *1

     5,005,089           5,005,125           36     
    5)    

Monetary claims bought *1

     4,556,779           4,588,270           31,490     
    6)    

Trading assets

        
   

Securities classified as trading purposes

     2,752,881           2,752,881           —     
    7)    

Money held in trust

     353           353           —     
    8)    

Securities

        
   

Bonds classified as held-to-maturity

     282,379           282,519           140     
   

Other securities

     25,484,707           25,484,707           —     
    9)    

Loans and bills discounted

     82,517,609           
   

Reserve for possible loan losses *1

     (301,752)          
      

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

 
    10)    

Foreign exchanges *1

     2,060,975           2,063,721           2,745     
    11)    

Lease receivables and investment assets *1

     219,548           218,858           (690)    
      

 

 

    

 

 

    

 

 

 
   

Total assets

   ¥     193,991,042         ¥     195,930,563         ¥         1,939,520     
      

 

 

    

 

 

    

 

 

 
    1)    

Deposits

   ¥ 127,042,217         ¥ 127,049,743         ¥ 7,526     
    2)    

Negotiable certificates of deposit

     10,180,435           10,187,496           7,060     
    3)    

Call money and bills sold

     3,740,539           3,740,628           88     
    4)    

Payables under repurchase agreements

     13,237,913           13,237,913           —     
    5)    

Payables under securities lending transactions

     2,385,607           2,385,607           —     
    6)    

Commercial paper

     1,409,249           1,409,249           —     
    7)    

Trading liabilities

        
   

Trading securities sold for short sales

     2,012,475           2,012,475           —     
    8)    

Borrowed money

     15,210,894           15,254,734           43,839     
    9)    

Foreign exchanges

     1,461,308           1,461,308           —     
    10)    

Short-term bonds

     379,000           379,000           —     
    11)    

Bonds

     9,235,639           9,360,807           125,167     
    12)    

Due to trust account

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

 

 

    

 

 

    

 

 

 
   

Total liabilities

   ¥ 188,106,637         ¥ 188,303,284         ¥ 196,647     
      

 

 

    

 

 

    

 

 

 
   

Derivative transactions *2

        
   

Hedge accounting not applied

   ¥ 517,570         ¥ 517,570         ¥ —     
   

Hedge accounting applied

     294,816           294,816           —     
      

 

 

    

 

 

    

 

 

 
   

Total

   ¥ 812,386         ¥ 812,386         ¥ —     
      

 

 

    

 

 

    

 

 

 

 

*1

The amounts do not include general reserve for possible loan losses and specific reserve for possible loan losses. The reserves for possible losses on “Cash and due from banks,” “Call loans and bills bought,” “Receivables under securities borrowing transactions,” “Monetary claims bought,” “Foreign exchanges” and “Lease receivables and investment assets” are deducted directly from consolidated balance sheet amount since they are immaterial.

*2

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

 

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(2)

Fair value calculation methodology for financial instruments

 

  

Assets

 

  1)

Cash and due from banks, 2) Call loans and bills bought, 3) Receivables under resale agreements, 4) Receivables under securities borrowing transactions, 9) Loans and bills discounted, 10) Foreign exchanges and 11) Lease receivables and investment assets:

Of these transactions, for dues from banks without maturity and overdrafts with no specified repayment dates, the book values are used as fair value as they are considered to approximate their fair value.

For short-term transactions with remaining maturity not exceeding 6 months, in principle, the book values are used as fair value as they are considered to approximate their fair value.

The fair value of those with a remaining maturity of more than 6 months is, in principle, the present value of future cash flows (calculated by discounting estimated future cash flows, taking into account factors such as the borrower’s internal rating and pledged collateral, using a rate comprising of a risk-free interest rate and an adjustment). Certain consolidated subsidiaries of the Company calculate the present value by discounting the estimated future cash flows computed based on the contractual interest rate, using a rate comprising a risk-free rate and a credit risk premium.

Regarding claims on bankrupt borrowers, effectively bankrupt borrowers and potentially bankrupt borrowers, expected losses on such claims are calculated based on either the expected recoverable amount from disposal of collateral or guarantees, or the present value of expected future cash flows. Since the claims’ balance sheet amounts minus the expected amount of loan losses approximate their fair values, such amounts are considered to be their fair values.

 

  5)

Monetary claims bought:

The fair values of monetary claims bought, such as subordinated trust beneficiary interests related to securitized housing loans, are based on the assessed value of underlying housing loans securitized through the trust scheme minus the assessed value of senior beneficial interests, etc. The fair values of other transactions are, in principle, based on prices calculated using methods similar to the methods applied to 9) Loans and bills discounted.

 

  6)

Trading assets:

The fair values of bonds and other securities held for trading purposes are, in principle, based on their market price at the end of the fiscal year.

 

  7)

Money held in trust:

The fair values of money held in trust are, in principle, based on the market prices of securities held in trust calculated using methods similar to the methods applied to 8) Securities.

 

  8)

Securities:

In principle, the fair values of stocks (including foreign stocks) are based on the average market price during 1 month before the end of the fiscal year. The fair values of bonds and securities with market prices other than stocks are prices calculated based on their market prices as of the end of the fiscal year.

 

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In light of the “Practical Solution on Measurement of Fair Value for Financial Assets” (ASBJ Practical Issue Task Force No. 25), the fair values of floating rate government bonds are based on the present value of future cash flows (the government bond yield is used to discount and estimate future cash flows). Bond yield and yield volatility are the main price parameters. The fair values of those without market prices, such as private placement bonds, are based on the present value of future cash flows calculated by discounting estimated future cash flows taking into account the borrower’s internal rating and pledged collateral by a rate comprising a risk-free interest rate and an adjustment.

However, the fair values of bonds, such as private placement bonds issued by bankrupt borrowers, effectively bankrupt borrowers and potentially bankrupt borrowers are based on the bond’s book value after the deduction of the expected amount of a loss on the bond computed by using the same method applied to the estimation of a loan loss. Meanwhile, the fair values of publicly offered investment trusts are calculated based on the published net asset value (NAV) per share, while those of private placement investment trusts are calculated based on the NAV published by securities firms and other financial institutions.

 

  

Liabilities

 

  1)

Deposits, 2) Negotiable certificates of deposit and 12) Due to trust account:

The fair values of demand deposits and deposits without maturity are based on their book values. The fair values of short-term transactions with remaining maturity not exceeding 6 months are also based on their book values, as their book values are regarded to approximate their market values.

The fair values of transactions with a remaining maturity of more than 6 months are, in principle, based on the present value of estimated future cash flows calculated using the rate applied to the same type of deposits that are newly accepted until the end of the remaining maturity. The fair values of borrowings from the trust account related to covered bond issued by the trust account are based on the amount calculated in accordance with the price quoted by industry associations, etc.

 

  3)

Call money and bills sold, 4) Payables under repurchase agreements, 5) Payables under securities lending transactions, 6) Commercial paper, 8) Borrowed money, 10) Short-term bonds and 11) Bonds:

The fair values of short-term transactions with remaining maturity not exceeding 6 months are based on their book values, as their book values are considered to approximate their fair values. For transactions with a remaining maturity of more than 6 months, their fair values are, in principle, based on the present value of estimated future cash flows calculated using the refinancing rate applied to the same type of instruments for the remaining maturity. For certain type of instruments, however, fair values are based on either the amount calculated in accordance with the price quoted by industry associations, etc., or the present value of future cash flows calculated by using the rate derived from the published yield data, etc.

 

  7)

Trading liabilities:

The fair values of bonds sold for short sales and other securities for trading purposes are, in principle, based on their market prices as of the end of the fiscal year.

 

  9)

Foreign exchanges:

The fair values of foreign currency-denominated deposits without maturity received from other banks are based on their book values.

The fair values of foreign exchange related short-term borrowings are based on their book values, as their book values are regarded to approximate their fair values.

 

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Derivatives transactions

The fair values of exchange-traded derivatives are based on their closing prices. With regard to OTC transactions, the fair values of interest rate, currency, stock, bond and credit derivatives are based on their prices calculated based on the present value of the future cash flows, option valuation models, etc. The fair values of commodity derivatives transactions are based on their prices calculated based on the derivative instrument’s components, including price and contract term.

 

(3)

Consolidated balance sheet amount of financial instruments whose fair values are extremely difficult to determine are as follows:

 

<
     Millions of yen  

March 31

   2019      2020  

Securities:

     

Unlisted stocks, etc. *1*3

   ¥ 170,572