(1)	Capital management

Sony uses Return on Equity (“ROE”) as an indicator for capital management.


	March 31
	2021			2022
ROE*		17.8	%		12.8	%

*	ROE is calculated using equity attributable to Sony Group Corporation’s stockholders.

Sony manages capital separately for the Financial Services segment and the Sony Group without the Financial Services segment because certain subsidiaries in the Financial Services segment are subject to the below restrictions. Sony also refers to the ratio of stockholders’ equity to total assets of the Sony Group without the Financial Services segment to ensure financial soundness.

The subsidiaries in the Financial Services segment are required to maintain the capital adequacy ratio and net assets at a certain level or higher based on the Insurance Business Act and the Banking Act in Japan. Material requirements which the subsidiaries in the Financial Services segment are subject to are as follows:

Insurance business: Maintain solvency margin ratio

The life insurance subsidiary and the

non-life

insurance subsidiary have maintained a high solvency margin ratio, relative to the Japanese domestic minimum solvency margin ratio requirements.

Banking business: Maintain capital adequacy ratio

The banking subsidiary has maintained a capital adequacy ratio relative to the Japanese domestic criteria.

Lending and borrowing between subsidiaries in the Financial

Services

segment and the other companies within Sony Group is strictly limited. The carrying amounts of total assets of Sony Financial Group Inc. (“SFGI”) as of April 1, 2020, March 31, 2021 and 2022 are 17,933,587 million yen, 19,339,517 million yen and 20,974,027 million yen, respectively. Total liabilities of SFGI as of April 1, 2020, March 31, 2021 and 2022 are 14,876,992 million yen, 16,408,036 million yen and 18,392,874 million yen, respectively. On October 1, 2021, SFGI changed its company name from Sony Financial Holdings Inc. (“SFH”).

(2)	Interest rate risk

For interest rate risk inherent in the insurance business, which is included in the Financial Services segment, refer to Note 13. For interest rate risk inherent in the banking business, which is included in the Financial Services segment, refer to (7) Market risks for subsidiary in the banking business.

Risk management policy and exposure

Interest rate risk is the risk the fair value of a financial instrument or future cash flows of the financial instrument will fluctuate because of changes in market interest rates.

Sony without the Financial Services segment is exposed to interest rate risk that is mainly related to its liabilities such as short-term borrowings and long-term debt as well as bonds. The amount of interest will be affected by changes in market interest rates; therefore, Sony is exposed to the interest rate risk that the future cash outflows for interest payments will fluctuate.

Sony raises funds by issuing fixed-rate bonds in order to avoid an increase in future interest payments that is mainly resulting from an increase in interest rates.

Also, Sony utilizes interest rate swap agreements to reduce funding costs, to diversify sources of funding, and to hedge the downside risk on borrowings and debt securities resulting from unfavorable fluctuations of interest rates and currency exchange rates, and from changes in the fair value of financial instruments. Therefore, the interest risk associated with cash flows of Sony without the Financial Services segment is not significant.

(3)	Price risk

For price risk inherent in the insurance business, which is included in the Financial Services segment, refer to Note 13. For price risk inherent in the banking business, which is included in the Financial Services segment, refer to (7) Market risks for a subsidiary in the banking business.

Risk management policy and exposure

Sony is exposed to securities price risk inherent in holding of equities in other entities in Japan and overseas countries. Sony periodically assesses fair values of equity instruments and the financial conditions of the issuers of such equity instruments, and reviews its portfolio on a regular basis.

Price sensitivity analysis

The table below shows the effects on income before income taxes and other comprehensive income (before considering the tax effects) as of April 1, 2020, March 31, 2021 and 2022 if market prices of marketable equity instruments (e.g., stocks) had decreased by 10%.


	Yen in millions
	April 1			March 31
	2020			2021			2022
Income before income taxes		(8,439	)		(17,930	)		(11,604	)
Other comprehensive income (before considering the tax effects)		(769	)		(23,598	)		(9,871	)

(4)	Liquidity risk

For liquidity risk inherent in the insurance business, which is included in the Financial Services segment, refer to Note 13. This section does not include information regarding the insurance business other than maturity analysis for financial liabilities.

Risk management policy

The description below covers basic financial policy and figures for Sony’s consolidated operations except for the Financial Services segment and certain subsidiaries, which secure liquidity on their own. Furthermore, the banking business in the Financial Services segment is described separately at the end of this section.

Liquidity Management and Market Access

An important financial objective of Sony is to maintain the strength of its financial condition, while securing adequate liquidity for business activities. Sony defines its liquidity sources as the amount of cash and cash equivalents (“cash balance”) (excluding restrictions on capital transfers mainly due to national regulations) and the unused amount of committed lines of credit. Funding requirements that arise from maintaining liquidity are principally covered by cash flow from operating and investing activities (including asset sales) and by the available cash balance; however, Sony also raises funds as needed from financial and capital markets through means such as corporate bonds, commercial paper (“CP”) and bank loans. Sony Group Corporation, Sony Global Treasury Services Plc (“SGTS”), a finance subsidiary in the U.K. and Sony Capital Corporation (“SCC”), a finance subsidiary in the U.S., maintain CP programs with access to the Japanese, U.S. and European CP markets. The borrowing limits under these CP programs, translated into yen, were 1,111.6 billion yen in total for Sony Group Corporation, SGTS and SCC as of March 31, 2022. There were no amounts outstanding under the CP programs as of March 31, 2022. If disruption and volatility occur in financial and capital markets and Sony becomes unable to raise sufficient funds from these sources, Sony may also draw down funds from contractually committed lines of credit from various financial institutions. Sony has a total, translated into yen, of 611.4 billion yen in unused committed lines of credit, as of March 31, 2022. Details of those committed lines of credit are: a 275.0 billion yen committed line of credit contracted with a syndicate of Japanese banks, a 1.7 billion U.S. dollar multicurrency committed line of credit also contracted with a syndicate of Japanese banks and a 1,050 million U.S. dollar multi-currency committed line of credit contracted with a syndicate of foreign banks. Sony currently believes that it can sustain sufficient liquidity through access to committed lines of credit with financial institutions, together with its available cash balance, even in the event that financial and capital markets become illiquid. Sony considers one of management’s top priorities to be the maintenance of stable and appropriate credit ratings in order to ensure financial flexibility for liquidity and capital management and continued adequate access to sufficient funding resources in the financial and capital markets. However, in the event of a downgrade in Sony’s credit ratings, there are no financial covenants in any of Sony’s material financial agreements with financial institutions that would cause an acceleration of the obligation. Even though the cost of borrowing for some committed lines of credit could change according to Sony’s credit ratings, there are no financial covenants that would cause any impairment on the ability to draw down on unused facilities.

Cash Management

Sony manages its global cash management activities primarily through Sony Group Corporation in Japan, SCC in the U.S. and SGTS in other regions. The excess or shortage of cash at most of Sony’s subsidiaries is invested or funded by Sony Group Corporation, SGTS and SCC on a net basis, although Sony recognizes that fund transfers are limited in certain countries and geographic areas due to restrictions on capital transactions. In order to pursue more efficient cash management, cash surpluses among Sony’s subsidiaries are deposited with Sony Group Corporation, SGTS and SCC, and cash shortfalls among subsidiaries are covered by loans through Sony Group Corporation, SGTS and SCC, so that Sony can make use of excess cash balances and reduce third-party borrowings. Where local restrictions prevent an efficient intercompany transfer of funds, Sony’s intent is that cash balances remain outside of Sony Group Corporation, SGTS and SCC and that Sony meets its liquidity needs through ongoing cash flows, external borrowings, or both. Sony does not expect restrictions of capital transactions on amounts held outside of Japan to have a material effect on Sony’s overall liquidity, financial condition or results of operations.

Banking business in the Financial Services segment

By formulating and conforming with liquidity risk management policies, the banking subsidiary manages a variety of liquidity risks. The subsidiary defines liquidity risk as cash flow risk and market liquidity risk. Cash flow risk is the risk associated with losses due to the subsidiary’s inability to make cash payments because of a failure to maintain sufficient cash reserves at settlement, as well as risks associated with losses if the subsidiary is forced to raise funds under unfavorable conditions in order to fulfill cash payment obligations. The levels of cash flow risks are classified into phases based on the degree of pressure, and methods of risk management and reporting are set out for each phase, while guidelines are formulated and reviewed as necessary. Market liquidity risk is the risk associated with losses due to the subsidiary’s inability to conduct market transactions, in particular due to an inability to unwind its market position at a given time, or due to the subsidiary being forced to complete transactions under unfavorable market conditions, due to market turmoil or other factors. To manage market liquidity risk, the subsidiary works to understand market liquidity conditions that pertain to the types of products it handles. The subsidiary formulates and revises guidelines on a

product-by-product

basis, as necessary. To manage liquidity risk and ensure a robust liquidity buffer, the subsidiary carries out stress tests regularly. The subsidiary estimates potential cash outflow and determines the required buffer, if the liquidity stress scenario would happen. The liquidity buffer consists of highly liquid assets, such as cash and government bonds, which can be immediately converted to cash even in a liquidity crisis. The aforementioned liquidity risk management is carried out by the risk management division. The division periodically reports risk management conditions to the banking subsidiary’s Board of Directors and Executive Committee. In addition, the banking subsidiary’s internal audit division conducts regular audits.

Maturity analysis

The following table summarizes Sony’s financial liabilities as of April 1, 2020, March 31, 2021 and 2022.


	Yen in millions
	April 1, 2020
	Carrying amount		Total		Within 1 year		1 year to 2 years		2 years to 3 years		3 years to 4 years		4 years to 5 years		5+ years
Deposits from customers in the banking business *1		2,440,783		2,440,783		2,347,387		44,351		20,295		10,504		3,247		14,999
Bonds		376,800		382,982		732		100,635		129,915		15,363		40,326		96,011
Borrowings		1,078,961		1,079,685		849,930		56,657		98,480		64,663		3,510		6,445
Loan commitments		—		34,306		34,306		—		—		—		—		—
Derivative liabilities *2		35,866		35,600		19,454		4,654		2,468		1,761		1,295		5,968
Guarantee deposits received		47,064		47,064		36,698		328		1		15		—		10,022
Redeemable noncontrolling interests		7,767		9,539		—		5,680		1,461		—		2,398		—


	Yen in millions
	April 1, 2020
	Carrying amount	Total		Within 1 year		1 year to 2 years		2 years to 3 years		3 years to 4 years		4 years to 5 years
Lease liabilities	406,237		461,237		82,176		72,810		58,191		42,574		31,994
			5 years to 6 years		6 years to 7 years		7 years to 8 years		8 years to 9 years		9 years to 10 years		10+ years
			28,481		26,625		24,530		21,962		18,575		53,319

*1	Demand deposits are included in the “Within 1 year” category.

*2	Breakdown of net settlements and gross settlements in the derivative liabilities are presented below.


	Yen in millions
	April 1, 2020
	Total		Within 1 year		1 year to 2 years		2 years to 3 years		3 years to 4 years		4 years to 5 years		5+ years
Derivative contracts
—Net settled
Paid		32,574		17,928		3,159		2,463		1,761		1,295		5,968
Derivative contracts
—Gross settled
Received		46,608		27,071		17,539		1,998		—		—		—
Paid		49,634		28,597		19,034		2,003		—		—		—


	Yen in millions
	March 31, 2021
	Carrying amount		Total		Within 1 year		1 year to 2 years		2 years to 3 years		3 years to 4 years		4 years to 5 years		5+ years
Deposits from customers in the banking business *1		2,773,884		2,773,884		2,682,156		36,586		19,643		3,135		3,159		29,205
Bonds		330,229		333,902		100,629		51,573		25,363		40,326		20,303		95,708
Borrowings		1,728,537		1,742,736		1,232,687		54,699		69,691		148,361		6,866		230,432
Loan commitments		—		37,322		37,322		—		—		—		—		—
Derivative liabilities *2		40,354		41,415		29,660		3,260		2,103		1,289		847		4,256
Guarantee deposits received		31,811		31,811		21,279		365		21		26		275		9,845
Redeemable noncontrolling interests		8,179		10,225		5,307		872		—		1,628		2,418		—


	Yen in millions
	March 31, 2021
	Carrying amount	Total		Within 1 year		1 year to 2 years		2 years to 3 years		3 years to 4 years		4 years to 5 years
Lease liabilities	402,023		444,725		84,050		68,993		57,683		39,359		31,797
		5 years to 6 years		6 years to 7 years		7 years to 8 years		8 years to 9 years		9 years to 10 years		10+ years
			28,937		26,606		23,977		20,461		17,510		45,352

*1	Demand deposits are included in the “Within 1 year” category.

*2	Breakdown of net settlements and gross settlements in the derivative liabilities are presented below.


	Yen in millions
	March 31, 2021
	Total		Within 1 year		1 year to 2 years		2 years to 3 years		3 years to 4 years		4 years to 5 years		5+ years
Derivative contracts
—Net settled
Paid		41,415		29,660		3,260		2,103		1,289		847		4,256
Derivative contracts
—Gross settled
Received		—		—		—		—		—		—		—
Paid		—		—		—		—		—		—		—


	Yen in millions
	March 31, 2022
	Carrying amount		Total		Within 1 year		1 year to 2 years		2 years to 3 years		3 years to 4 years		4 years to 5 years		5+ years
Deposits from customers in the banking business *1		3,004,215		3,004,215		2,886,361		48,676		15,860		3,038		1,186		49,094
Bonds		216,103		218,676		36,976		25,363		40,326		20,303		35,243		60,465
Borrowings		2,670,156		2,687,135		2,053,340		58,767		76,434		115,460		23,813		359,321
Loan commitments		—		33,587		33,587		—		—		—		—		—
Derivative liabilities *2		72,120		72,118		66,017		688		718		753		721		3,221
Guarantee deposits received		39,296		39,296		28,872		345		27		8		8		10,036
Redeemable noncontrolling interests		34,995		37,046		2,435		19,927		9,046		2,381		—		3,257


	Yen in millions
	March 31, 2022
	Carrying amount	Total		Within 1 year		1 year to 2 years		2 years to 3 years		3 years to 4 years		4 years to 5 years
Lease liabilities	465,349		511,883		81,421		69,791		59,214		45,063		37,363
			5 years to 6 years		6 years to 7 years		7 years to 8 years		8 years to 9 years		9 years to 10 years		10+ years
			35,841		32,369		30,593		27,864		19,913		72,451

*1	Demand deposits are included in the “Within 1 year” category.

*2	Breakdown of net settlements and gross settlements in the derivative liabilities are presented below.


	Yen in millions
	March 31, 2022
	Total		Within 1 year		1 year to 2 years		2 years to 3 years		3 years to 4 years		4 years to 5 years		5+ years
Derivative contracts
—Net settled
Paid		72,118		66,017		688		718		753		721		3,221
Derivative contracts
—Gross settled
Received		—		—		—		—		—		—		—
Paid		—		—		—		—		—		—		—

(5)	Foreign exchange risk

For foreign exchange risk inherent in the insurance business, which is included in the Financial Services segment, refer to Note 13. For foreign exchange risk inherent in the banking business, which is included in the Financial Services segment, refer to (7) Market risks for subsidiary in the banking business.

Risk management policy and exposure

Costs and prices of products and services in transactions denominated in foreign currencies are affected by currency exchange rate fluctuation, which may have adverse impacts on Sony’s business, operating results, and financial condition. Sony seeks to reduce its exposure to foreign exchange risk mainly by using derivatives such as currency forward contracts or investing in securities denominated in

the

same currency.

(i)	Foreign exchange risk exposure

The net amount of Sony’s exposure to foreign exchange risk mainly includes the following. Foreign exchange risk exposures that are mitigated by the use of derivatives are excluded.


	Yen in millions
	April 1			March 31
	2020			2021		2022
U.S. dollar		(4,533	)		5,813		(6,384	)
Euro		286			1,877		(22,713	)

*	Net exposures resulting in a liability are presented as negative and net exposures resulting in an asset are presented as positive.

Sensitivity analysis

The table below shows the effects on the income before income taxes regarding the financial instruments denominated in foreign currencies held by Sony as of April 1, 2020, March 31, 2021 and 2022 if the Japanese yen had strengthened by 10% against the U.S. dollar or euro. If the Japanese yen had weakened by 10% against the U.S. dollar or euro, there would be an opposite impact on income before income taxes in the same amount. This analysis was performed based on the assumption that all other variables stay the same.


	Yen in millions
	April 1			March 31
	2020			2021			2022
U.S. dollar		453			(581	)		638
Euro		(29	)		(188	)		2,271

(6)	Credit risk

Risk management policy and exposure

Sony is exposed to credit risk in relation to its customers with outstanding trade receivables and the financial institutions who are the counterparties of derivative instruments that Sony holds to hedge the foreign exchange risk related to such trade receivables.

In order to manage risks inherent in trade receivables, Sony assesses management conditions and creditworthiness of prospective customers and sets credit limits before commencement of business in accordance with Sony’s internal rules regarding credit management. After commencement of business, in accordance with Sony’s internal rules regarding receivable management, Sony seeks to promptly identify and mitigate the risk of uncollectible receivables due to deterioration in the financial conditions of customers by managing payment due dates and outstanding balances by customer, consistently reviewing the status of transactions, payment history, and trends in the outstanding balance of customers, and actively monitoring their management and business conditions. Sony makes judgments about the creditworthiness of customers based on past collection experience, the current conditions, forecasts of future economic conditions and ongoing credit risk evaluations when calculating the loss allowances for the expected credit losses from trade receivables.

In addition, the credit risk inherent in derivative transactions is considered low since Sony enters into derivative transactions only with financial institutions with high creditworthiness or central clearing house counterparties, and such derivative transactions are collateralized.

The Financial Services segment formulates Fundamental Principles for Risk Management and manages risks depending on its subsidiaries’ size, characteristics and business. Risk Management Guidelines in the Financial Services segment establish a detailed framework for risk management, and each of the subsidiaries in the Financial Services segment has developed a framework for risk management on its own depending on the characteristics of financial assets, including issuer credit risk on debt securities, counterparty risks, credit screenings, the management of credit information, credit ratings, the setting of guarantees or collateral and handling of problem assets on a

case-by-case

basis. Relevant departments of subsidiaries in the Financial Services segment periodically report risk management conditions to their Boards of Directors and their Executive Committees.

Risk exposure analysis

(a)	Changes in the loss allowances

Trade and other receivables, and contract assets including

non-current

other receivables in the Pictures segment


	Yen in millions
	Lifetime expected credit losses
	Fiscal year ended March 31
	202 1			202 2
Balance at beginning of the fiscal year		27,108			30,066

Changes due to financial assets recognized at beginning of the fiscal year:
— Financial assets that have been derecognized		(2,151	)		(935	)
New financial assets originated or purchased		6,673			5,998
Write-offs		(5,682	)		(9,501	)
Changes in models/risk parameters		4,066			4,269
Foreign exchange and other movements		52			1,444

Balance at end of the fiscal year		30,066			31,341

Debt Securities
	Yen in millions
	12-month expected credit losses *
	Fiscal year ended March 31
	202 1			202 2
Balance at beginning of the fiscal year		41			29

Changes due to financial assets recognized at beginning of the fiscal year:
— Financial assets that have been derecognized		(11	)		(6	)
New financial assets originated or purchased		12			44
Changes in models/risk parameters		(14	)		(14	)
Foreign exchange and other movements		1			—

Balance at end of the fiscal year		29			53

*	For all debt securities, Sony considers that the credit risk has not increased significantly since initial recognition, and therefore the loss allowance is measured at an amount equal to 12-months of expected credit losses.

Substantially all of the loss allowances for debt securities are for debt securities measured at fair value through other comprehensive income as of April 1, 2020, March 31, 2021 and 2022.

Loans


	Yen in millions
	12-month expected credit losses			Lifetime expected credit losses			Total
Balance as of April 1, 2020		126			936			1,062
Changes due to financial assets recognized as of April 1, 2020:
— Transfer to lifetime expected credit losses		(1	)		1			—
— Transfer to 12-month expected credit losses		97			(97	)		—
— Financial assets that have been derecognized		(30	)		(121	)		(151	)
New financial assets originated or purchased		27			21			48
Changes in models/risk parameters		(98	)		208			110
Foreign exchange and other movements		1			(2	)		(1	)

Balance as of March 31, 2021		122			946			1,068

Changes due to financial assets recognized as of March 31, 2021:
— Transfer to lifetime expected credit losses		(1	)		1			—
— Transfer to 12-month expected credit losses		103			(103	)		—
— Financial assets that have been derecognized		(59	)		(97	)		(156	)
New financial assets originated or purchased		33			17			50
Changes in models/risk parameters		(34	)		163			129
Foreign exchange and other movements		—			—			—

Balance as of March 31, 2022		164			927			1,091

Loans that are credit-impaired as of April 1, 2020, March 31, 2021 and 2022 were not significant.

(b)	Description of collateral held as security and other credit enhancements

Sony assesses creditworthiness of each customer on an individual project basis. When it is determined to extend credit to a customer, the amount of collateral to be obtained will be based on the credit assessment for the customer by management. Collateral held as security includes, but is not limited to the following:

•

Floating charges on all assets and businesses of the customer

•

Specific or related guarantees

•

Debt guarantees from customers and loan agreements with favorable and unfavorable covenant terms

The carrying amount of the financial assets, without taking into account any collateral held or credit enhancements, represents Sony’s maximum exposure to credit risk on these assets. For maximum exposure to credit risk of securities to which impairment requirements in IFRS 9 “Financial Instruments” (“IFRS 9”) are not applied without taking into account any collateral held or other credit enhancements, refer to Note 5.

In the Financial Services segment, housing loans have sufficient collateral, which results in no significant loss allowance being recognized. In addition, certain securities received as collateral for short-term lending transactions are permitted to be sold or repledged. The fair value of the securities which were not sold or repledged as collateral was 373,274 million yen and 530,589 million yen as of March 31, 2021 and 2022, respectively. None of the securities were sold or repledged as collateral as of March 31, 2021 or 2022. The securities are not recognized in the consolidated statements of financial position until being sold or repledged as collateral.

(c)	Credit risk exposure by risk rating grades

Credit risk exposure by risk rating grades as of April 1, 2020, March 31, 2021 and 2022, is as follows:

Trade and other receivables, and contract assets including

non-current

other receivables in the Pictures segment


	Yen in millions
	April 1		March 31
	2020		2021		2022
Outstanding receivables by overview period of overdue (Gross carrying amount)
Not past due or due within 30 days		1,223,507		1,388,742		1,732,371
Due over 30 to 90 days		48,007		40,046		52,895
Due over 90 days		61,782		56,946		45,269

Total		1,333,296		1,485,734		1,830,535

Debt securities

Debt securities held in the Financial Services segment are substantially all composed of investment grade debt securities, and, as a financial instrument subject to IFRS 9 impairment requirements,

12-month

expected losses are recorded.

The following table shows an analysis of the gross carrying amount for debt securities measured at amortized cost or at fair value through other comprehensive income based on a credit rating system in the Financial Services segment, which is primarily a composite of external credit ratings as of April 1, 2020, March 31, 2021 and 2022.


	Yen in millions
	April 1		March 31
	2020		2021		2022
Debt securities by credit ratings (Gross carrying amount)
AAA		233,334		282,551		488,275
AA		1,540,380		2,024,890		2,431,758
A		7,930,999		8,259,282		8,560,523
BBB		19,171		17,961		12,948
Other		7,628		11,017		32,422

Total		9,731,512		10,595,701		11,525,926

Loans

Loans held in the banking business in the Financial Services segment are regularly reassessed by the credit ratings of debtors, and as a financial instrument subject to IFRS 9 impairment requirements,

12-month

or lifetime expected credit losses are recorded depending on whether or not the credit risk has increased significantly since initial recognition or not.

The following table shows an analysis of the gross carrying amount for loans measured at amortized cost based on credit ratings by debtors in the banking business in the Financial Services segment as of April 1, 2020, March 31, 2021 and 2022.


	Yen in millions
	April 1, 2020
	Normal*						Other than Normal						Total
	12-month expected credit losses		Lifetime expected credit losses		Sub total		12-month expected credit losses		Lifetime expected credit losses		Sub total		Total
Loans
Housing loans		1,916,086		205		1,916,291		1,163		2,250		3,413		1,919,704
Other		43,440		666		44,106		1		118		119		44,225

Total		1,959,526		871		1,960,397		1,164		2,368		3,532		1,963,929


	Yen in millions
	March 31, 2021
	Normal*						Other than Normal						Total
	12-month expected credit losses		Lifetime expected credit losses		Sub total		12-month expected credit losses		Lifetime expected credit losses		Sub total		Total
Loans
Housing loans		2,337,703		128		2,337,831		1,115		4,279		5,394		2,343,225
Other		34,114		486		34,600		2		76		78		34,678

Total		2,371,817		614		2,372,431		1,117		4,355		5,472		2,377,903


	Yen in millions
	March 31, 2022
	Normal*						Other than Normal						Total
	12-month expected credit losses		Lifetime expected credit losses		Sub total		12-month expected credit losses		Lifetime expected credit losses		Sub total		Total
Loans
Housing loans		2,747,406		156		2,747,562		2,532		3,423		5,955		2,753,517
Other		24,522		282		24,804		11		85		96		24,900

Total		2,771,928		438		2,772,366		2,543		3,508		6,051		2,778,417

*	Normal is defined as borrowers who have strong results and no particular problems with their financial position.

(d)	Credit risk for debt securities designated to be measured at fair value through profit or loss

The credit risk exposures for debt securities designated to be measured at fair value through profit or loss were 247,289 million yen, 295,314 million yen, and 267,169 million yen as of April 1, 2020, March 31, 2021 and 2022, respectively. The change in the fair value attributable to the changes in credit risk

was a decrease of

5,045 million yen for the fiscal year ended March 31, 2021 and

an increase of

1,425 million yen for the fiscal year ended March 31, 2022. The cumulative changes are 5,645 million yen, 601 million yen and 2,026 million yen as of April 1, 2020, March 31, 2021 and 2022, respectively.

(7)	Market risks for a subsidiary in the banking business

By formulating and conforming with market risk management policies, a subsidiary in the banking business manages the risk of loss for when the value of assets and liabilities (including

off-balance-sheet

items), and income from assets and liabilities could be adversely affected by changes in various market risk factors, such as interest rates, exchange rates and stock prices. Market risk management policies specify details such as risk management methods and procedures. ALM and risk management policies are determined by the subsidiary’s

Board of Directors. Based on these policies, an ALM committee and a risk management committee typically meet once each month to understand and confirm actual conditions and deliberate future measures and risk conditions. On a daily basis, the risk management division maintains an overall understanding of interest, exchange rates and duration of financial assets and liabilities, and monitors Value at Risk (“VaR”), which quantifies the maximum expected loss which could occur during a given holding period and at a given probability, and interest rate sensitivity analysis, and confirms regulatory compliance. The subsidiary also conducts interest rate swaps and other derivative transactions to hedge against interest and exchange rate fluctuation risks. In the measurement of VaR, the historical method (time period: 250 days, confidence level: 99.0%) is used, and interest rate risk, exchange rate risk, and price risk are measured as the amount of market risk. The total market risk volume as of March 31, 2021 and 2022 was 13,215 million yen and 8,230 million yen, respectively. VaR employs statistical methods to estimate the maximum loss that could occur in a defined period of time in the future based on market fluctuation data for a defined period of time in the past; therefore, VaR may not capture the risk in situations in which the market environment undergoes drastic changes that are unpredictable under normal circumstances.

(8)	Effect of IBOR reform

Due to the reform and replacement of benchmark interest rates such as the London Interbank Offered Rate (“LIBOR”), the use of other interbank offered rates (“IBORs”) has become a priority for global regulators. The use of panel-based LIBOR ceased as of December 2021, except for the use of certain U.S. dollar (“USD”) LIBORs. The

1-,

3-,

and 6-months panel-based USD LIBOR settings are expected to be abolished and lose their representativeness at the end of June 2023. The overnight and 12 months USD LIBOR settings will permanently cease immediately after June 2023. As of March 31, 2022, the banking subsidiary is party to contracts that reference USD LIBOR.

As mentioned above, the JPY and GBP IBORs have been abolished on December 31, 2021 and replaced by alternative interest rates such as the Tokyo Overnight Average rate (“TONA”) and the Sterling Overnight Index Average (“SONIA”). Currently, the Secured Overnight Financing Rate (“SOFR”) is gradually replacing USD LIBOR as a reference rate. There remains key differences between USD LIBOR and SOFR. USD LIBOR is a “term rate,” which means that it is published for a specific borrowing period (such as three months or six months) and is “forward-looking,” because it is published at the beginning of the borrowing period. On the other hand, SOFR, TONA and SONIA are currently “backward-looking” rates, based on overnight rates from actual transactions, and are published at the end of the overnight borrowing period. Furthermore, LIBOR includes a credit spread over the risk-free rate, while SOFR, TONA and SONIA currently do not include such a spread. To transition existing contracts and agreements that reference USD LIBOR to SOFR, adjustments for term differences and credit differences need to be applied to SOFR, to enable the two benchmark rates to be economically equivalent on transition.

As of March 31, 2022, the Alternative Reference Rates Committee (“ARRC”), a working group for a transition from USD LIBOR to a more robust reference rate, recommends SOFR instead of LIBOR. However, some market participants are calling for the use of credit sensitive rates (“CSRs”) that include a credit spread, and these rates might be used in addition to SOFR.

In 2021 the banking subsidiary established a LIBOR transition project plan. This transition project is considering changes to systems, business processes, risk management and valuation models, as well as managing any related tax and accounting implications. As of March 31, 2022, changes to systems, business processes, risk management and valuation models are largely complete, but some contractual changes, such as securities and derivatives transactions that reference USD LIBOR, have not yet been implemented. Therefore, there is a risk that Sony will not be able to make the necessary contractual changes before June 2023, when the 1-, 3-, and

6-months

panel-based USD LIBOR are abolished. In addition, CSRs, rather than SOFR, might be used as an alternative interest rate, which would require the implementation of system changes in a short period of time. To avoid the above risks, Sony closely monitors the progress of necessary contractual changes with its counter parties. Sony is also flexible in responding to systemic issues through collaboration among project members and other departments.

Sony Group Corporation has a loan contract and interest swap agreement, related to the loan contract, aiming to manage certain borrowing costs, both of which reference USD LIBOR, which expire after 2023. Sony is currently in discussion with the counterparties on which alternative interest rate would be referenced in the contractual periods after the current benchmark rates are no longer available.

The following table contains details of all of the financial instruments that Sony Group Corporation and the banking subsidiary hold at March 31, 2022 which reference USD LIBOR and SOFR and have not yet transitioned to SOFR or an alternative interest rate benchmark:


	Yen in millions
	March 31, 2022
	Carrying Value			Of which have yet to transition to an alternative benchmark interest rate
Debt securities

Financial assets required to be measured at FVOCI		25,142			22,954
Financial assets required to be measured at AC		244,388			209,059
Long-term debt		(146,778	)		(146,778	)
Derivatives*		20,178			19,948

Total		142,930			105,183

*	Derivatives are presented on a net basis.