As filed with the Securities and Exchange Commission on July 10, 2020

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF

THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                

Commission file number 000-54189

KABUSHIKI KAISHA MITSUBISHI UFJ FINANCIAL GROUP

(Exact name of Registrant as specified in its charter)

MITSUBISHI UFJ FINANCIAL GROUP, INC.

(Translation of Registrant’s name into English)

Japan

(Jurisdiction of incorporation or organization)

7-1, Marunouchi 2-chome

Chiyoda-ku, Tokyo 100-8330

Japan

(Address of principal executive offices)

Masahisa Takahashi, +81-3-3240-8111, +81-3-5218-8666, 4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8212, Japan

(Name, Telephone, Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)		Name of each exchange on which registered
Common stock, without par value				New York Stock Exchange(1)
American depositary shares, each of which represents one share of common stock		MUFG		New York Stock Exchange

(1) The listing of the registrant’s common stock on the New York Stock Exchange is for technical purposes only and without trading privileges.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

As of March 31, 2020, 13,581,995,120 shares of common stock (including 741,772,308 shares of common stock held by the registrant and its consolidated subsidiaries as treasury stock)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  ☒    No  ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes  ☐    No  ☒

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer        ☒ Accelerated filer        ☐ Non-accelerated filer        ☐ Emerging growth company        ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.                ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Yes  ☒    No  ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP        ☒ International Financial Reporting Standards as issued   by the International Accounting Standards Board        ☐ Other        ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item  17  ☐    Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐    No  ☒

TABLE OF CONTENTS

		Page
Forward-Looking Statements			3
Item 1.	Identity of Directors, Senior Management and Advisers		5
Item 2.	Offer Statistics and Expected Timetable		5
Item 3.	Key Information		5
Item 4.	Information on the Company		27
Item 4A.	Unresolved Staff Comments		72
Item 5.	Operating and Financial Review and Prospects		73
Item 6.	Directors, Senior Management and Employees		140
Item 7.	Major Shareholders and Related Party Transactions		162
Item 8.	Financial Information		164
Item 9.	The Offer and Listing		165
Item 10.	Additional Information		165
Item 11.	Quantitative and Qualitative Disclosures about Credit, Market and Other Risk		174
Item 12.	Description of Securities Other than Equity Securities		203
Item 13.	Defaults, Dividend Arrearages and Delinquencies		205
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds		205
Item 15.	Controls and Procedures		205
Item 16A.	Audit Committee Financial Expert		209
Item 16B.	Code of Ethics		209
Item 16C.	Principal Accountant Fees and Services		209
Item 16D.	Exemptions from the Listing Standards for Audit Committees		210
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers		210
Item 16F.	Change in Registrant’s Certifying Accountant		211
Item 16G.	Corporate Governance		211
Item 16H.	Mine Safety Disclosure		213
Item 17.	Financial Statements		214
Item 18.	Financial Statements		214
Item 19.	Exhibits		214
Selected Statistical Data			A-1
Consolidated Financial Statements			F-1

For purposes of this Annual Report, we have presented our consolidated financial statements in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, except for risk-adjusted capital ratios, capital components, risk-weighted assets, business segment financial information and some other specifically identified information. Unless otherwise stated or the context otherwise requires, all amounts in our financial statements are expressed in Japanese yen.

In this Annual Report, unless otherwise indicated or the context otherwise requires, all figures are rounded to the figures shown except for the capital ratios, capital components, risk-weighted assets, leverage ratios and liquidity coverage ratios of MUFG and its domestic subsidiaries, which are rounded down and truncated to the figures shown. In some cases, figures presented in tables are adjusted to match the sum of the figures with the total amount, and such figures are also referred to in the related text.

When we refer in this Annual Report to “MUFG,” “we,” “us,” “our” and the “Group,” we generally mean Mitsubishi UFJ Financial Group, Inc. and its consolidated subsidiaries, but from time to time as the context requires, we mean Mitsubishi UFJ Financial Group, Inc. as an individual legal entity. In addition, our “commercial banking subsidiaries” refers to MUFG Bank, Ltd. (formerly, The Bank of Tokyo-Mitsubishi UFJ, Ltd.), or “BK,” and, as the context requires, its consolidated subsidiaries engaged in the commercial banking business. Our “trust banking subsidiaries” refers to Mitsubishi UFJ Trust and Banking Corporation, or “TB,” and, as the context requires, its consolidated subsidiaries engaged in the trust banking business. Our “banking subsidiaries” refers to MUFG Bank and Mitsubishi UFJ Trust and Banking and, as the context requires, their respective consolidated subsidiaries engaged in the banking business. Our “securities subsidiaries” refers to Mitsubishi UFJ Securities Holdings Co., Ltd., or “SCHD,” and as the context requires, its consolidated subsidiaries engaged in the securities business.

1

References to “MUAH” and “BK(US)” are to MUFG Americas Holdings Corporation and MUFG Union Bank, N.A., as single entities, respectively, as well as to MUFG Americas Holdings and MUFG Union Bank and their respective consolidated subsidiaries, as the context requires.

References to “Krungsri” are to Bank of Ayudhya Public Company Limited, as a single entity, as well as to Bank of Ayudhya Public Company Limited and its respective consolidated subsidiaries, as the context requires. References to “Bank Danamon” are to PT Bank Danamon Indonesia, Tbk., as a single entity, as well as to PT Bank Danamon Indonesia, Tbk. and its respective consolidated subsidiaries, as the context requires. References to “First Sentier Investors” are to First Sentier Investors Holdings Pty Ltd., as a single entity, as well as to First Sentier Investors Holdings Pty Ltd. and its respective consolidated subsidiaries, as the context requires.

References to the “FSA” are to the Financial Services Agency, an agency of the Cabinet Office of Japan.

References in this Annual Report to “yen” or “¥” are to Japanese yen, references to “U.S. dollars,” “U.S. dollar,” “dollars,” “U.S.$” or “$” are to United States dollars, references to “euro” or “€” are to the currency of the member states of the European Monetary Union, references to “THB” are to Thai baht, references to “AU$” are to Australian dollars, references to “HK$” are to Hong Kong dollars, and references to “IDR” are to Indonesian rupiah.

Our fiscal year ends on March 31 of each year. References to years not specified as being fiscal years are to calendar years.

We usually hold the annual ordinary general meeting of shareholders of Mitsubishi UFJ Financial Group, Inc. in June of each year in Tokyo.

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Forward-Looking Statements

We may from time to time make written or oral forward-looking statements. Written forward-looking statements may appear in documents filed with, or submitted to, the U.S. Securities and Exchange Commission, or SEC, including this Annual Report, and other reports to shareholders and other communications.

The U.S. Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves. We rely on this safe harbor in making these forward-looking statements.

Forward-looking statements appear in a number of places in this Annual Report and include statements regarding our current intent, business plan, targets, belief or expectations or the current belief or current expectations of our management with respect to our results of operations and financial condition, including, among other matters, our problem loans and loan losses. In many, but not all cases, we use words such as “anticipate,” “aim,” “believe,” “estimate,” “expect,” “intend,” “plan,” “probability,” “risk,” “will,” “may” and similar expressions, as they relate to us or our management, to identify forward-looking statements. These statements reflect our current views with respect to future events and are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those which are aimed, anticipated, believed, estimated, expected, intended or planned, or otherwise stated.

Our forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ from those in the forward-looking statements as a result of various factors. Important factors that could cause such differences include, without limitation,

• deterioration in economic conditions in Japan and around the world,

• reduction in foreign currency funding liquidity,

• significant unexpected increases in credit costs,

• cyber-attacks and other information security threats,

• problems with the proper functioning and development of information, communications and transaction management systems,

• failure to address regulatory or public concerns or to meet market or industry rules or standards, customer protection requirements, or corporate behavior expectations,

• external events, such as natural disasters, COVID-19 and other health pandemics or epidemics, terrorism, and other political and social conflicts,

• reforms of London Interbank Offered Rate and other interest rate benchmarks,

• climate change and resulting physical damages and changes in the business environment,

• competitive pressures resulting from regulatory and market changes,

• failure to implement our business expansion strategy as planned and to manage new or expanded risks that entail such strategy,

• negative developments relating to our strategic alliance with Morgan Stanley,

• adverse changes in the business of our overseas subsidiaries,

• significant impairment losses on goodwill recognized in connection with our acquisitions,

• failure to maintain our capital ratios and other regulatory ratios above minimum required levels,

• financial difficulties of other financial institutions that affect the overall banking environment and their borrowers,

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• fluctuations in interest rates, foreign currency exchange rates and stock prices,

• transactions with counterparties in countries designated by the U.S. Department of State as state sponsors of terrorism,

• changes in laws, regulations, rules, policies, accounting standards or methods, voluntary codes of practices, and interpretations,

• changes in the business and regulatory environment for consumer finance companies,

• damage to our reputation resulting from our failure to prevent or properly address negative perceptions held by customers, investors, regulators and the general public regarding us and our operations, and

• other risks and uncertainties discussed in “Item 3.D. Key Information—Risk Factors,” “Item 4.B. Information on the Company—Business Overview,” “Item 5. Operating and Financial Review and Prospects” and elsewhere in this Annual Report.

Given these and other risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of the filing of this Annual Report. We are under no obligation, and disclaim any obligation, to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise unless required by law.

4

PART I

Item 1. Identity of Directors, Senior Management and Advisers.

Not applicable.

Item 2. Offer Statistics and Expected Timetable.

Not applicable.

Item 3. Key Information.

A. Selected Financial Data

The selected statement of income data and selected balance sheet data set forth below has been derived from our audited consolidated financial statements.

Except for risk-adjusted capital ratios, which are calculated in accordance with Japanese banking regulations based on information derived from our consolidated financial statements prepared in accordance with accounting principles generally accepted in Japan, or Japanese GAAP, the selected financial data set forth below are derived from our consolidated financial statements prepared in accordance with U.S. GAAP.

You should read the selected financial data set forth below in conjunction with “Item 5. Operating and Financial Review and Prospects,” “Selected Statistical Data” and our consolidated financial statements and other financial data included elsewhere in this Annual Report. These data are qualified in their entirety by reference to all of that information.

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	Fiscal years ended March 31,
	2016			2017			2018			2019		2020
	(in millions, except per share data and number of shares)
Statement of income data:
Interest income	¥	3,005,738		¥	2,990,767		¥	3,259,016		¥	3,813,379	¥	3,927,143
Interest expense		744,364			769,639			1,028,755			1,517,981		1,684,344
Net interest income		2,261,374			2,221,128			2,230,261			2,295,398		2,242,799
Provision for (reversal of) credit losses		231,862			253,688			(240,847	)		34,330		321,713
Net interest income after provision for (reversal of) credit losses		2,029,512			1,967,440			2,471,108			2,261,068		1,921,086
Non-interest income		2,407,690			1,196,706			1,935,091			1,595,244		1,875,695
Non-interest expense		3,274,532			2,891,603			2,744,380			2,985,470		3,363,561
Income before income tax expense		1,162,670			272,543			1,661,819			870,842		433,220
Income tax expense		369,432			94,453			407,823			133,237		114,505
Net income before attribution of noncontrolling interests		793,238			178,090			1,253,996			737,605		318,715
Net income (loss) attributable to noncontrolling interests		(9,094	)		(24,590	)		25,836			18,960		12,760
Net income attributable to Mitsubishi UFJ Financial Group	¥	802,332		¥	202,680		¥	1,228,160		¥	718,645	¥	305,955
Earnings applicable to common shareholders of Mitsubishi UFJ Financial Group	¥	802,332		¥	202,680		¥	1,228,160		¥	718,645	¥	305,955
Amounts per share:
Basic earnings per common share—Earnings applicable to common shareholders of Mitsubishi UFJ Financial Group	¥	57.78		¥	14.93		¥	92.40		¥	55.03	¥	23.69
Diluted earnings per common share—Earnings applicable to common shareholders of Mitsubishi UFJ Financial Group		57.51			14.68			92.10			54.74		23.47
Number of shares used to calculate basic earnings per common share (in thousands)		13,885,842			13,574,314			13,291,842			13,058,698		12,912,790
Number of shares used to calculate diluted earnings per common share (in thousands)(1)		13,903,316			13,584,885			13,293,492			13,059,182		12,912,956
Cash dividends per share paid during the fiscal year:
—Common stock	¥	18.00		¥	18.00		¥	18.00		¥	21.00	¥	23.50
	$	0.15		$	0.17		$	0.16		$	0.19	$	0.22

	As of March 31,
	2016		2017		2018		2019		2020
	(in millions)
Balance sheet data:
Total assets	¥	292,557,355	¥	297,185,019	¥	300,570,312	¥	305,228,899	¥	331,753,283
Loans, net of allowance for credit losses		121,679,828		117,032,784		116,271,771		116,225,757		117,377,199
Total liabilities		277,709,088		282,420,311		284,924,497		289,244,151		316,008,767
Deposits		181,438,087		190,401,623		195,674,593		199,280,789		203,954,528
Long-term debt(2)		20,524,615		26,131,527		27,069,556		27,990,543		27,926,763
Total equity		14,848,267		14,764,708		15,645,815		15,984,748		15,744,516
Capital stock		2,090,270		2,090,270		2,090,270		2,090,270		2,090,270

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	Fiscal years ended March 31,
	2016			2017			2018			2019			2020
	(in millions, except percentages)
Other financial data:
Average balances:
Interest-earning assets	¥	252,715,743		¥	239,192,449		¥	239,048,981		¥	241,407,356		¥	246,283,676
Interest-bearing liabilities		221,135,208			223,522,296			233,857,052			234,643,197			238,861,520
Total assets		299,270,873			307,938,699			320,589,932			321,292,847			325,500,449
Total equity		15,285,766			15,010,829			15,423,078			16,076,679			15,417,885
Return on equity and assets:
Earnings applicable to common shareholders as a percentage of average total assets		0.27	%		0.07	%		0.38	%		0.22	%		0.09	%
Earnings applicable to common shareholders as a percentage of average total equity		5.25	%		1.35	%		7.96	%		4.47	%		1.98	%
Dividends per common share as a percentage of basic earnings per common share		31.15	%		120.56	%		19.48	%		38.16	%		99.20	%
Average total equity as a percentage of average total assets		5.11	%		4.87	%		4.81	%		5.00	%		4.74	%
Net interest income as a percentage of average total interest-earning assets		0.89	%		0.93	%		0.93	%		0.95	%		0.91	%
Credit quality data:
Allowance for credit losses	¥	1,111,130		¥	1,182,188		¥	764,124		¥	658,184		¥	809,540
Allowance for credit losses as a percentage of loans		0.90	%		1.00	%		0.65	%		0.56	%		0.68	%
Impaired loans	¥	1,725,150		¥	1,715,850		¥	1,331,123		¥	1,209,791		¥	1,306,829
Impaired loans as a percentage of loans		1.40	%		1.45	%		1.14	%		1.04	%		1.11	%
Allowance for credit losses related to impaired loans as a percentage of impaired loans		42.60	%		51.42	%		37.14	%		32.33	%		33.96	%
Net loan charge-offs	¥	156,959		¥	169,809		¥	180,999		¥	129,924		¥	179,277
Net loan charge-offs as a percentage of average loans		0.13	%		0.14	%		0.15	%		0.11	%		0.15	%
Average interest rate spread		0.85	%		0.91	%		0.92	%		0.93	%		0.88	%
Risk-adjusted capital ratio calculated under Japanese GAAP(3)		16.01	%		15.85	%		16.56	%		16.03	%		15.87	%

Notes:

(1) Includes the common shares that were potentially issuable upon exercise of stock acquisition rights. See “ Item 6.B. Directors, Senior Management and Employees—Compensation.”

(2) Reflects the changes in presentation adopted in the fiscal year ended March 31, 2018, where long-term payables under repurchase agreements are no longer included in long-term debt but are aggregated with short-term payables under repurchase agreements in payables under repurchase agreements, and applied to the fiscal years ended March 31, 2016 and 2017.

(3) Risk-adjusted capital ratios have been calculated in accordance with Japanese banking regulations as applicable on the relevant calculation date, based on information derived from our consolidated financial statements prepared in accordance with Japanese GAAP. For a description of the applicable capital ratio calculation and other requirements applicable, see “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Capital adequacy” and “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Adequacy.”

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

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D. Risk Factors 

Investing in our securities involves a high degree of risk. You should carefully consider the risks described in this section, which is intended to disclose all of the risks that we consider material based on the information currently available to us, as well as all the other information in this Annual Report, including our consolidated financial statements and related notes, “Item 5. Operating and Financial Review and Prospects,” “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk” and “Selected Statistical Data.”

Our business, operating results and financial condition could be materially and adversely affected by any of the factors discussed below. The trading price of our securities could decline due to any of these factors. This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those described in this section and elsewhere in this Annual Report. See “Forward-Looking Statements.”

Risks Related to Our Business Environment

Because a large portion of our assets as well as our business operations are in Japan, we may incur losses if economic conditions in Japan worsen.

Our performance is particularly affected by the general economic conditions of Japan where we are headquartered and conduct a significant amount of our business. As of March 31, 2020, 62.6% of our total assets were related to Japanese domestic assets, including Japanese national government and Japanese government agency bonds, which accounted for 56.1% of our total investment securities portfolio and 7.4% of our total assets, respectively. Interest and non-interest income in Japan represented 27.5% of our total interest and non-interest income for the fiscal year ended March 31, 2020. Furthermore, as of March 31, 2020, our loans in Japan accounted for 55.0% of our total loans outstanding.

There is significant uncertainty surrounding Japan’s economy. For example, Japan’s fiscal health and sovereign creditworthiness may deteriorate if the Japanese government’s economic measures and the Bank of Japan’s monetary policies prove ineffective or result in negative consequences. If the prices of Japanese government bonds decline rapidly, resulting in an unexpectedly sudden increase in interest rates, our investment securities portfolio as well as our lending, borrowing, trading and other operations may be negatively impacted. In addition, interest rates may suddenly increase as a result of a decision made by the Bank of Japan to end or modify its current interest rate policy, including the negative interest rate of minus 0.1% applied to certain current account amounts that financial institutions hold at the Bank of Japan and the Japanese government bond purchase program with an aim to keep the yield of 10-year Japanese government bonds around zero percent, or market expectations relating to any such decision. See “—Market Risk—Fluctuations in interest rates, foreign currency exchange rates and stock prices could adversely affect the value or the yield of our portfolio.”

Instability in the Japanese stock market and foreign currency exchange rates may also have a significant adverse impact on our asset and liability management as well as our results of operations. Various other factors, including the COVID-19 pandemic and measures being implemented in response to the pandemic such as restrictions on travel, store operations and other economic activities, the decreasing and aging demographics in Japan, stagnation or deterioration of economic and market conditions in other countries, growing global competition and trade conflicts, may also have a material negative impact on the Japanese economy. See “—Risk Relating to Our Strategic Equity Portfolio—If the Japanese stock market or other global markets decline in the future, we may incur losses on our securities portfolio and our capital ratios will be adversely affected.” For a detailed discussion on the business environment in Japan and abroad, see “Item 5. Operating and Financial Review and Prospects—Business Environment.”

Since our domestic loans in Japan accounted for a significant portion of our loan portfolio, deteriorating or stagnant economic conditions in Japan may cause adverse effects on our financial results, such as increases in

8

credit costs, as the credit quality of some borrowers could deteriorate, particularly borrowers in industries that are adversely affected by the COVID-19 pandemic. Our domestic loan portfolio may also be adversely affected by interest rate fluctuations in Japan. For example, as a result of the Bank of Japan’s interest rate policy and measures to purchase Japanese government bonds in the market, the yield on many financial instruments and other market interest rates in Japan have declined to low or negative levels. If the Bank of Japan’s policy and measures are maintained for an extended period, or if the Bank of Japan’s negative interest rate is lowered from the current level, market interest rates may decline further, and our interest rate spread on our domestic loan portfolio may narrow further, reducing our net interest income.    

Our results of operations may be materially affected by deterioration of economic conditions in Japan and around the world.

Economic conditions in Japan and around the world may deteriorate significantly due to various factors such as the COVID-19 pandemic and measures being implemented in response to the pandemic, including restrictions on travel, store operations and other economic activities, in Japan and other countries and regions as well as crude oil prices declining or remaining at low levels. Uncertainty over the Japanese and global economies still remain not only because of the unpredictability of the timing of containment of COVID-19 but also because of such other factors as concerns over political developments in the United States, the possible negative impact on international trade resulting from shifts in the trade policies of various countries and regions, concerns relating to the United Kingdom’s withdrawal from the European Union, and the slowing economic growth in China and the economic stagnation in emerging countries and commodity-exporting countries, as well as the political turmoil in various regions around the world. In addition, external events, such as earthquakes, typhoons, floods and other natural disasters, terrorism and other political and social conflicts, abduction, and health pandemics or epidemics, may cause deterioration in economic conditions and market instability in affected areas. As of March 31, 2020, based principally on the domicile of the obligors, assets related to the United States accounted for approximately 18.3% of our total assets, assets related to Asia and Oceania excluding Japan accounted for approximately 9.3% of our total assets, and assets related to Europe accounted for approximately 5.8% of our total assets. See “Item 5. Operating and Financial Review and Prospects—Business Environment.”

Worsening economic conditions in Japan and around the world may result in, among other things, impairment or valuation losses on securities and other assets that we hold due to declines in the market value of such assets, an increase in our non-performing loans and credit costs due to deterioration in borrowers’ business performance, a decrease in our profits due to deterioration in the creditworthiness of counterparties in market transactions, a reduction in foreign currency funding liquidity, an increase in our foreign currency funding costs, and an increase in the level of risk in the risk assets that we hold. Our profitability may be adversely affected by various other factors, including a decline in our net interest income caused by such factors as changes in the monetary policies of central banks in various jurisdictions. In addition, an economic downturn may result in a decline in new investments and business transactions by customers due to stagnation in economic activity, weak consumer spending, diminished investor appetite for making investments in uncertain financial markets, and a decrease in our assets under custody or management.

We have incurred losses, and may incur further losses, as a result of changes in the fair value of our financial instruments resulting from weakening market conditions. For example, we recorded ¥646.0 billion of net losses from marketable equity securities, which reflected unrealized losses, or holding losses, on marketable equity securities, and ¥4.8 billion of impairment losses on available-for-sale debt securities and other securities for the fiscal year ended March 31, 2020. As of March 31, 2020, approximately 26.4% of our total assets were financial instruments for which we measure fair value on a recurring basis, and less than 0.5% of our total assets were financial instruments for which we measure fair value on a non-recurring basis. Generally, in order to establish the fair value of these instruments, we rely on quoted prices. If the value of these financial instruments declines, a corresponding loss or write-down may be recognized in our consolidated statements of income. In addition, because we hold a large amount of investment securities, short-term fluctuations in the value of our securities may trigger losses or exit costs for us to manage our risk. For more information on our valuation

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method for financial instruments, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Estimates.”

Our business operations are exposed to risks of natural disasters, terrorism and other disruptions caused by external events.

As a major financial institution incorporated in Japan and operating in major international financial markets, our business operations, ATMs and other information technology systems, personnel, and facilities and other physical assets are subject to the risks of earthquakes, typhoons, floods and other natural disasters, terrorism and other political and social conflicts, abduction, health pandemics or epidemics, and other disruptions caused by external events, which are beyond our control. Such external events may result in loss of facility and human and other resources, suspension or delay in all or part of our operations, inability to implement business strategic measures or respond to changes in the market or regulatory environment as planned, and other disruptions to our operations. In addition, we may be required to incur significant costs and expenses, including those incurred for preventive or remedial measures, to deal with the consequences of such external events. As a result, our business, operating results and financial condition may be materially and adversely affected.

For example, the COVID-19 pandemic has required us to temporarily close some of our business locations, resulted in reduction in our and our vendors’ operational capacity due to restrictions on mobility, and had other negative impact on us. Although we have taken various measures designed to ensure the safety of our employees and vendors as well as the continuity of our operations, if a large number or concentrated groups of employees of us and our vendors become infected of the virus or if the pandemic continues to expand or is not sufficiently controlled, we may be further adversely affected.

As with other Japanese companies, we are exposed to heightened risks of large-scale natural disasters, particularly earthquakes. In particular, a large-scale earthquake occurring in the Tokyo metropolitan area and other areas where we have our important business functions may have a material adverse effect on our business, operating results and financial condition.

Our risk management policies and procedures may be insufficient to address the consequences of these external events, resulting in our inability to continue to operate a part or the whole of our business. In addition, our redundancy and backup measures may not be sufficient to avoid a material disruption in our operations, and our contingency and business continuity plans may not address all eventualities that may occur in the event of a material disruption caused by a large-scale natural disaster such as the March 2011 Great East Japan Earthquake, which led to tsunamis, soil liquefaction and fires, as well as electricity power supply shortages and electricity power conservation measures.

Reforms of London Interbank Offered Rate and other interest rate benchmarks could adversely affect our business, financial condition and results of operations.

We have various transactions, including derivatives, loans, bonds, and securitized products, that reference London Interbank Offered Rate, or LIBOR. In July 2014, the Financial Stability Board proposed reforms of interest rate benchmarks and development of a risk-free rate as an alternative interest rate benchmark. In July 2017, the Chief Executive of the Financial Conduct Authority, or FCA, of the United Kingdom, which regulates LIBOR, announced that it would not compel panel banks to quote rates in order to continue publishing LIBOR beyond the end of calendar 2021 and, as a result, there are considerable uncertainties regarding the publication of LIBOR after calendar 2021.

In anticipation of the discontinuation of the publication of LIBOR at the end of calendar 2021, we are taking measures to deal with the reform of LIBOR and other interest rate benchmarks and the transition to an alternative interest rate. However, such transition is complex and uncertain in many respects and may have various adverse

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impacts on our business, financial position and operating results. In particular, such transition may, among other things,

• adversely affect the price, liquidity, profitability, and tradability of a wide range of financial instruments, such as loans and derivatives, included in our financial assets and liabilities that reference LIBOR and other interest rate benchmarks;

• require negotiations with our counterparties to modify contracts to replace the reference rate for existing contracts based on or linked to LIBOR and other interest rate benchmarks with an alternative interest rate;

• result in disputes with customers and counterparties concerning the interpretation of affected contracts or economic adjustments to the alternative interest rate adopted in connection with the reform of LIBOR and other interest rates and the transition to alternative interest rates, or disputes concerning inappropriate trade practices or abuse of a dominant bargaining position in transactions with customers;

• require us to respond to regulatory authorities in connection with the reform of LIBOR and other interest rates and the transition to an alternative interest rate; and

• require us to develop risk management and other operational systems and processes necessary to effectively deal with the reform of LIBOR and other interest rates and the transition to an alternative interest rate, which may prove challenging or impossible, or incur significant system investment and other costs in connection with such reform and transition.

Climate change could have a material adverse impact on us and our clients.

Physical damage caused by extreme weather conditions and natural disasters resulting from climate change, as well as governments’ measures to strengthen climate-related regulations and the transition to a low-carbon society, may adversely affect the business and financial condition of us and our clients, including our credit portfolio.

We recognize the importance of appropriately understanding, evaluating and disclosing climate change-related risks, and we intend to support the recommendations of the Climate Financial Disclosure Task Force, or TCFD, which has been established by the Financial Stability Board. To be in line with the TCFD, we intend to make a continued effort to improve our understanding and evaluation of the relevant risks and to enhance our related disclosure. However, if our effort to address climate change-related risks or to make appropriate disclosure proves or is deemed insufficient and, as a result, we are considered to fail to fulfill our responsibility to society, our corporate value may be impaired and our business and results of operations may be adversely affected.

Risks Related to Our Strategies

Our business may be adversely affected by competitive pressures, which have partly increased due to regulatory changes and recent market changes in the financial industry domestically and globally.

Competition in the financial services industry may further intensify due to the increase in the number of non-financial institutions entering the financial services industry with alternative services such as electronic settlement services as a result of development of new technologies such as artificial intelligence, or AI, and blockchain as well as significant changes in regulatory barriers. Competition may also further increase as other global financial institutions enhance their competitive strength through development or adoption of such new technologies as well as mergers, acquisitions, strategic alliances, and profit enhancement and other measures. See “Item 4.B. Information on the Company—Business Overview—Competition.”

Under such circumstances, although we have been implementing various business strategies on a global basis designed to strengthen our competitive position and profitability, our business, financial condition and

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results of operations may be adversely affected if these strategies fail to produce the results we expect or if we are required to delay or otherwise change these strategies and result in the decline in our competitiveness because of various factors, including:

• the volume of loans made to borrowers does not increase as anticipated;

• our income from interest spreads on the existing loans does not improve as anticipated;

• our loan interest spread further narrows as a result of the “quantitative and qualitative monetary easing with yield curve control” program being maintained in Japan for an extended period or the negative interest rate being lowered from the current level;

• our fee income does not increase as much or quickly as we aim to do;

• our strategy to build a business infrastructure for new services and products through digitalization or otherwise does not proceed as planned;

• clients and business opportunities are lost, costs and expenses significantly exceed our expectations, or our strategies to improve financial and operational efficiency or system integration plans are not achieved as expected, because of delays or other changes in the ongoing or planned intra-group integration, reorganization or streamlining of our operations;

• we are unable to hire or retain sufficient human resources;

• our foreign currency funding becomes limited or unavailable; and

• we are restricted in agility or flexibility in investing in non-financial institutions under applicable laws and regulations in and outside of Japan.

Our strategy to expand the range of our financial products and services and the geographic scope of our business globally may fail if we are unable to anticipate or manage new or expanded risks that entail such expansion.

As we expand our business operations, we may become exposed to new and increasingly complex risks. We may not be able to establish appropriate internal controls or risk management systems or to hire or retain necessary human resources to effectively deal with compliance, regulatory, market and other risks entailing the expanded scope of our operations, products and services in all cases and, as a consequence, our financial condition and results of operations may be adversely affected.

As a strategic measure implemented in an effort to become the world’s most trusted financial group, we acquire businesses, make investments and enter into capital alliances globally. We may continue to pursue opportunities to acquire businesses, make investments and enter into capital alliances. However, our acquisition, investments and capital alliances may not proceed as planned or may be changed or dissolved, we may not achieve the synergies or other results that we expected, or we may incur impairment or valuation losses on securities acquired or intangible assets, including goodwill, recorded in connection with such business acquisitions, investments or business alliances, because of changes in the strategies or financial condition of our acquirees, investees or alliance partners that are inconsistent with our interests, unanticipated changes in the industry or business environment affecting our acquirees, investees or alliance partners, stagnation of the economy, changes in the laws, regulations or accounting standards applicable to our acquirees, investees or alliance partners, or inability to obtain regulatory approvals. These and other similar circumstances may adversely affect our business strategies, financial condition and results of operations.

Our efforts to offer new products and services or penetrate new markets may not succeed due to any of the foregoing reasons or other reasons, including if product or market opportunities develop more slowly than expected, if our new products and services are not well accepted among customers, if the profitability of opportunities is undermined by competitive pressures, regulatory limitations or changes in our business

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environment, if our planned acquisitions, investments or capital alliances are not approved by regulators or do not proceed as planned, or if our acquisitions, investments or capital alliances fail to achieve the synergies or other results that we expect. For more information on our recent acquisition and investment transactions, see “Item 5. Operating and Financial Review and Prospects—Recent Developments.”

Risks Related to Our Major Investees

If our strategic alliance with Morgan Stanley fails, we could suffer financial or reputational loss.

We have a global strategic alliance with Morgan Stanley, under which we operate two joint venture securities companies in Japan, engage in joint corporate finance operations in the United States and pursue other cooperative opportunities. We hold approximately 23.9% of the voting rights in Morgan Stanley as of March 31, 2020 and continue to hold approximately $521.4 million of perpetual non-cumulative non-convertible preferred stock with a 10% dividend. In addition, we currently have two representatives on Morgan Stanley’s board of directors.

We initially entered into this strategic alliance in October 2008 with a view towards long-term cooperation with Morgan Stanley, and currently plan to deepen the strategic alliance. However, due to any unexpected changes in social, economic or financial conditions, changes in the regulatory environment, or any failure to integrate or share staff, products or services, or to operate, manage or implement the business strategy of the securities joint venture companies or other cooperative opportunities as planned, we may be unable to achieve the expected synergies from this alliance.

If our strategic alliance with Morgan Stanley is terminated, it could have a material negative impact on our business strategy, financial condition, and results of operations. For example, because we conduct our securities operations in Japan through the joint venture companies we have with Morgan Stanley, such termination may result in our inability to attain the planned growth in this line of business.

In addition, with our current investment in Morgan Stanley, we have neither a controlling interest in, nor control over the business operations of, Morgan Stanley. If Morgan Stanley makes any business decisions that are inconsistent with our interests, we may be unable to achieve the goals initially set out for the strategic alliance. Furthermore, although we do not control Morgan Stanley, given the magnitude of our investment, if Morgan Stanley encounters financial or other business difficulties due to adverse changes in the economy, regulatory environment or other factors, we may suffer a financial loss on our investment or damage to our reputation. For example, we recorded an impairment loss of ¥579.5 billion on our investment in Morgan Stanley’s common stock for the fiscal year ended March 31, 2012.

We apply equity method accounting to our investment in Morgan Stanley in our consolidated financial statements. As a result, Morgan Stanley’s performance affects our results of operations, and Morgan Stanley has contributed to a significant portion of our net income in recent periods. Rule 3-09 of Regulation S-X requires Morgan Stanley’s financial statements to be included in this Annual Report. In addition, fluctuations in Morgan Stanley’s stock price or in our equity ownership interest in Morgan Stanley may cause us to recognize additional losses on our investment in Morgan Stanley.

Any adverse changes in the business of MUFG Americas Holdings Corporation, Krungsri or Bank Danamon could significantly affect our results of operations.

Our major overseas subsidiaries include MUFG Americas Holdings, a wholly owned subsidiary in the United States, Krungsri, an indirect subsidiary in Thailand, and Bank Danamon, an indirect subsidiary in Indonesia. These subsidiaries engage in retail and commercial banking primarily in their respective local markets. Adverse changes in the business and financial performance of any of these subsidiaries may significantly affect our financial condition and results of operations. Factors that can negatively impact these

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subsidiaries include deterioration in the local economy or economic prospects or the credit quality of their loan portfolio, fluctuations in the stock, interest rate, foreign currency exchange, commodities or real estate market, political or social instability, changes in the regulatory or competitive environment, natural disasters, pandemics or epidemics of infectious or contagious diseases, geopolitical conflicts, losses from legal proceedings, as well as the business performance of companies investing in or entering into the local market and the condition of economies, financial systems, laws and financial markets in the markets where such companies primarily operate. Costs incurred due to weaknesses in the internal controls or the regulatory compliance systems of the subsidiaries may also adversely affect their business and financial performance. For more information, see “Item 4.B. Information on the Company—Business Overview—Global Commercial Banking Business Group” and “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—United States.”

If the goodwill recorded in connection with our acquisitions becomes impaired, we may be required to record impairment losses, which may adversely affect our financial results.

In accordance with U.S. GAAP, we account for our business combinations using the acquisition method of accounting. We recorded the excess of the purchase price over the fair value of the assets and liabilities of the acquired companies as goodwill. U.S. GAAP requires us to test goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. As of March 31, 2020, the total balance of goodwill was ¥517.6 billion. As we expand our business through acquisitions and investments, we may record additional goodwill in connection with such acquisitions and investments, which may subsequently be impaired.

For the fiscal year ended March 31, 2020, we recognized ¥241.4 billion, ¥80.3 billion and ¥62.2 billion, respectively, in impairment of goodwill relating to Bank Danamon, MUFG Americas Holdings and Krungsri within Global Commercial Banking Business Group and Global Corporate & Investment Banking Business Group. We consolidate MUFG Americas Holdings based on financial information for the fiscal year ended December 31 as this date and our fiscal year which ended on March 31 have been treated as coterminous. For the fiscal year ended March 31, 2020, the effect of recording a goodwill impairment as an intervening event primarily due to economic environment triggered by COVID-19 pandemic for the three-month period ended March 31, 2020 would have been approximately ¥80 billion to ¥110 billion. This intervening event occurring during the three-month period ended March 31, 2020, however, was not recognized for the fiscal year ended March 31, 2020. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Impairment of goodwill” and Note 6 to our audited consolidated financial statements included elsewhere in this Annual Report.

We may be required to record additional impairment losses relating to goodwill in future periods if the fair value of any of our reporting units declines below the fair value of related assets net of liabilities. Any additional impairment losses will negatively affect our financial results, and the price of our securities could be adversely affected. For a detailed discussion of our periodic testing of goodwill for impairment and the goodwill recorded, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Estimates—Impairment on Goodwill and Intangible Assets.”

Risks Related to Our Ability to Meet Regulatory Capital Requirements

We may not be able to maintain our capital ratios and other regulatory ratios above minimum required levels, which could result in various regulatory actions, including the suspension of some or all of our operations.

We, as a holding company, and our Japanese banking subsidiaries are required to maintain risk-weighted capital ratios and leverage ratios above the levels specified in the guidelines adopted by the FSA to implement

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the Basel III framework. As of March 31, 2020, our total risk-adjusted capital ratio was 15.87% compared to the minimum risk-adjusted capital ratio required of 12.01%, our Tier 1 capital ratio was 13.56% compared to the minimum Tier 1 capital ratio required of 10.01%, and our Common Equity Tier 1 capital ratio was 11.90% compared to the minimum Common Equity Tier 1 capital ratio required of 8.51%, each including a capital conservation buffer of 2.50%, a G-SIB surcharge of 1.50% and a countercyclical buffer of 0.01%. As of the same date, our leverage ratio was 4.42% compared to the minimum leverage ratio required of 3.00%. Basel III risk measurement reforms are expected to be phased in from 2023. Our capital and leverage ratios are calculated in accordance with Japanese banking regulations based on information derived from our financial statements prepared in accordance with Japanese GAAP.

The Financial Stability Board has identified us as one of G-SIBs. The banks that are included in the list of G-SIBs are subject to a capital surcharge to varying degrees depending on the bucket to which each bank is allocated. As the list of G-SIBs is expected to be updated annually, we may be required to meet stricter capital ratio requirements. G-SIBs are currently expected to become subject to a leverage ratio surcharge in 2023.

If our or our Japanese banking subsidiaries’ capital ratios or leverage ratios fall below the required levels, including various capital buffers, the FSA may require us to take a variety of corrective actions, including abstention from making capital distributions and suspension of our business operations.

In addition, some of our banking subsidiaries are subject to the local capital adequacy ratio and other regulatory ratio requirements of various foreign countries, including the United States, and if their ratios fall below the required levels, the local regulators will require them to take a variety of corrective actions.

Factors that will affect our and our bank subsidiaries’ capital ratios or leverage ratios include:

• fluctuations in our or our banking subsidiaries’ portfolios due to deterioration in the creditworthiness of borrowers and the issuers of equity and debt securities;

• difficulty in refinancing or issuing instruments upon redemption or at maturity of such instruments to raise capital under terms and conditions similar to prior financings or issuances;

• declines in the value of our or our banking subsidiaries’ securities portfolios;

• adverse changes in foreign currency exchange rates;

• adverse revisions to the capital ratio and other regulatory ratio requirements;

• reductions in the value of our or our banking subsidiaries’ deferred tax assets; and

• other adverse developments.

Capital raising instruments issued in or prior to March 2013 can be included, as a capital item when calculating capital ratios to the extent permitted by a transitional measure. Such capital raising instruments may require refinancing under the current FSA guidelines. However, in order for newly issued capital raising instruments, other than common stock, to be included as a capital item in the calculation of capital ratios under the above capital adequacy guidelines, such instruments must, among other things, have a clause in their terms and conditions that requires them to be written off or converted into common stock upon the occurrence of certain events, including when the issuing financial institution is deemed non-viable or when the issuing financial institution’s capital ratios decline below prescribed levels. Under certain market conditions, we may be unable to refinance or issue capital raising instruments under terms and conditions similar to those of capital raising instruments issued in or prior to March 2013. If such circumstances arise, our and our banking subsidiaries’ capital could be reduced, and our and our bank subsidiaries’ capital ratios and leverage ratios could decrease.

In March 2019, we became subject to the FSA’s new regulations requiring G-SIBs in Japan to maintain certain minimum levels of capital and liabilities that are deemed to have loss-absorbing and recapitalization

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capacity, or External TLAC, and allocate a certain minimum level of External TLAC to any material subsidiary within their respective groups of companies, or Internal TLAC. As of March 31, 2020, we maintained 18.62% of External TLAC on a risk-weighted assets basis compared to the required minimum ratio of 16.00% and 7.38% of External TLAC on a leverage exposure basis compared to the required minimum ratio of 6.00%. The applicable minimum ratio requirements are expected to be raised to 18.00% on a risk-weighted assets basis and 6.75% on a leverage exposure basis on March 31, 2022. Within the MUFG Group, MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. and MUFG Americas Holdings are designated as our material subsidiaries. We may become subject to various regulatory actions, including restrictions on capital distributions, if we are unable to maintain our External TLAC ratios or the amount of Internal TLAC allocated to any of our material subsidiaries in Japan above the minimum levels required by the standards imposed by the FSA. Our External TLAC ratios and the amount of our Internal TLAC are affected by various factors that affect our capital ratios and leverage ratios described above. Although we plan to issue TLAC-qualified debt in an effort to meet the minimum required levels of External TLAC ratios and Internal TLAC amounts, we may fail to do so if we are unable to issue or refinance TLAC-qualified debt as planned.

For a discussion of the applicable regulatory guidelines and our capital ratios, see “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation” and “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Adequacy.”

Fluctuations in foreign currency exchange rates may result in transaction losses on translation of monetary assets and liabilities denominated in foreign currencies as well as foreign currency translation losses with respect to our foreign subsidiaries and equity method investees.

Fluctuations in foreign currency exchange rates against the Japanese yen create transaction gains or losses on the translation into Japanese yen of monetary assets and liabilities denominated in foreign currencies. To the extent that our foreign currency-denominated assets and liabilities are not matched in the same currency or appropriately hedged, we could incur losses due to future foreign exchange rate fluctuations. During the fiscal year ended March 31, 2020, the average balance of our foreign interest-earning assets was ¥101,024.8 billion and the average balance of our foreign interest-bearing liabilities was ¥65,982.7 billion, representing 41.0% of our average total interest-earning assets and 27.6% of our average total interest-bearing liabilities during the same period. Due to foreign currency exchange rate fluctuations, we may incur losses attributable to net transaction losses on the translation into Japanese yen of monetary assets and liabilities denominated in foreign currencies, net losses on currency derivative instruments entered into for trading purposes, and net losses on translation into Japanese yen of securities accounted for under the fair value option. In addition, we may incur foreign currency translation losses with respect to our foreign subsidiaries and equity method investees due to fluctuations in foreign currency exchange rates. For recent market trends in foreign currency exchange rates, see “Item 5. Operating and Financial Review and Prospects—Business Environment.” For information on foreign exchange gains and losses and foreign currency translation gains and losses, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Results of Operations—Non-Interest Income” and “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Effect of Change in Exchange Rates on Foreign Currency Translation.”

For a discussion of a potential impact of foreign currency exchange rate fluctuations on our capital ratios and other regulatory ratios, see “—Risks Related to Our Ability to Meet Regulatory Capital Requirements—We may not be able to maintain our capital ratios and other regulatory ratios above minimum required levels, which could result in various regulatory actions, including the suspension of some or all of our operations.”

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Credit Risk

We may suffer additional credit-related losses in the future if our borrowers are unable to repay their loans as expected or if the measures we take in reaction to, or in anticipation of, our borrowers’ deteriorating repayment abilities prove inappropriate or insufficient.

When we lend money or commit to lend money, we incur credit risk, which is the risk of losses if our borrowers do not repay their loans. We may incur significant credit losses or have to provide for a significant amount of additional allowance for credit losses if:

• large borrowers become insolvent or must be restructured;

• domestic or global economic conditions, either generally or in particular industries in which large borrowers operate, deteriorate;

• the value of the collateral we hold, such as real estate or securities, declines; or

• we are adversely affected by corporate credibility issues among our borrowers, to an extent that is worse than anticipated.

As a percentage of total loans, impaired loans, which primarily include nonaccrual loans and troubled debt restructurings, or TDRs, ranged from 1.04% to 1.45% as of the five most recent fiscal year-ends. As of March 31, 2020, impaired loans were ¥1.31 trillion, representing 1.11% of our total outstanding loans. If the economic conditions in Japan or other parts of the world, including emerging countries, or in particular industries, including the energy and real estate industries, to which we have significant credit risk exposure, or the air transportation and other industries that may be adversely affected by the COVID-19 pandemic, worsen, or if emerging market currencies depreciate against major currencies, our problem loans and credit-related expenses may increase. An increase in problem loans and credit-related expenses would adversely affect our results of operations, weaken our financial condition and erode our capital base.

We may provide additional loans, equity capital or other forms of support to troubled borrowers in order to facilitate their restructuring and revitalization efforts. We may also forbear from exercising some or all of our rights as a creditor against them, and we may forgive loans to them in conjunction with their debt restructurings. We may take these steps even when such steps might not be warranted from the perspective of our short-term or narrow economic interests or a technical analysis of our legal rights against those borrowers, in light of other factors such as our longer-term economic interests and our commitment to supporting the Japanese economy. These practices may substantially increase our exposure to troubled borrowers and increase our losses. Credit losses may also increase if we elect, or are forced by economic or other considerations, to sell or write off our problem loans at a larger discount, in a larger amount or in a different time or manner, than we may otherwise want.

Although we, from time to time, enter into collateral, guarantee and credit derivative transactions, including credit default swap contracts, to manage our credit risk exposure, such transactions may not provide the protection against credit defaults that we intended due to counterparty defaults or other reasons. For more information on our credit derivative transactions, see Note 23 to our consolidated financial statements included elsewhere in this Annual Report.

Our loan losses could prove to be materially different from our estimates and could materially exceed our current allowance for credit losses, in which case we may need to provide for additional allowance for credit losses and may also record credit losses beyond our allowance. Our allowance for credit losses in our loan portfolio is based on evaluations of customers’ creditworthiness and the value of collateral we hold. We recorded ¥321.7 billion of provision for credit losses, including ¥46.4 billion of estimated impact of the COVID-19 pandemic on the Commercial segment of our loan portfolio, for the fiscal year ended March 31, 2020. We consolidate certain foreign subsidiaries based on financial information for the fiscal year ended December 31 as this date and our fiscal year which ended on March 31 have been treated as coterminous. For the fiscal year

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ended March 31, 2020, the effect of recording a provision for credit losses and a provision for off-balance sheet credit instruments, including commitments to extend credit, financial guarantees and standby letters of credit, as an intervening event primarily due to the economic environment triggered by COVID-19 pandemic for the three-month period ended March 31 2020 would have been approximately ¥84 billion and would have resulted in a decrease of ¥58 billion to net income attributable to Mitsubishi UFJ Financial Group. This intervening event occurring during the three-month period ended March 31, 2020, however, was not recognized for the fiscal year ended March 31, 2020. See Note 4 to our audited consolidated financial statements included elsewhere in this Annual Report. While we closely observe conditions of our individual borrowers and industry trends, we may need to provide for additional allowance for credit losses due to deterioration in domestic and global economic conditions as well as commodity price fluctuations or other conditions specific to certain borrowers.

Also, the regulatory standards or guidance on establishing allowances may also change, causing us to change some of the evaluations used in determining the allowances. As a result, we may need to provide for additional allowance for credit losses. For example, as a result of our adoption on April 1, 2020 of an accounting methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, we estimated that our allowance for credit losses and our allowance for off-balance sheet credit instruments increased by an aggregate of approximately ¥380 billion to ¥450 billion as of the opening balance sheet date. See Note 1 to our consolidated financial statements included elsewhere in this Annual Report.

Our efforts to diversify our portfolio to avoid any concentration of credit risk exposures to particular industries or counterparties may prove insufficient. For example, our credit exposures to the energy and real estate industries are relatively high in comparison to other industries. The credit quality of borrowers in this sector do not necessarily correspond to general economic conditions in Japan or other parts of the world, and adverse fluctuations in oil and other commodity prices or adverse developments in the real estate market may disproportionately increase our credit costs.

When we believe there is an improvement in asset quality, we may reverse the allowance for credit losses to a level management deems appropriate and record the amount of reversal in our consolidated statements of income. For example, for the fiscal year ended March 31, 2020, we recorded ¥1.0 billion of reversal of credit losses for the Residential segment of our loan portfolio, while recording a total of ¥322.7 billion of provision for credit losses for the other segments. We have historically recorded provision for credit losses rather than recording reversal of credit losses in most periods, and in future periods we may need to recognize provision for credit losses for all of the segments of our loan portfolio or to a larger extent for some or all of our loan portfolio segments.

For more information on our loan portfolio, see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Financial Condition—Loan Portfolio.”

We may incur further losses as a result of financial difficulties relating to other financial institutions, both directly and through the effect they may have on the overall banking environment and on their borrowers.

Declining asset quality and other financial problems may exist, arise or worsen at some domestic and foreign financial institutions, including banks, non-bank lending and credit institutions, securities companies and insurance companies. Financial difficulties relating to financial institutions may not only lead to liquidity and insolvency problems for such financial institutions but also result in systemic problems adversely affecting the financial market and the wider economy.

Financial difficulties relating to financial institutions could adversely affect us because we have extended loans, some of which may need to be classified as impaired loans, to banks, securities companies, insurance

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companies and other financial institutions that are not our consolidated subsidiaries. Our loans to banks and other financial institutions have been more than 10% of our total loans as of each year-end in the three fiscal years ended March 31, 2020, with the percentage being 14.3% as of March 31, 2020. We may also be adversely affected because we enter into transactions, such as derivative transactions, in the ordinary course of business, with other banks and financial institutions as counterparties. For example, we enter into credit derivatives with banks, broker-dealers, insurance companies and other financial institutions for managing credit risk exposures, for facilitating client transactions, and for proprietary trading purposes. The notional amount of the protection we sold through these instruments was ¥3.93 trillion as of March 31, 2020. In addition, we may be adversely affected because:

• we are shareholders of financial institutions;

• financial institutions that face difficulties may terminate or reduce financial support to borrowers, putting such borrowers under financial stress and causing our loans to such borrowers to be impaired;

• we may be requested to participate in providing support to distressed financial institutions;

• the government may elect to provide regulatory, tax, funding or other benefits to financial institutions under its supervision or control to strengthen their capital or increase their profitability or for other purposes, causing our competitiveness against such financial institutions to weaken;

• our deposit insurance premiums may rise if deposit insurance funds prove to be inadequate;

• bankruptcies or government control or other intervention of financial institutions may generally undermine the confidence of depositors in, or adversely affect the overall business environment for, financial institutions; and

• negative media coverage of the financial industry or system, regardless of its accuracy and applicability to us, may harm our reputation as well as market confidence in the financial industry and system.

Risk Relating to Our Strategic Equity Portfolio

If the Japanese stock market or other global markets decline in the future, we may incur losses on our securities portfolio and our capital ratios will be adversely affected.

A decline in Japanese stock prices could reduce the value of the domestic marketable equity securities that we hold, which accounted for 10.8% of our total investment securities portfolio, and 1.4% of our total assets, as of March 31, 2020. Our strategic equity investments in Japan accounted for a vast majority of our total domestic marketable equity securities of ¥4.74 trillion as of March 31, 2020. A decline in stock prices may also reduce our regulatory capital ratios because unrealized gains and losses on the equity securities we hold are reflected in the calculation of such ratios. Weakening or stagnant economic conditions in Japan, the United States, China, the Eurozone and Asian countries may have a significant negative impact on Japanese companies, which in turn will cause their stock prices to decline. Japanese stock prices may fluctuate significantly and negatively in future periods, as the global economy remains volatile and investors continue to observe the changes in economic, monetary and trade policies mainly in these countries and regions. Concerns over the impact of geopolitical tensions and conflicts in various parts of the world on Japanese companies may also adversely affect stock prices in Japan. In addition, the global trend towards further reduction in risk assets could result in lower stock prices.

See “Item 5. Operating and Financial Review and Prospects—Business Environment” and “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Investment Portfolio.”

Market Risk

Fluctuations in interest rates, foreign currency exchange rates and stock prices could adversely affect the value or the yield of our portfolio.

We undertake extensive financial market operations involving a variety of financial instruments, including derivatives, and hold large volumes of such financial instruments. As a result, our financial condition and results

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of operations are subject to the risks relating to these operations and holdings. The primary risks are fluctuations in interest rates, foreign currency exchange rates and stock prices in and outside of Japan.

The aggregate carrying amount of the Japanese government and corporate bonds and foreign bonds, including U.S. Treasury bonds, that we held as of March 31, 2020 was 8.7% of our total assets. In particular, the Japanese national government and Japanese government agency bonds accounted for 7.4% of our total assets as of March 31, 2020. If market interest rates decline due to such factors as changes in the monetary policies of central banks in various jurisdictions, the yield on the Japanese government bonds and foreign government bonds that we hold may also decline. Furthermore, if short-term interest rates rise to a larger extent than long-term interest rates, our interest income may be adversely affected. If interest rates in and outside of Japan rise, we may incur significant losses on sales of, and valuation losses on, our bond portfolio. For more information on our bond portfolio, see “Selected Statistical Data—Investment Portfolio.”

Appreciation of the Japanese yen against the U.S. dollar and other major currencies causes the yen-converted value of our foreign currency-denominated investments to decline and may cause us to recognize significant losses on sales of, or valuation losses on, such investments in our financial statements. Furthermore, if stock prices decline, the value of marketable equity securities and trading account securities that we hold also declines, we may incur significant losses on sales of, and valuation losses on, our equity securities and trading account securities portfolios.

In addition, the derivative financial instruments in our trading portfolio may cause us to record significant gains or losses, when sold or marked to market, and may fluctuate from period to period due to numerous factors that are beyond our control, including interest rate levels, foreign currency exchange rates, stock price fluctuations, the credit risk of our counterparties, and general market volatility.

For information on fluctuations in interest rates, foreign currency exchange rates and stock prices, see “Item 5. Operating and Financial Review and Prospects—Business Environment.”

Our assessment and management of market risks, including those related to fluctuations in interest rates, foreign currency exchange rates and securities prices, may prove insufficient and, as a result, our actual losses in the future may exceed our estimated market risk exposure. See “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Market Risk Management.”

Funding Liquidity Risk

A downgrade of our credit ratings could adversely affect our ability to access and maintain liquidity.

Any downgrade of the credit ratings assigned to us or our debt securities by Moody’s, Fitch, Standard & Poor’s or any other credit rating agency could increase the cost, or decrease the availability, of our funding, particularly in U.S. dollars and other foreign currencies, adversely affect our liquidity position or net interest margin, trigger additional collateral or funding obligations, and result in losses of depositors, investors and counterparties willing or permitted to transact with us, thereby reducing our ability to generate income and weakening our financial position.

Assuming all of the relevant credit rating agencies downgraded the credit ratings of MUFG, MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities Holdings as of March 31, 2020 by one-notch on the same date, we estimate that MUFG and its three main subsidiaries would have been required to provide of approximately ¥58.8 billion of additional collateral under their derivative contracts. Assuming a two-notch downgrade by all of the same credit rating agencies occurring on the same date, we estimate that the additional collateral requirements for the same MUFG group companies under their derivative contracts would have been approximately ¥87.0 billion.

Rating agencies regularly evaluate us and our major subsidiaries as well as our and their respective debt securities. Their ratings are based on a number of factors, including their assessment of the relative financial

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strength of MUFG or of the relevant subsidiary, as well as conditions generally affecting the financial services industry in Japan or on a global basis, some of which are not entirely within our control. As a result of changes in their evaluation of these factors or in their rating methodologies, rating agencies may downgrade our ratings or our subsidiaries’ ratings. In April 2020, Fitch downgraded the long-term credit ratings of MUFG, MUFG Bank, Mitsubishi UFJ Trust and Banking by one-notch from A to A-. In addition, in April 2020, Standard and Poor’s changed the credit rating outlook for MUFG, MUFG Bank and Mitsubishi UFJ Trust and Banking from “Positive” to “Stable”.

For additional information, see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Financial Condition—Sources of Funding and Liquidity.”

Operational Risk

We may become subject to regulatory actions or other legal proceedings relating to our transactions or other aspects of our operations, which could result in significant financial losses, restrictions on our operations and damage to our reputation.

We conduct our business subject to ongoing regulation and associated regulatory and legal risks. Global financial institutions, including us, currently face heightened regulatory scrutiny as a result of the concerns developing in the global financial sector, and growing public pressure to demand even greater regulatory surveillance following several high-profile scandals and risk management failures in the financial industry. In the current regulatory environment, we are subject to various regulatory inquiries or investigations from time to time in connection with various aspects of our business and operations. In addition, multiple government authorities with overlapping jurisdiction more frequently conduct investigations and take other regulatory actions in coordination with one another or separately on the same or related matters. Our controls may be found insufficient in addressing regulatory or public concerns relating to money laundering, economic sanctions, bribery, corruption, financial crimes, or unfair or inappropriate business practices, or in meeting market or industry rules or standards, customer protection requirements, or corporate behavior expectations.

In November 2017, MUFG Bank agreed to the entry by the U.S. Office of the Comptroller of the Currency, or OCC, of a consent order that includes remedial terms and conditions that are substantively the same as those included in the consent agreements that MUFG Bank had reached with the New York Department of Financial Services in 2013 and 2014 pertaining to compliance with OFAC sanctions requirements. The consent order was a condition for the conversion of MUFG Bank’s branches and agencies in the United States from state-licensed branches and agencies under the supervision of state regulatory agencies to federally licensed branches and agencies under the supervision of the OCC. In February 2019, MUFG Bank entered into a consent order with the OCC, relating to deficiencies identified by the OCC in the Bank Secrecy Act/Anti-Money Laundering compliance program of MUFG Bank’s U.S. branches in New York, Los Angeles, and Chicago. The consent order requires MUFG Bank and its U.S. branches to implement various remedial measures to address the deficiencies found in the OCC examination, including a comprehensive action plan satisfactory to the OCC, implementation of measures to ensure effective compliance management and qualified staffing, the adoption of comprehensive Bank Secrecy Act/Anti-Money Laundering risk assessment policies and procedures, and other remedial actions. MUFG Bank is undertaking necessary actions relating to the consent orders.

We have received requests and subpoenas for information from government agencies in some jurisdictions that are conducting investigations into past submissions made by panel members, including us, to the bodies that set various interbank benchmark rates as well as investigations into foreign exchange related practices of global financial institutions. Some of the investigations into foreign exchange related practices resulted in our payment of monetary penalties to the relevant government agencies. We are cooperating with the ongoing investigations and have been conducting an internal investigation, among other things. In connection with these matters, we and other financial institutions are involved as defendants in a number of civil lawsuits, including putative class actions, in the United States.

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These developments or other similar matters may result in additional regulatory actions against us or agreements to make significant additional settlement payments. These developments or other matters to which we are subject from time to time may also expose us to substantial monetary damages, legal defense costs, criminal and civil liability, and restrictions on our business operations as well as damage to our reputation. Our ability to obtain regulatory approvals for future strategic initiatives may also be adversely affected. The outcome of such matters, including the extent of the potential impact of any unfavorable outcome on our financial results, however, is inherently uncertain and difficult to predict. The extent of financial, human and other resources required to conduct any investigations or to implement any corrective or preventive measures is similarly uncertain and could be significant. Such resources may also be difficult for us to secure in a timely manner.

Failure to safeguard personal and other confidential information may result in liability, reputational damage or financial losses.

As our operations expand in volume, complexity and geographic scope, we are exposed to increased risk of confidential information in our possession being lost, leaked, altered or falsified as a result of human or system error, misconduct, unlawful behavior or scheme, unauthorized access or natural or human-caused disasters. Our information systems and information management policies and procedures may not be sufficient to safeguard confidential information against such risks.

As a financial institution in possession of customer information, we are obligated to treat personal and other confidential information as required by the Act on the Protection of Personal Information, the Act on the Use of Personal Identification Numbers in the Administration of Government Affairs, the Banking Law and the Financial Instruments and Exchange Act of Japan, as well as other similar laws and regulations of other jurisdictions in which we operate. In the event that personal information in our possession about our customers or employees is leaked or improperly accessed and subsequently misused, we may be subject to liability and regulatory action. We may have to provide compensation for economic loss and emotional distress arising out of a failure to protect such information. In addition, such incidents could create a negative public perception of our operations, systems or brand, which may in turn decrease customer and market confidence and materially and adversely affect our business, operating results and financial condition.

Moreover, any loss, leakage, alteration or falsification of confidential information, or any malfunction or failure of our information systems, may result in significant disruptions to our business operations or plans or may require us to incur significant financial, human and other resources to implement corrective measures or enhance our information systems and information management policies and procedures.

Our operations are highly dependent on our information, communications and transaction management systems and are subject to an increasing risk of cyber-attacks and other information security threats and to changes in the business and regulatory environment.

Our information, communications and transaction management systems, which include not only our own proprietary systems but also those third-party systems that are provided for our use or to which our systems are connected, constitute a core infrastructure for our operations. The proper functioning of our information, communications and transaction management systems is critical to our ability to efficiently and accurately process a large volume of transactions, ensure adequate internal controls, appropriately manage various risks, and otherwise service our clients and customers, particularly in the current business environment with increasing dependence on remote or online networks and our strategy to promote digitization.

Cyber-attacks, unauthorized access and computer viruses are becoming increasingly more sophisticated and more difficult to predict, detect and prevent. For instance, bank internal financial transaction systems or automatic teller machines may become the target of cyber-attacks for monetary gain, and bank internal information systems may become the target of confidential information theft. In addition, banks’ websites or customer internet banking systems may become the target of cyber-attacks for political and other purposes. These cyber threats, as well as our failure to appropriately and timely anticipate and deal with changes associated with

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technological advances and new systems and tools introduced in response to industry, regulatory and other developments, could cause disruptions to, and malfunctions of, information, communications and transaction management systems and result in fraud or other misconduct, unintended releases of confidential and proprietary information stored in or transmitted through the systems, interruptions in the operations of our clients, customers, counterparties and service providers, and deterioration in our ability to service our clients and customers. In addition, our banking and other transaction management systems may not meet all applicable business and regulatory requirements in an environment where such requirements are becoming increasingly sophisticated and complicated. Furthermore, our system development or improvement projects, many of which are critical to our ability to operate in accordance with market and regulatory standards, may not be completed as planned due to the complexity and other difficulty relating to such projects. These consequences could result in financial losses, including costs and expenses incurred in connection with countermeasures and improvements as well as compensation to affected parties, lead to regulatory actions, diminish our clients’ and customers’ satisfaction with and confidence in us, and harm our reputation in the market, which could in turn adversely affect our business, financial condition and results of operations. Moreover, significant financial, human and other resources may be required to design, implement and enhance measures to manage cyber and information security risks and comply with regulatory requirements.

Transactions with counterparties in countries designated by the U.S. Department of State as state sponsors of terrorism may lead some potential customers and investors in the United States and other countries to avoid doing business with us or investing in our shares.

We, through our subsidiaries, engage in limited business activities with entities in or affiliated with Iran, including transactions with counterparties owned or controlled by the Iranian government, and our commercial banking subsidiary has a representative office in Iran for information gathering purposes only. The U.S. Department of State has designated Iran and other countries as “state sponsors of terrorism,” and U.S. law generally prohibits U.S. persons from doing business with such countries. We currently have limited business activities conducted with entities in or affiliated with such countries. Such business activities are conducted in accordance with our policies and procedures designed to ensure compliance with regulations applicable in the jurisdictions in which we operate and with exemptions and general licenses available under U.S. law.

We have transactions with counterparties in or affiliated with countries designated as state sponsors of terrorism which consist of receiving deposits or holding assets on behalf of individuals residing in Japan who are citizens of countries designated as state sponsors of terrorism and processing payments to or from entities in or affiliated with these countries on behalf of our customers. These transactions do not have a material impact on our business or financial condition. For a further discussion of transactions required to be disclosed under the U.S. Iran Threat Reduction and Syria Human Rights Act of 2012, see “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—United States—Disclosure pursuant to Section 13(r) of the Securities Exchange Act of 1934.”

We are aware of initiatives by U.S. governmental entities and non-government entities, including institutional investors such as pension funds, to adopt or consider adopting laws, regulations or policies prohibiting transactions with or investment in, or requiring divestment from, entities doing business with Iran and other countries identified as state sponsors of terrorism. It is possible that such initiatives may result in our being unable to gain or retain entities subject to such prohibitions as customers, counter-parties or investors in our shares. In addition, depending on socio-political developments, our reputation may suffer due to our transactions with counterparties in or affiliated with these countries. The above circumstances could have an adverse effect on our business and financial condition.

Global financial institutions, including us, have become subject to an increasingly complex set of sanctions laws and regulations in recent years, and this regulatory environment is expected to continue. Moreover, the measures proposed or adopted vary across the major jurisdictions, increasing the cost and resources necessary to design and implement an appropriate global compliance program. The U.S. federal government and some state

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governments in the United States have enacted legislation designed to limit economic and financial transactions with Iran by limiting the ability of financial institutions that may have engaged in any one of a broad range of activities related to Iran to conduct various transactions in the relevant jurisdictions. In addition, in May 2018, the United States withdrew from participation in the Joint Comprehensive Plan of Action. Under subsequently issued executive orders, the United States may impose secondary sanctions against non-U.S. persons who engage in or facilitate a broad range of transactions and activities involving Iran. The Japanese government has also implemented a series of measures under the Foreign Exchange and Foreign Trade Act, such as freezing the assets of persons involved in Iran’s sensitive nuclear activities and development of nuclear weapon delivery systems, and our most recently modified policies and procedures take into account the current Japanese regulatory requirements. We continue to implement measures to enhance our policies and procedures to comply with such legislative and regulatory requirements. There remains a risk of potential regulatory action against us, however, if regulators perceive the modified policies and procedures not to be in compliance with applicable legislation and regulations.

Legal and regulatory changes could have a negative impact on our business, financial condition and results of operations.

As a global financial services provider, our business is subject to ongoing changes in laws, regulations, rules, policies, accounting standards or methods, voluntary codes of practice and interpretations in Japan and other markets where we operate. Major global financial institutions currently face an increasingly stricter set of laws, regulations and standards as a result of the concerns enveloping the global financial sector. There is also growing political pressure to demand even greater internal compliance and risk management systems following several high-profile scandals and risk management failures in the financial industry. See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation.”

Future developments or changes in laws, regulations, rules, policies, accounting standards or methods, voluntary codes of practice and their effects are expected to require greater capital, human and technological resources as well as significant management attention, and may require us to modify our business strategies and plans. We may be unable to enhance our compliance management programs and systems, which, in some cases, are supported by third-party service providers, as required or planned. Our failure or inability to comply fully with applicable laws and regulations may lead to penalties, fines, public reprimands, damage to reputation, issuance of business improvement and other administrative orders, enforced suspension of operations, our ability to obtain regulatory approvals for future strategic initiatives or, in extreme cases, withdrawal of authorization to operate, adversely affecting our business and results of operations.

Because of our loans to consumers and our shareholdings in companies engaged in consumer lending, changes in the business or regulatory environment for consumer finance companies in Japan may further adversely affect our financial results.

We have a large loan portfolio in the consumer lending industry as well as large shareholdings in subsidiaries and equity method investees in the consumer finance industry. Our domestic loans to consumers amount to approximately one-seventh of our total outstanding loans. Of this amount, the consumer loans provided by Mitsubishi UFJ NICOS, Co., Ltd., which is our primary consumer financing subsidiary, were ¥565.6 billion as of March 31, 2020, compared to ¥578.5 billion as of March 31, 2019.

Mitsubishi UFJ NICOS’s consumer loan portfolio has been adversely affected by a series of regulatory reforms that were introduced in Japan between 2006 and 2010, which have negatively affected the domestic consumer lending industry. In December 2006, the Japanese Diet passed legislation to reform the regulations relating to the consumer lending business, including amendments to the Act Regulating the Receipt of Contributions, the Receipt of Deposits, and Interest Rates, which, effective June 18, 2010, reduced the maximum permissible interest rate from 29.2% per annum to 20% per annum. The regulatory reforms also included amendments to the Money Lending Business Act, which, effective June 18, 2010, abolished the so-called “gray-

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zone interest.” Gray-zone interest refers to interest rates exceeding the limits stipulated by the Interest Rate Restriction Act (between 15% per annum to 20% per annum depending on the amount of principal). Prior to June 18, 2010, gray-zone interest was permitted under certain conditions set forth in the Money Lending Business Act. As a result of the regulatory reforms, all interest rates are now subject to the lower limits imposed by the Interest Rate Restriction Act, compelling lending institutions, including our consumer finance subsidiaries and equity method investees, to lower the interest rates they charge borrowers.

In addition, as a result of decisions by the Supreme Court of Japan prior to June 18, 2010 imposing stringent requirements under the Money Lending Business Act for charging gray-zone interest rates, consumer finance companies have experienced a significant increase in borrowers’ claims for reimbursement of previously collected interest payments in excess of the limits stipulated by the Interest Rate Restriction Act.

Following the various legal developments in June 2010 and other industry developments, Mitsubishi UFJ NICOS revised its estimate of allowance for repayment of excess interest by updating management’s future forecast to reflect new reimbursement claims information and other data. As of March 31, 2018, 2019 and 2020, we had ¥23.7 billion, ¥25.0 billion and ¥29.4 billion of allowance for repayment of excess interest, respectively.

These developments have adversely affected, and these and any future developments may further adversely affect, the operations and financial condition of our subsidiaries, equity method investees and borrowers which are engaged in consumer lending, which in turn may affect the value of our related shareholdings and loan portfolio.

Damage to our reputation could harm our businesses.

We are one of the leading financial institutions in Japan and one of the handful G-SIBs in the world, and we aim to be the world’s most trusted financial group. Our ability to conduct business is indispensably dependent on the trust and confidence of our customers, as well as regional and global communities. Our reputation is critical in maintaining our relationships with customers, investors, regulators and the general public. Our reputation may be damaged by their negative perceptions of us and our operations in light of their concerns over human rights, the environment, public health and safety, or other corporate social responsibilities, or by our transactions or operations if they are deemed repugnant to the intent and policy underlying applicable laws and regulations such as anti-money laundering, economic sanctions and competition laws as well as the prohibition on dealing with anti-social forces. Failure to prevent or properly address these issues may result in impairment of our corporate brand, loss of our existing or prospective customers or investors, or increased public or regulatory scrutiny, and may adversely affect our business, financial condition and results of operations.

Risks Related to Owning Our Shares

It may not be possible for investors to effect service of process within the United States upon us or our directors or management members, or to enforce against us or those persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the U.S. federal or state securities laws.

We are a joint stock company incorporated under the laws of Japan. Almost all of our directors or management members reside outside the United States. Many of our assets and the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for U.S. investors to effect service of process within the United States upon us or these persons or to enforce, against us or these persons, judgments obtained in the U.S. courts predicated upon the civil liability provisions of the U.S. federal or state securities laws.

We believe there is doubt as to the enforceability in Japan, in original actions or in actions brought in Japanese courts to enforce judgments of U.S. courts, of claims predicated solely upon the U.S. federal or state securities laws mainly because the Civil Execution Act of Japan requires Japanese courts to deny requests for the

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enforcement of judgments of foreign courts if foreign judgments fail to satisfy the requirements prescribed by the Civil Execution Act, including:

• the jurisdiction of the foreign court be recognized under laws, regulations, treaties or conventions;

• proper service of process be made on relevant defendants, or relevant defendants be given appropriate protection if such service is not received;

• the judgment and proceedings of the foreign court not be repugnant to public policy as applied in Japan; and

• there exist reciprocity as to the recognition by a court of the relevant foreign jurisdiction of a final judgment of a Japanese court.

Judgments obtained in the U.S. courts predicated upon the civil liability provisions of the U.S. federal or state securities laws may not satisfy these requirements.

Risks Related to Owning Our American Depositary Shares

As a holder of American Depositary Shares, you have fewer rights than a shareholder of record in our shareholder register since you must act through the depositary to exercise these rights.

The rights of our shareholders under Japanese law to take actions such as voting, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records and exercising appraisal rights are available only to shareholders of record. Because the depositary, through its custodian, is the record holder of the shares underlying the American Depositary Shares, or ADSs, only the depositary can exercise shareholder rights relating to the deposited shares. ADS holders, in their capacity, will not be able to directly bring a derivative action, examine our accounting books and records and exercise appraisal rights. We have appointed The Bank of New York Mellon as depositary, and we have the authority to replace the depositary.

Pursuant to the deposit agreement among us, the depositary and a holder of ADSs, the depositary will make efforts to exercise voting or any other rights associated with shares underlying ADSs in accordance with the instructions given by ADS holders, and to pay to ADS holders dividends and distributions collected from us. However, the depositary can exercise reasonable discretion in carrying out the instructions or making distributions, and is not liable for failure to do so as long as it has acted in good faith. Therefore, ADS holders may not be able to exercise voting or any other rights in the manner that they had intended, or may lose some or all of the value of the dividends or the distributions. Moreover, the depositary agreement that governs the obligations of the depositary may be amended or terminated by us and the depositary without ADS holders’ consent, notice, or any reason. As a result, ADS holders may be prevented from having the rights in connection with the deposited shares exercised in the way ADS holders had wished or at all.

ADS holders are dependent on the depositary to receive our communications. We send to the depositary all of our communications to ADS holders, including annual reports, notices and voting materials, in Japanese. ADS holders may not receive all of our communications with shareholders of record in our shareholder register in the same manner or on an equal basis. In addition, ADS holders may not be able to exercise their rights as ADS holders due to delays in the depositary transmitting our shareholder communications to ADS holders. For a detailed discussion of the rights of ADS holders and the terms of the deposit agreement, see Exhibit 2(c) to this Annual Report.

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Item 4. Information on the Company.

A. History and Development of the Company

Mitsubishi UFJ Financial Group, Inc.

MUFG is a bank holding company incorporated as a joint stock company (kabushiki kaisha) under the Companies Act of Japan. We are the holding company for MUFG Bank, Ltd. (formerly, The Bank of Tokyo-Mitsubishi UFJ, Ltd.), Mitsubishi UFJ Trust and Banking Corporation, Mitsubishi UFJ Securities Holdings Co., Ltd., Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Mitsubishi UFJ NICOS Co., Ltd., and other companies engaged in a wide range of financial businesses.

On April 2, 2001, The Bank of Tokyo-Mitsubishi, Ltd., Mitsubishi Trust and Banking Corporation, or Mitsubishi Trust Bank, and Nippon Trust and Banking Co., Ltd. established Mitsubishi Tokyo Financial Group, Inc., or MTFG, to be a holding company for the three entities. Before that, each of the banks had been a publicly traded company. On April 2, 2001, through a stock-for-stock exchange, they became wholly-owned subsidiaries of MTFG, and the former shareholders of the three banks became shareholders of MTFG. Nippon Trust and Banking was later merged into Mitsubishi Trust Bank.

On June 29, 2005, the merger agreement between MTFG and UFJ Holdings, Inc. was approved at the general shareholders meetings of MTFG and UFJ Holdings. As the surviving entity, MTFG was renamed “Mitsubishi UFJ Financial Group, Inc.” The merger of the two bank holding companies was completed on October 1, 2005.

On September 30, 2007, Mitsubishi UFJ Securities Holdings, which was then called “Mitsubishi UFJ Securities Co., Ltd.,” or MUS, became our wholly-owned subsidiary through a share exchange transaction.

On October 13, 2008, we formed a global strategic alliance with Morgan Stanley and, as part of the alliance, made an equity investment in Morgan Stanley in the form of convertible and non-convertible preferred stock, and subsequently appointed a representative to Morgan Stanley’s board of directors.

On October 21, 2008, we completed a tender offer for outstanding shares of ACOM CO., LTD. common stock, raising our ownership in ACOM to approximately 40%.

On November 4, 2008, Bank of Tokyo-Mitsubishi UFJ completed the acquisition of all of the shares of common stock of UnionBanCal Corporation, or UNBC, not previously owned by Bank of Tokyo-Mitsubishi UFJ and, as a result, UNBC became a wholly-owned indirect subsidiary of MUFG.

On May 1, 2010, we and Morgan Stanley integrated our securities and investment banking businesses in Japan into two joint venture securities companies, one of which is Mitsubishi UFJ Morgan Stanley Securities. Mitsubishi UFJ Morgan Stanley Securities was created by spinning off the wholesale and retail securities businesses conducted in Japan from Mitsubishi UFJ Securities Holdings and subsequently assuming certain operations in Japan from a subsidiary of Morgan Stanley.

On June 30, 2011, we converted all of our Morgan Stanley’s convertible preferred stock into Morgan Stanley’s common stock, resulting in our holding approximately 22.4% of the voting rights in Morgan Stanley. Further, we appointed a second representative to Morgan Stanley’s board of directors on July 20, 2011. Following the conversion on June 30, 2011, Morgan Stanley became our equity-method affiliate. As of March 31, 2020, we held approximately 23.9% of the voting rights in Morgan Stanley and had two representatives appointed to Morgan Stanley’s board of directors. We and Morgan Stanley continue to pursue a variety of business opportunities in Japan and abroad in accordance with the global strategic alliance.

On December 18, 2013, we acquired approximately 72.0% of the total outstanding shares of Krungsri through Bank of Tokyo-Mitsubishi UFJ. As a result of the transaction, Krungsri has become a consolidated subsidiary of Bank of Tokyo-Mitsubishi UFJ.

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On July 1, 2014, we integrated Bank of Tokyo-Mitsubishi UFJ’s operations in the Americas region with UNBC’s operations, and changed UNBC’s corporate name to “MUFG Americas Holdings Corporation.” On the same day, Union Bank, N.A., which is MUFG Americas Holdings’ principal subsidiary and our primary operating subsidiary in the United States, was also renamed “MUFG Union Bank, N.A..” On July 1, 2016, MUFG Americas Holdings was designated as our U.S. intermediate holding company to comply with the FRB’s enhanced prudential standards.

On January 5, 2015, Bank of Tokyo-Mitsubishi UFJ integrated its Bangkok branch with Krungsri through a contribution in kind of the Bank of Tokyo-Mitsubishi UFJ Bangkok branch business to Krungsri, and Bank of Tokyo-Mitsubishi UFJ received newly issued shares of Krungsri common stock. As a result of this transaction, Bank of Tokyo-Mitsubishi UFJ’s ownership interest in Krungsri increased to 76.9%.

On October 1, 2017, we acquired all of the shares of common stock of Mitsubishi UFJ NICOS which we did not previously own and, as a result, Mitsubishi UFJ NICOS became a wholly-owned subsidiary of MUFG.

On December 29, 2017, Bank of Tokyo-Mitsubishi UFJ initially acquired 19.9% of the shares of common stock of PT Bank Danamon Indonesia, Tbk. On May 1, 2019, MUFG Bank, Ltd. completed a series of transactions to increase its ownership interest in Bank Danamon to 94.1%, as a result of which Bank Danamon became MUFG Bank’s consolidated subsidiary.

On April 1, 2018, we changed Bank of Tokyo-Mitsubishi UFJ’s corporate name to “MUFG Bank, Ltd.”

On April 16, 2018, we transferred Mitsubishi UFJ Trust and Banking’s corporate loan-related businesses to MUFG Bank. The corporate loan-related businesses include the corporate loan, project finance and real estate finance businesses, and any related foreign exchange and remittance services, but do not include pension-related services, the corporate agency business, or the real estate-related businesses.

On August 2, 2019, Mitsubishi UFJ Trust and Banking completed its acquisition of 100% of the shares in each of nine subsidiaries of Colonial First State Group Limited which collectively represent the global asset management business known as Colonial First State Global Asset Management, or CFSGAM, from Australian financial group Commonwealth Bank of Australia and its wholly-owned subsidiary Colonial First State Group Limited. As a result of the acquisition, the nine subsidiaries became our consolidated subsidiaries. In September 2019, CFSGAM was rebranded as First Sentier Investors.

On November 18, 2019, MUFG Bank completed its acquisition from DVB Bank SE in Germany of DVB Bank’s aviation finance lending portfolio, employees and related operating infrastructure, based on an agreement entered into among the two banks and BOT Lease Co., Ltd., a consolidated subsidiary of MUFG Bank, in March 2019. In addition, under this agreement, MUFG Bank and BOT Lease are expected to acquire DVB Bank’s aviation investment management and asset management businesses during the first half of the fiscal year ending March 31, 2021, subject to applicable regulatory approvals and certain other conditions.

Our registered address is 7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8330, Japan, and our telephone number is 81-3-3240-8111.

For a discussion of recent developments, see “Item 5. Operating and Financial Review and Prospects—Recent Developments.”

MUFG Bank, Ltd.

MUFG Bank is a major commercial banking organization in Japan that provides a broad range of domestic and international banking services from its offices in Japan and around the world. MUFG Bank’s registered head

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office is located at 7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8388, Japan, and its telephone number is 81-3-3240-1111. MUFG Bank is a joint stock company (kabushiki kaisha) incorporated in Japan under the Companies Act. The bank changed its name to MUFG Bank, Ltd. from The Bank of Tokyo-Mitsubishi UFJ, Ltd. as of April 1, 2018.

MUFG Bank was formed through the merger, on January 1, 2006, of Bank of Tokyo-Mitsubishi and UFJ Bank Limited after their respective parent companies, MTFG and UFJ Holdings, merged to form MUFG on October 1, 2005.

Bank of Tokyo-Mitsubishi was formed through the merger, on April 1, 1996, of The Mitsubishi Bank, Limited and The Bank of Tokyo, Ltd.

The origins of Mitsubishi Bank can be traced to the Mitsubishi Exchange Office, a money exchange house established in 1880 by Yataro Iwasaki, the founder of the Mitsubishi industrial, commercial and financial group. In 1895, the Mitsubishi Exchange Office was succeeded by the Banking Division of the Mitsubishi Goshi Kaisha, the holding company of the “Mitsubishi group” of companies. Mitsubishi Bank had been a principal bank to many of the Mitsubishi group companies but broadened its relationships to cover a wide range of Japanese industries, small and medium-sized companies and individuals.

Bank of Tokyo was established in 1946 as a successor to The Yokohama Specie Bank, Ltd., a special foreign exchange bank established in 1880. When the government of Japan promulgated the Foreign Exchange Bank Law in 1954, Bank of Tokyo became the only bank licensed under that law. Because of its license, Bank of Tokyo received special consideration from the Ministry of Finance in establishing its offices abroad and in many other aspects relating to foreign exchange and international finance.

UFJ Bank was formed through the merger, on January 15, 2002, of The Sanwa Bank, Limited and The Tokai Bank, Limited.

Sanwa Bank was established in 1933 when the three Osaka-based banks, the Konoike Bank, the Yamaguchi Bank, and the Sanjyushi Bank merged. Sanwa Bank was known as a city bank having the longest history in Japan, since the foundation of Konoike Bank can be traced back to the Konoike Exchange Office established in 1656. The origin of Yamaguchi Bank was also a money exchange house, established in 1863. Sanjyushi Bank was founded by influential fiber wholesalers in 1878. The corporate philosophy of Sanwa Bank had been the creation of premier banking services especially for small and medium-sized companies and individuals.

Tokai Bank was established in 1941 when the three Nagoya-based banks, the Aichi Bank, the Ito Bank, and the Nagoya Bank merged. In 1896, Aichi Bank took over businesses of the Jyuichi Bank established by wholesalers in 1877 and the Hyakusanjyushi Bank established in 1878. Ito Bank and Nagoya Bank were established in 1881 and 1882, respectively. Tokai Bank had expanded the commercial banking business to contribute to economic growth mainly of the Chubu area in Japan, which is known for its manufacturing industries, especially automobiles.

Mitsubishi UFJ Trust and Banking Corporation

Mitsubishi UFJ Trust and Banking is a major trust bank in Japan, providing trust and banking services to meet the financing and investment needs of clients in Japan and the rest of Asia, as well as in the United States and Europe. Mitsubishi UFJ Trust and Banking’s registered head office is located at 4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8212, Japan, and its telephone number is 81-3-3212-1211. Mitsubishi UFJ Trust and Banking is a joint stock company (kabushiki kaisha) incorporated in Japan under the Companies Act.

Mitsubishi UFJ Trust and Banking was formed on October 1, 2005 through the merger of Mitsubishi Trust Bank and UFJ Trust Bank Limited. As the surviving entity, Mitsubishi Trust Bank was renamed “Mitsubishi UFJ Trust and Banking Corporation.”

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Mitsubishi Trust Bank traces its history to The Mitsubishi Trust Company, Limited, which was founded by the leading members of the Mitsubishi group companies in 1927. The Japanese banking and financial industry was reconstructed after World War II and, in 1948, Mitsubishi Trust Bank was authorized to engage in the commercial banking business, in addition to its trust business, under the new name Asahi Trust & Banking Corporation. In 1952, the bank changed its name again to “The Mitsubishi Trust and Banking Corporation.”

Nippon Trust and Banking and The Tokyo Trust Bank, Ltd., which were previously subsidiaries of Bank of Tokyo-Mitsubishi, was merged into Mitsubishi Trust Bank on October 1, 2001.

UFJ Trust Bank was founded in 1959 as The Toyo Trust & Banking Company, Limited, or Toyo Trust Bank. The Sanwa Trust & Banking Company, Limited, which was a subsidiary of Sanwa Bank, was merged into Toyo Trust Bank on October 1, 1999. The Tokai Trust & Banking Company, Limited, which was a subsidiary of Tokai Bank, was merged into Toyo Trust Bank on July 1, 2001. Toyo Trust Bank was renamed “UFJ Trust Bank Limited” on January 15, 2002.

Mitsubishi UFJ Securities Holdings Co., Ltd.

Mitsubishi UFJ Securities Holdings is a wholly-owned subsidiary of MUFG. Mitsubishi UFJ Securities Holdings functions as an intermediate holding company of MUFG’s global securities and investment banking businesses. Mitsubishi UFJ Securities Holdings’ registered head office is located at 5-2, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-0005, Japan, and its telephone number is 81-3-6213-2550. Mitsubishi UFJ Securities Holdings is a joint stock company (kabushiki kaisha) incorporated in Japan under the Companies Act. Mitsubishi UFJ Securities Holdings has major overseas operating entities in London, New York, Hong Kong and Amsterdam.

In April 2010, Mitsubishi UFJ Securities Holdings, which was previously called “Mitsubishi UFJ Securities Co., Ltd.,” or MUS, became an intermediate holding company by spinning off its securities and investment banking business operations to a wholly-owned operating subsidiary established in December 2009, currently Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. Upon the consummation of the corporate spin-off transaction, the intermediate holding company was renamed “Mitsubishi UFJ Securities Holdings Co., Ltd.” and the operating subsidiary was renamed “Mitsubishi UFJ Securities Co., Ltd.” The operating subsidiary was subsequently renamed Mitsubishi UFJ Morgan Stanley Securities in May 2010 upon integration of our securities operations in Japan with those of Morgan Stanley.

MUS was formed through the merger between Mitsubishi Securities Co., Ltd. and UFJ Tsubasa Securities Co., Ltd. on October 1, 2005, with Mitsubishi Securities being the surviving entity. The surviving entity was renamed “Mitsubishi UFJ Securities Co., Ltd.” and, in September 2007, became our wholly-owned subsidiary through a share exchange transaction.

Mitsubishi Securities was formed in September 2002 through the merger of Bank of Tokyo-Mitsubishi’s securities subsidiaries and affiliate, KOKUSAI Securities Co., Ltd., Tokyo-Mitsubishi Securities Co., Ltd. and Tokyo-Mitsubishi Personal Securities Co., Ltd., and Mitsubishi Trust Bank’s securities affiliate, Issei Securities Co., Ltd. In July 2005, MTFG made Mitsubishi Securities a directly-held subsidiary by acquiring all of the shares of Mitsubishi Securities common stock held by Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank.

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.

Mitsubishi UFJ Morgan Stanley Securities is our core securities and investment banking subsidiary. Mitsubishi UFJ Morgan Stanley Securities was created in May 2010 as one of the two Japanese joint venture securities companies between Morgan Stanley and us as part of our global strategic alliance. Mitsubishi UFJ Morgan Stanley Securities succeeded to the investment banking operations conducted in Japan by a subsidiary of Morgan Stanley and the wholesale and retail securities businesses conducted in Japan by MUS. MUFG, through

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Mitsubishi UFJ Securities Holdings, holds 60% voting and economic interests in Mitsubishi UFJ Morgan Stanley Securities. Mitsubishi UFJ Morgan Stanley Securities’ registered head office is located at 5-2 Marunouchi 2-chome, Chiyoda-ku, Tokyo, 100-0005 Japan, and its telephone number is 81-3-6213-8500. Mitsubishi UFJ Morgan Stanley Securities is a joint stock company (kabushiki kaisha) incorporated in Japan under the Companies Act. For more information on our joint venture securities companies, see “—B. Business Overview—Global Strategic Alliance with Morgan Stanley.”

In April 2019, Mitsubishi UFJ Morgan Stanley Securities and Mitsubishi UFJ Morgan Stanley PB Securities Co., Ltd., a subsidiary of Mitsubishi UFJ Morgan Stanley Securities, agreed on a merger whereby Mitsubishi UFJ Morgan Stanley Securities will be the surviving company. The merger is currently expected to be completed on August 1, 2020. For more information, see “Item 5. Operating and Financial Review and Prospects—Recent Developments.”

Mitsubishi UFJ NICOS Co., Ltd.

Mitsubishi UFJ NICOS is a major credit card company in Japan that issues credit cards, including those issued under the MUFG, NICOS and DC brands, and provides a broad range of credit card and other related services for its card members in Japan. Mitsubishi UFJ NICOS is a consolidated subsidiary of MUFG. Mitsubishi UFJ NICOS’s registered head office is located at 33-5, Hongo 3-chome, Bunkyo-ku, Tokyo 113-8411, Japan, and its telephone number is 81-3-3811-3111. Mitsubishi UFJ NICOS is a joint stock company (kabushiki kaisha) incorporated in Japan under the Companies Act.

On August 1, 2008, Mitsubishi UFJ NICOS became a wholly-owned subsidiary of MUFG through a share exchange transaction. On the same day, we entered into a share transfer agreement with Norinchukin Bank under which we sold some of our shares of Mitsubishi UFJ NICOS common stock to Norinchukin Bank. In March 2011, we and Norinchukin Bank made additional equity investments in Mitsubishi UFJ NICOS in proportion to our and Norinchukin Bank’s respective beneficial ownership of approximately 85% and 15%, respectively. On October 1, 2017, MUFG acquired all of Norinchukin Bank’s ownership interest in Mitsubishi UFJ NICOS and, as a result, Mitsubishi UFJ NICOS is currently a wholly-owned subsidiary of MUFG.

Mitsubishi UFJ NICOS was formed through the merger, on April 1, 2007, of UFJ NICOS Co., Ltd. and DC Card Co., Ltd. As the surviving entity, UFJ NICOS Co., Ltd. was renamed “Mitsubishi UFJ NICOS Co., Ltd.”

UFJ NICOS was formed through the merger, on October 1, 2005, of Nippon Shinpan Co., Ltd. and UFJ Card Co., Ltd. Originally founded in 1951 and listed on the Tokyo Stock Exchange in 1961, Nippon Shinpan was a leading company in the consumer credit business in Japan. Nippon Shinpan became a subsidiary of MUFG at the time of the merger with UFJ Card.

Prior to the merger between MTFG and UFJ Holdings in October 2005, DC Card was a subsidiary of MTFG while UFJ Card was a subsidiary of UFJ Holdings.

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B. Business Overview

We are one of the world’s largest and most diversified financial groups with total assets of ¥331.75 trillion as of March 31, 2020. The Group is comprised of MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Morgan Stanley Securities (through Mitsubishi UFJ Securities Holdings), Mitsubishi UFJ NICOS and other subsidiaries and affiliates, for which we are the holding company. As a bank holding company, we are regulated under the Banking Law of Japan. Our services include commercial banking, trust banking, securities, credit cards, consumer finance, asset management, leasing and many more fields of financial services. In Japan, we operate through approximately 600 business locations as of March 31, 2020. In addition, as of the same date, the Group had the largest overseas network among Japanese banks, consisting of approximately 2,100 business locations in more than 50 countries, including MUFG Union Bank in the United States, Krungsri in Thailand and Bank Danamon in Indonesia.

MUFG’s role as the holding company is to strategically manage and coordinate the activities of our business groups. Group-wide strategies are determined by the holding company and executed by our subsidiaries.

In May 2017, we announced “MUFG Re-Imaging Initiative” which was designed to achieve sustainable growth and enhance our corporate value through various measures, including an integrated group-based management approach and digitization and other technological enhancements. The measures also included realignment of the functions of our subsidiaries in an effort to increase effectiveness in accumulating and applying the expertise within the Group and to enhance efficiency in offering and providing a diverse array of sophisticated financial products and services to customers through collaboration among our subsidiaries. In May 2017, Mitsubishi UFJ Trust and Banking acquired MUFG Bank’s equity interest in Mitsubishi UFJ Investor Services & Banking (Luxembourg) S.A to make the Luxembourg company its wholly owned subsidiary. In April 2018, Mitsubishi UFJ Trust and Banking acquired MUFG Bank’s equity interest and Mitsubishi UFJ Securities Holdings’ equity interest in Mitsubishi UFJ Kokusai Asset Management Co., Ltd. to make the asset management company its wholly owned subsidiary. As a result, Mitsubishi UFJ Trust and Banking operates as the Group’s primary asset management and administration subsidiary. In April 2018, Mitsubishi UFJ Trust and Banking transferred its corporate loan-related businesses to MUFG Bank as part of an initiative to focus the corporate loan-related businesses within the Group at MUFG Bank. In addition, in April 2019, Mitsubishi UFJ Morgan Stanley Securities and Mitsubishi UFJ Morgan Stanley PB Securities Co., Ltd. agreed on a merger, whereby Mitsubishi UFJ Morgan Stanley Securities will be the surviving company, with an aim to strengthen our wealth management business.

In May 2018, we announced our new medium-term business plan for the three-year period ending March 31, 2021, which is discussed below in this Item 4.B. As part of our new medium-term business plan, we have reorganized our business groups in an effort to further integrate the expertise and capabilities of our subsidiaries to respond to the needs of our customers more effectively and efficiently.

Medium-Term Business Plan

Basic Company Policy

Under the current medium-term business plan for the three-year period ending March 31, 2021, we aim to deliver optimal value to all of our stakeholders through simple, speedy and transparent group-integrated operations.

We are seeking to improve our group management approach by shifting from our previous group collaboration and group-driven management approach to a new integrated group-based management approach. Specifically, in an effort to respond to constantly changing customer needs in an appropriate manner, we have reorganized our business groups into new customer-based business groups as discussed below. At the same time, we are seeking to clarify the roles of group companies through functional realignment, product and service quality enhancement as well as solutions capability improvement.

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The impact of the COVID-19 pandemic is rippling through the real economy. COVID-19 is expected to have a long-term impact and irreversible effects on the structure of society, including global values and the behavior patterns of customers. Prior to the pandemic, we worked to identify the changes that had manifested in the social environment before the pandemic. To address the changes, we adopted the new integrated group-based management approach, leveraged digital strategies to promote the core framework of structural reforms, completed transactions designed to benefit from future overseas growth and implemented other strategies. Going forward, we believe it will be necessary to focus on trends such as the digital shift in society, the rising awareness of solving social issues and social contributions, the changes and diversification of work styles and values, and the creation of new supply chains, in addition to the changes to the social environment we identified and began to address prior to the pandemic. In particular, we believe the digital shift in society presents significant opportunities for redefining and refining our vision on MUFG’s role in society. We will work to implement corporate operation reforms, including customer contact points and employee work styles. Furthermore, we aim to contribute to sustainable growth of the society by providing solutions to social issues. By integrating our social issue solutions and management strategies, we will strive to achieve sustainable growth for MUFG. Based on these new measures, we will promote the digitalization of transaction contact points and work styles, seek to achieve sound business performance (with a focus on robustness and resilience in our operations), and promote an engagement-focused management approach that is attractive to employees and fosters greater motivation for employee participation.

Group Business Strategy

Under our current medium-term business plan, we are implementing “Eleven Transformation Initiatives”—specific strategic initiatives designed to enable us to cope with adverse changes in the domestic or overseas business environment and to achieve sustainable growth. Each initiative constitutes a pillar for our strategy involving business operations that (1) have large growth potential, (2) allow us to expand on our group capabilities to the fullest extent, and, (3) are expected to grow as a core business of the group or a foundation for such a business. Our group operating companies, business groups and corporate center functions will collaborate on the implementation of these initiatives with an aim to improve our profitability.

Additionally, we have established a new business group focused on retail and small and medium-sized enterprise banking businesses outside of Japan with the goal to effectively capture the market growth in the

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United States and Southeast Asia. Under our previous medium-term business plan, we took strategic steps towards building a business platform in South East Asia through the expansion of Krungsri’s business in Thailand and our strategic investments in Security Bank in the Philippines and Bank Danamon in Indonesia. We seek to enhance the enterprise value of each of MUFG Union Bank in the United States and our other major local commercial banking subsidiaries and affiliates that are our partner banks, including VietinBank in Vietnam and other banks in South East Asia, as well as our Japanese banking subsidiaries through synergies expected to be achieved by sharing and deploying across these banks their respective strengths and expertise.

Taking the impact of the COVID-19 pandemic into consideration, we will implement core strategies based on our enhanced management policy. These core strategies include (1) digitalization of our domestic retail business , taking the digital shift in society as an opportunity , (2) restructuring of our global strategy through identification of the growth potentials and strengths of each region, optimal allocation of management resources, and collaboration with Grab, which provides various digital financial and non-financial services in Southeast Asia and into which we agreed to invest up to $706 million, or ¥78.3 billion, to take on the challenges of next-generation financial services , (3) implementation of further operational foundation and process reforms, including streamlining of administrative work by switching to paperless methods, and (4) creation of a work environment and operational infrastructure that reflect and support the diverse values of employees and work style reforms. Although the progress on some of our measures may be delayed due to the impact of the COVID-19 pandemic and further developments relating to the pandemic, we will carefully assess the extent of the impact on such measures. See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Business Environment.”

Eleven Transformation Initiatives

(1) Digitalization Strategy

Enhanced use of digital technologies is a critical part of our overall transformation strategy, and we intend to develop and implement a wide range of measures to enhance our digital technology use to improve top-line

performance and operational efficiency. We seek to improve our marketing and consulting capabilities through the use of big data, to increase the efficiency of the front-office operations at branches through an overhaul of our online banking system for corporate customers, and to enhance our productivity through migration to digital channels for the housing loan business and expanded use of robotics and artificial intelligence.

(2) Channel Strategy and Business Process Re-engineering (BPR)

We strive to enhance customer user interface, or the usability of our systems for customers, and user experience, or the experience of service recipients, while improving our productivity. We aim to achieve both of these goals through full utilization of digital technologies and business process re-engineering, or an overhaul of business operations through review and analysis of all existing business activities and work processes. We seek to advance our overall user channels combining Internet-based and physical branch channels by improving the usability of our Internet-based channels for transactions so as to increase customer use while establishing specialty bank branches called “MUFG NEXT,” streamlining our branch network and converting branches into integrated branches that offer services of MUFG Bank, Mitsubishi UFJ Trust and Banking, and Mitsubishi UFJ Morgan Stanley Securities at a single location.

(3) Wealth Management Strategy

We are pursuing a business structure focused on fee-based businesses to achieve stable profits by servicing the rising customer needs for asset management and administration services and inheritance services in Japan’s aging society with a declining birthrate through a collaboration between the corporate and retail units and through a group-based integrated approach. We seek to establish a business model where teams of professionals from MUFG Bank, Mitsubishi UFJ Trust and Banking, and Mitsubishi UFJ Morgan Stanley Securities will take the lead in providing various solutions at a one-stop location.

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(4) Enhancement of Relationship Manager & Product Office (RM-PO) Model for Corporate Marketing

We seek to provide solutions optimized to meet customer needs by integrating the corporate lending operations of MUFG Bank and Mitsubishi UFJ Trust and Banking through functional realignment where relationship managers are expected to work on understanding the business management issues faced by customers as “RMs from MUFG” and the product office, a unit that is responsible for planning, developing and providing products and services, is expected to deepen its expertise.

(5) Real Estate Value Chain Strategy

We aim to provide solutions to meet various customer needs arising in the real estate value chain, or the business cycle for real estate assets including sale, purchase, development, tenant leasing and asset management, on a continuous basis through a group-based integrated approach. We endeavor to provide additional value through efforts made at our branches to gain knowledge on real estate needs and to use it to obtain brokerage and asset management businesses. In the asset management business, we seek to strengthen our real asset management capabilities.

(6) Asset Management Business

We seek to provide group-wide integrated asset management services to our customers. We aim to develop competitive products, expand our product line-up, and enhance our human resource portfolio necessary for such development and expansion. In addition, in an effort to become a globally recognized asset management institution, we endeavor to strengthen our asset management business by enhancing our human resources, products and solutions.

(7) Institutional Investors Business

We aim to provide a wide range of services to satisfy diverse professional needs for asset management and administration services through a group-based integrated approach, while seeking to expand across the group the customer relationships maintained with institutional investors by each of MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Morgan Stanley Securities, and our business groups.

(8) Global Corporate & Investment Banking (GCIB) Business Model Reform

We seek to achieve sustainable growth for our global corporate and investment banking business, where we provide sophisticated financial services combining corporate banking services, including deposits and loans, and investment banking services, including capital markets financing and mergers and acquisitions. We aim to meet the needs of non-Japanese corporate customers conducting business globally and to improve the overall return on our portfolio by constantly adjusting loan and other assets. In addition, we intend to shift the focus of our management approach from quantity to quality through origination and distribution business operations under the integrated platform between MUFG Bank and Mitsubishi UFJ Morgan Stanley Securities.

(9) Enhancement of Overseas Operations

We plan to shift our management approach from the previous approach based on geographical regions and operating entities to a new approach based on customers and businesses and seek to strengthen our business-driven management approach across the group. In addition, in an effort to establish a business structure that enables us to flexibly adapt to changes in the business environment, we seek to reduce expenses, enhance our overseas branch and office network, and centralize and standardize our procedures and systems.

(10) Human Resources Strategy

We seek to manage our human resources globally in a group-based integrated manner through acceleration of personnel allocation and transfers across the group in line with our business strategy and establishment of a human resources division responsible for overseeing our domestic and overseas human resource management.

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(11) Enhancement of Corporate Center Operations

We plan to shift our management of the corporate center operations from the previous approach of integrated management by MUFG and MUFG Bank to a new approach of integrated management by MUFG, MUFG Bank, Mitsubishi UFJ Trust and Banking, and Mitsubishi UFJ Morgan Stanley Securities in an effort to optimize the use of our management resources on a group-based integrated basis and achieve low cost operations.

Business Groups

Under the current medium-term business plan, our business groups are reorganized as follows in an effort to further integrate the expertise and capabilities of our subsidiaries to respond to the needs of our customers more effectively and efficiently.

Retail & Commercial Banking Business Group

The Retail & Commercial Banking Business Group integrates the domestic retail and commercial banking businesses of MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Securities Holdings, Mitsubishi UFJ NICOS and other group companies of MUFG. This business group offers retail and small and medium–sized enterprise customers in Japan an extensive array of commercial banking, trust banking and securities products and services.

Business Environment and Strategy

In the domestic market in which we operate, unfavorable conditions remain such as the negative impact of the Bank of Japan’s negative interest rate policy on the financial market and intensified competition. In addition, demographic changes, including Japan’s aging population with a declining birthrate, and technological developments, including artificial intelligence and digitalization, can change the way banking and other financial services are used in Japan. With a goal of becoming “the top financial group in the retail and commercial banking business segment in Japan, achieving sustainable growth along with customers and society,” we seek to enhance and integrate the capabilities of our group companies to deliver value that exceeds customer expectations and improve customer satisfaction.

In the wealth management business, which is one of our key strategic focus areas, we are implementing measures to improve our group company structure for offering wealth management solutions, including asset management, asset and business succession transfer, and real estate services. For example, with an aim to strengthen our wealth management business, we plan to merge Mitsubishi UFJ Morgan Stanley Securities and Mitsubishi UFJ Morgan Stanley PB Securities.

For customers affected by the COVID-19 pandemic, the Group seeks to provide flexible and prompt financing support through a dedicated lending program and Biz Lending, a non-face-to-face financing service. The Group has created a dedicated help desk.

Responding to the Needs of Retail Customers

For retail customers, we provide a wide range of products and services, such as bank deposits, loans, asset management and administration services, investment products and settlement services. We describe some of our products and services below.

• Housing Loans. MUFG Bank offers housing loans with various loan terms and interest rates. MUFG Bank also offers “Loans with Supplemental Health Insurance for Seven Major Illnesses” through a third party insurance company to help with loan payments in case of unexpected major illnesses such as cancer or heart attacks. As part of our group-wide collaboration initiative, Mitsubishi UFJ Trust and Banking began to offer “Mitsubishi UFJ Net Home Loan” (a housing loan product of MUFG Bank available only online and exclusively to customers of Mitsubishi UFJ Trust and Banking) as an agent of MUFG Bank in April 2018.

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• Consumer Loans. MUFG Bank offers “Card Loans” (consumer loans the proceeds of which are disbursed to approved borrowers with a bank-issued card through an automated machine) and “Purpose-Specific Term Loans,” depending on customers’ needs.

• Investment Products. In order to promote a shift in customer preference from savings to asset building, we seek to offer products that effectively serve the asset building and asset management needs of customers at various stages of their life. As part of this effort, MUFG Bank started to offer fund wrap products as an agent of Mitsubishi UFJ Trust and Banking in November 2017. In addition, in January 2018, MUFG Bank started to offer investment products that qualify for “Tsumitate NISA” tax exemption on capital gains and dividend income for the investment up to 0.4 million yen per year for up to 20 years under Japanese tax law. The original NISA, or Nippon Individual Savings Account, program was introduced in 2014, providing for tax exemption on capital gains and dividend income for the investment up to 1.2 million yen per year for up to 5 years, which is expected to be raised in 2024 to 1.22 million yen per year consisting of a 0.2 million yen cap on investments similar to those qualifying for “Tsumitate NISA” and a 1.02 million yen cap on broader types of investment. We offer investment products that qualify for tax exemption under the original NISA program as well.

• Products and Services for Payments. Mitsubishi UFJ NICOS offers a variety of credit cards. In addition, debit cards are available to MUFG Bank account holders.

• Insurance Products. MUFG Bank acts as a sales channel for a variety of insurance products, including annuity insurance, single premium whole life insurance, flat-rate premium whole life insurance, medical insurance, cancer insurance and nursing-care insurance, of insurance companies in Japan.

• Services Relating to Inheritance, Gift and Real Estate. Mitsubishi UFJ Trust and Banking offers testamentary trust, inheritance planning, inheritance procedure support, and other related services. MUFG Bank and Mitsubishi UFJ Morgan Stanley Securities also offer inheritance-related products and services, serving as sales agents of Mitsubishi UFJ Trust and Banking. Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Real Estate Services offer real estate brokerage services for investment, business and residential properties.

We provide those services through an extensive network of branches in Japan, mostly in the greater Tokyo, Nagoya and Osaka areas. MUFG Bank and Mitsubishi UFJ Trust and Banking had a total of 738 branches in Japan as of March 31, 2020. MUFG Bank and Mitsubishi UFJ Trust and Banking also have a nationwide ATM network consisting of MUFG Bank’s and Mitsubishi UFJ Trust and Banking’s own ATMs located at their branches and other locations and third-party ATMs located at convenience stores and other locations. As part of our branch network streamlining plan, by the end of the fiscal year ending March 31, 2024, we intend to reduce MUFG Bank’s branches by 40% compared to the number of branches as of March 31, 2018.

We also offer direct banking channels. MUFG Bank and Mitsubishi UFJ Trust and Banking provide internet banking services which enable customers to perform a range of banking activities, such as checking account balances, making time deposits, transferring money and purchasing invest products, through the banks’ respective websites using personal computers and mobile devices. In addition, Jibun Bank, a direct bank which was founded by MUFG Bank in collaboration with KDDI Corporation in June 2008, offers bank deposits, housing loans, settlement services and other products and services through the internet and phone.

Responding to the Needs of Small and Medium-Sized Enterprises

For small and medium-sized enterprises, we provide various financial solutions, such as bank deposits, loans, and fund management, remittance and foreign exchange services. We also help our customers develop business strategies, such as overseas expansions, inheritance-related business transfers and stock listings.

In addition, we provide asset and business succession solutions to small and medium-sized enterprise owners. Based on our view that smooth succession of the businesses of small and medium-sized enterprises

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owned by aging owners is critical to the sustainability and development of Japanese industry, we offer solutions for successions of businesses to unrelated persons, including through mergers and acquisitions and initial public offerings, and for successions of businesses to related persons. We also offer solutions designed to assist business owners with successions of assets using testamentary trusts, real estate transactions and other means. Through further integration of the retail and commercial banking capabilities of MUFG Bank, Mitsubishi UFJ Trust and Banking, MUFG Securities Holdings and other group companies, we strive to provide seamless solutions on a group-wide basis.

Japanese Corporate & Investment Banking Business Group

The Corporate Banking Business Group covers the large Japanese corporate businesses of MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities Holdings, including the transaction banking, investment banking, trust banking and securities businesses. We offer large Japanese corporations advanced financial solutions designed to respond to their diversified and globalized needs and to contribute to their business and financial strategies. We provide those solutions through our global network of MUFG Group companies. For customers affected by the COVID-19 pandemic, we intend to provide flexible and prompt financing support through a dedicated lending program.

With our goal to “Be the First Call Business Partner for Large Japanese Corporate Clients,” we strive to strengthen our solutions capabilities through an approach designed to provide effective solutions using our specialized industry-specific expertise and knowledge and through further integration and more effective collaboration among the MUFG Group companies on a global basis.

Transaction Banking

We provide cash management, payment, trade finance and other commercial banking products and services for corporate business transactions. Through these products and services, we seek to provide sophisticated financial solutions that enable efficient execution of transactions to meet the strategic needs of our customers.

Investment Banking

We provide mergers and acquisitions advisory, equity and bond underwriting, and other investment banking services to our Japanese corporate customers. A large part of our investment banking business in Japan is conducted by Mitsubishi UFJ Morgan Stanley Securities, which was formed in May 2010 through the integration of the domestic wholesale and retail securities businesses previously conducted by Mitsubishi UFJ Securities and the investment banking business previously conducted by Morgan Stanley Japan. See “—Global Strategic Alliance with Morgan Stanley” below.

Trust Banking

We provide real estate brokerage, registrar and transfer agency, and other trust banking services to our Japanese corporate customers. Our solutions also include securitization of real estate, receivables and other assets. Mitsubishi UFJ Trust and Banking’s experience and know-how in real estate brokerage and appraisal services, corporate real estate strategy consulting, shareholder registry management services, shareholder and investor relations consulting, and consulting services relating to executive stock compensation programs using trust schemes enable us to offer solutions tailored to the financial strategies of each customer.

Asset Management & Investor Services Business Group

The Asset Management & Investor Services Business Group covers the asset management and asset administration businesses of Mitsubishi UFJ Trust and Banking and MUFG Bank. By integrating the trust banking expertise of Mitsubishi UFJ Trust and Banking and the global strengths of MUFG Bank, the business

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group offers a full range of asset management and administration services for corporations and pension funds, including pension fund management and administration, advice on pension structures, and payments to beneficiaries, and also offers investment trusts for retail customers.

We aim to expand our asset management and asset administration services business by enhancing the quality of our products and services, effectively utilizing the broad customer base of the MUFG Group, and improving our operational efficiency through IT technology.

Asset Management

Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Kokusai Asset Management, and MU Investments Co., Ltd provide institutional investors with a wide range of investment options such as equities, bonds and alternative products. In addition, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Kokusai Asset Management provide retail investors with investment trust products through our group companies and business partners outside of the MUFG Group, such as securities companies and regional banks.

We are adopting an inorganic expansion strategy especially for our non-Japanese investment capability in an effort to be a global top-level asset manager with competitive products and solutions capabilities. Our expansion strategy include not only our existing strategic alliances through minority investments, including our alliances with AMP Capital Holdings Limited in Australia and SWS MU FUND MANAGEMENT in China, but also First Sentier Investors, which was newly added to our Group through the acquisition of 100% of the shares in nine subsidiaries of Colonial First State Group Limited, an Australian asset management firm, in August 2019.

Asset Administration

Under the brand of “MUFG Investor Services,” Mitsubishi UFJ Trust and Banking, MUFG Bank, Mitsubishi UFJ Investor Services & Banking (Luxembourg), MUFG Investor Services Holdings Limited, MUFG Capital Analytics, MUFG Investor Services(US), LLC and MUFG Investor Services FinTech Limited offer a full suite of global asset administration services, including fund administration, custody, securities lending, financing and foreign exchange services as a one-stop shop.

Global Corporate & Investment Banking Business Group

The Global Corporate & Investment Banking Business Group covers the corporate, investment and transaction banking businesses of MUFG Bank and Mitsubishi UFJ Securities Holdings. Through a global network of offices and branches, we provide non-Japanese large corporate and financial institution customers with a comprehensive set of solutions that meet their increasingly diverse and sophisticated financing needs.

Through the new integrated operations management structure between the Global Corporate & Investment Banking Business Group and the Global Markets Business Group, we aim to offer financing and investment opportunities based on our understanding of institutional investor needs.

The expansion of the global corporate and investment banking business has been an important pillar of the MUFG Group’s growth strategy. We continue to work to strengthen the strategic alignment and collaboration among our group companies and across global geographies in order to best deploy our comprehensive expertise to provide our customers with value-added solutions and services.

In November 2019, MUFG Bank completed its acquisition from DVB Bank SE in Germany its aviation finance lending portfolio, employees and the related operating infrastructure, based on an agreement entered into among the two banks and BOT Lease Co., Ltd., a consolidated subsidiary of MUFG Bank, in March 2019. In connection with this agreement, MUFG Bank and BOT Lease agreed to purchase from DVB Bank its aviation investment management and asset management businesses. This transaction is expected to be closed

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during the first half of fiscal year ending March 31, 2021, subject to regulatory approvals and certain other conditions. Aviation finance is a key growth pillar for us and, through the acquisition, we aim to enhance our Global Corporate & Investment Banking Business platform in terms of higher returns, portfolio diversification and solution offering to our clients.

Corporate Banking

Through our global network of offices and branches, we provide a full range of corporate banking solutions, such as project finance, export credit agency finance, and financing through asset-backed commercial paper. Our primary customers include large corporations, financial institutions, sovereign and multinational organizations, and institutional investors that are headquartered outside of Japan.

Investment Banking

We provide investment banking services such as debt and equity issuance and M&A-related services, to help our customers develop their financial strategies and realize their business goals. In order to meet customers’ various financing needs, we have established a customer-oriented coverage model through which our product experts coordinate with one another to offer innovative financing services globally. We have further integrated the management of the operations of our commercial banking and securities subsidiaries to enhance collaboration. We are one of the world’s top providers of project finance, one of the core businesses of the Global Corporate & Investment Banking Business Group. We provide sophisticated professional services in arranging limited-recourse finance and offering financial advice in various sectors, including natural resources, power, and infrastructure, backed by our experience, expertise, knowledge, and global network.

Transaction Banking

We provide commercial banking products and services for large corporations and financial institutions in managing and processing domestic and cross-border payments, mitigating risks in international trade, and providing working capital optimization. We have established a Transaction Banking Unit, which oversees the entire transaction banking operations globally, in order to enhance governance, management and quality of services in these operations. The Transaction Banking Unit provides customers with support for their domestic, regional and global trade finance and cash management programs through our extensive global network.

Global Commercial Banking Business Group

The Global Commercial Banking Business Group provides a comprehensive array of financial products and services such as loans, deposits, fund transfers, investments and asset management services for local retail, small and medium-sized enterprise, and corporate customers across the Asia-Pacific region through our major local commercial banking subsidiaries and affiliates outside of Japan referred to as “Partner Banks.” Our Partner Banks include MUFG Union Bank in the United States, Krungsri in Thailand, Bank Danamon in Indonesia, VietinBank in Vietnam and Security Bank in the Philippines.

The network among the Partner Banks covers a vast market, consisting of five countries with population totaling approximately 840 million. The market is expected to expand further as the GDP growth rates are relatively high in these countries and financial needs are expected to increase as average income rise in the ASEAN countries.

We believe that our network, which combines the global reach of the MUFG Group companies with strong regional presence of the Partner Banks each carrying an established brand, provides us with unique competitive advantages. Through sharing and integration of the expertise and capabilities of the Partner Banks, we seek to achieve synergy effects and capture the business opportunities arising from the economic growth of the region.

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MUFG Union Bank, N.A.

MUFG Union Bank is the primary subsidiary of MUFG Americas Holdings, which is our wholly owned subsidiary and which is our intermediate holding company in the United States. MUFG Union Bank is the primary operating entity of MUFG Bank in the United States. MUFG Union Bank provides a comprehensive range of banking, consumer finance, investment, asset management, and other financial products and services to individual consumers, small and medium-sized enterprises, and large corporations primarily in California, Oregon, Washington, and Texas as well as nationally and internationally through 349 branches.

In July 2014, MUFG Bank’s operations in the Americas region were integrated with MUFG Americas Holdings’ operations. As a result, MUFG Americas Holdings oversees MUFG Bank’s operations in the Americas region.

In July 2016, MUFG Americas Holdings was designated as MUFG’s U.S. intermediate holding company, or IHC, to comply with the FRB’s enhanced prudential standards. See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Major Investees—Any adverse changes in the business of MUFG Americas Holdings Corporation, Krungsri or Bank Danamon could significantly affect our results of operations.”

Bank of Ayudhya Public Company Limited (Krungsri)

Krungsri is a strategic subsidiary of MUFG Bank in Thailand. Krungsri provides a comprehensive range of banking, consumer finance, investment, asset management, and other financial products and services to retail consumers, small and medium-sized enterprises, and large corporations mainly in Thailand through 690 branches (consisting 648 banking branches, 40 automobile finance business branches and two overseas branches) and other service outlets nationwide. In addition, Krungsri’s consolidated subsidiaries include the largest credit card issuer in Thailand with a total of 9.3 million credit card, sales finance and personal loan accounts in its portfolio, a major auto finance provider, a fast growing asset management company, and a leading microfinance service provider in Thailand.

MUFG owns a 76.88% ownership interest in Krungsri through MUFG Bank as of March 31, 2020. By combining Krungsri’s local franchise with competitive presence in the retail and small and medium-sized enterprise banking markets in Thailand with MUFG Bank’s global financial expertise, we seek to offer a wider range of high-value financial products and services to a more diverse and larger customer base.

In March 2017, Krungsri established a subsidiary, Krungsri Finnovate Company Limited, with a key mission to support and promote FinTech startups in Thailand and Southeast Asian countries in the forms of accelerator and academic collaboration, startup project management and corporate venture capital.

In September 2017, Krungsri was designated as a Domestic Systemically Important Bank by the Bank of Thailand based on the central bank’s assessment of Krungsri based on its asset size and its contribution to the country’s economy and financial system.

In August 2019, Krungsri announced a plan to acquire 50% of shares of SB Finance Company Inc. (SBF) in the Philippines.

See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Major Investees Risks Related to Our Business—Any adverse changes in the business of MUFG Americas Holdings Corporation, Krungsri or Bank Danamon could significantly affect our results of operations.

PT Bank Danamon Indonesia, Tbk. (“Bank Danamon”)

Bank Danamon is a strategic subsidiary of MUFG Bank in Indonesia. Bank Danamon provides a comprehensive range of banking and other financial products and services to retail consumers, small and

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medium-sized enterprises, and large corporations in Indonesia. It operates an extensive distribution network spread out from Aceh to Papua, with more than 900 branches and service outlets. In addition, Bank Danamon provides financing for automotive and consumer goods through PT Adira Dinamika Multi Finance Tbk, a subsidiary of Bank Danamon.

In December 2017, MUFG Bank acquired 19.9% of the outstanding shares of Bank Danamon. Subsequently, MUFG Bank increased its shareholding in Bank Danamon to 40.0% in August 2018 and further to 94.0% in April 2019. In addition, in April 2019, MUFG Bank acquired shares of common stock of PT Bank

Nusantara Parahyangan Tbk, or Bank BNP, an Indonesia bank, increasing its shareholding in the bank from 7.9% to 99.9%. In May 2019, Bank BNP was merged into Bank Danamon. As a result of MUFG Bank’s acquisition of additional shares in Bank Danamon in April 2019, Bank Danamon became our consolidated subsidiary, effective as of April 29, 2019.

Our investment in Bank Danamon represents another milestone for our growth strategy in Southeast Asia with the goal of realizing our unique and unparalleled business model based on the established local networks of our Partner Banks, and MUFG’s global network to provide holistic financial services to a wider range of customers. Through this investment, we aim to diversify and expand our local retail and small and medium-sized enterprise business portfolio by seizing opportunities expected to arise from Indonesia’s current economic growth and long-term economic growth prospects.

See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Major Investees Risks Related to Our Business—Any adverse changes in the business of MUFG Americas Holdings Corporation, Krungsri or Bank Danamon could significantly affect our results of operations.” and “Item 5. Operating and Financial Review and Prospects—Recent Developments.”

Grab Holdings Inc.

In February 2020, we entered into a strategic alliance agreement with Grab Holdings Inc., or Grab, which is headquartered in Singapore and provides on-demand transport services, food and package delivery services, digital payments and financial services in Southeast Asia. Under the agreement, we will invest up to $706 million, or ¥78.3 billion, in Grab to jointly develop next generation custom-made financial services in Southeast Asia to promote financial inclusion in the region. While Grab is not expected to become our subsidiary or equity method investee with our investment in Grab in the agreed-upon maximum amount, Grab will confer “First Choice Bank” status on us and our Southeast Asian partner banks, such as Bank Danamon and Krungsri. We and Grab plan to co-develop innovative financial products and services based on our combined customer insight to better cater to the financial needs of Grab’s users, driver-partners and merchant-partners as well as our customers.We aim to provide next-generation financial services by combining our strengths in financial knowledge and know-how , including our financial product development capability, creditworthiness and risk management expertise, with Grab’s advanced technologies and data management expertise. Through the alliance, we will also leverage our initiatives and experience in Southeast Asia with Grab to accelerate both the evolution of our business model and the realization of our next-generation digital financial services in Japan and other markets.

Other Activities in Southeast Asia

We have been expanding our operations in Southeast Asia with an effort to further develop our businesses abroad. In addition to MUFG Union Bank, Krungsri and Bank Danamon, we have strategic business and capital alliances with other banks in Southeast Asia, including VietinBank in Vietnam and Security Bank in the Philippines, as our Partner Banks.

VietinBank provides a wide range of financial services to consumers, small businesses, middle-market and large companies through its branch network predominantly in Vietnam. We own a 19.7% equity interest in VietinBank.

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Security Bank provides a wide range of financial services to consumers, small businesses, middle-market and large companies through its branch network in the Philippines. We own a 20% equity interest in Security Bank.

See “Item 5. Operating and Financial Review and Prospects—Recent Developments” and “Item 3.D. Key Information—Risk Factors—Risks Related to Our Strategies—Our strategy to expand the range of our financial products and services and the geographic scope of our business globally may fail if we are unable to anticipate or manage new or expanded risks that entail such expansion.”

Global Markets Business Group

The Global Markets Business Group covers the customer business and the treasury operations of MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities Holdings. The customer business includes sales and trading in fixed income instruments, currencies and equities as well as other investment products, and origination and distribution of financial products. The treasury operations include asset and liability management as well as global investments for the MUFG Group.

Customer Business

• Sales and Trading in Fixed Income Instruments, Currencies and Equities. We provide financing, hedging, and investment solutions to our retail, corporate, institutional, and governmental customers through sales and trading in financial market products such as fixed income instruments, currencies, and equities. Our innovative financial products and services are designed to respond to increasingly sophisticated requirements of our diverse customers and are provided through our global network of offices and branches.

• Investment Products for Non-Institutional Customers in Japan. We provide investment products such as mutual funds, and structured bonds, notes and deposits to non-institutional customers in Japan. We offer solutions using these investment products to help customers better manage their assets and liabilities. This business is conducted through the integrated operations management structure among the Global Markets Business Group, the Asset Management & Investor Service Business Group, the Retail & Commercial Banking Business Group, and the Japanese Corporate and Investment Banking Business Group. To enhance our products and sales support capability, the Global Markets Business Group collaborates with the Retail & Commercial Banking Business Group in the retail and small and medium-sized enterprise client businesses.

• Origination and Distribution. We provide financing solutions to institutional customers through origination and distribution of financial products such as syndicated loans and securities issuances. This business is conducted through the integrated operations management structure between the Global Markets Business Group and the Global Corporate and Investment Banking Business Group.

Treasury Operations

• Asset and Liability Management. Through our treasury operations, we seek to manage interest rate and liquidity risks residing in our balance sheets through, among other things, transactions designed to manage the profit and loss impact attributable to market movements based on our balance sheet analyses and forecasts. Such transactions include investments in high quality liquid securities such as Japanese government bonds and U.S. Treasury bonds and trading in other financial products such as interest rate swaps and cross currency swaps.

• Global Investment. Through our treasury operations, we also seek to enhance our profitability by diversifying our portfolio and strategically investing in financial products including corporate bonds and funds.

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Strategy under the Current Medium-Term Business Plan

Under the current medium-term business plan, for the three-year period ending March 31, 2021, the Global Markets Business Group intends to undertake the following four initiatives designed to promote the MUFG Group’s structural reforms.

• The Global Markets Business Group plans to improve its business portfolio by adjusting its focus to growth areas and new areas, including the sales and trading business targeting institutional customers as well as the origination and distribution business under the integrated operations management structure with the Global Corporate and Investment Banking Business Group. In addition, with a view toward sustainable growth of the investment products business targeting non-institutional investors in Japan, the Global Markets Business Group has built an integrated operations management structure with the Asset Management & Investor Service Business Group, the Retail & Commercial Banking Business Group and the Japanese Corporate and Investment Banking Business Group.

• The Global Markets Business Group aims to reform the sales and trading business targeting corporate customers through enhancement of our financial solutions capabilities by more effectively coordinating capital markets transactions and global markets transactions and through reduction in transactions dependent on our balance sheets.

• The Global Markets Business Group strives to enhance the framework for collaboration and cooperation between MUFG’s treasury operations unit and its counterparts at MUFG’s major subsidiaries to support the MUFG Group’s sustainable growth by integrating the expertise in market risk management on a group-wide basis and applying a unified approach to liquidity risk management.

• The Global Markets Business Group strives to establish business frameworks and infrastructure designed to optimize and enhance integration and flexibility of the booking functions for global markets transactions among MUFG’s major subsidiaries and to accelerate digitalization.

Global Strategic Alliance with Morgan Stanley

As of March 31, 2020, we held approximately 377 million shares of Morgan Stanley’s common stock representing approximately 23.9% of the voting rights in Morgan Stanley and Series C Preferred Stock with a face value of approximately $521.4 million and 10% dividend. As of the same date, we had two representatives appointed to Morgan Stanley’s board of directors. We adopted the equity method of accounting for our investment in Morgan Stanley beginning with the fiscal year ended March 31, 2012.

In conjunction with Morgan Stanley, we formed two securities joint venture companies in May 2010 to integrate our respective Japanese securities companies. We converted the wholesale and retail securities businesses conducted in Japan by Mitsubishi UFJ Securities into Mitsubishi UFJ Morgan Stanley Securities. Morgan Stanley contributed the investment banking operations conducted in Japan by its former wholly-owned subsidiary, Morgan Stanley Japan, to Mitsubishi UFJ Morgan Stanley Securities, and converted the sales and trading and capital markets businesses conducted in Japan by Morgan Stanley Japan into an entity called Morgan Stanley MUFG Securities, Co., Ltd. We hold a 60% economic interest in Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities, and Morgan Stanley holds a 40% economic interest in Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities. We hold a 60% voting interest and Morgan Stanley holds a 40% voting interest in Mitsubishi UFJ Morgan Stanley Securities, and we hold a 49% voting interest and Morgan Stanley holds a 51% voting interest in Morgan Stanley MUFG Securities. Morgan Stanley’s and our economic and voting interests in the securities joint venture companies are held through intermediate holding companies. We have retained control of Mitsubishi UFJ Morgan Stanley Securities and we account for our interest in Morgan Stanley MUFG Securities under the equity method due to our significant influence over Morgan Stanley MUFG Securities. The board of directors of Mitsubishi UFJ Morgan Stanley Securities has fifteen members, nine of whom are designated by us and six of whom are designated by Morgan Stanley. The board of directors of Morgan Stanley MUFG Securities has ten members, six of whom are

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designated by Morgan Stanley and four of whom are designated by us. The CEO of Mitsubishi UFJ Morgan Stanley Securities is designated by us and the CEO of Morgan Stanley MUFG Securities is designated by Morgan Stanley.

We have also expanded the scope of our global strategic alliance with Morgan Stanley into other geographies and businesses, including (1) a loan marketing joint venture that provides clients in the United States with access to the world-class lending and capital markets services from both companies, (2) business referral arrangements in Asia, Europe, the Middle East and Africa, covering capital markets, loans, fixed income sales and other businesses, (3) global commodities referral arrangements whereby MUFG Bank and its affiliates refer clients in need of commodities-related hedging solutions to certain affiliates of Morgan Stanley, and (4) an employee secondment program to share best practices and expertise in a wide range of business areas.

In April 2019, Mitsubishi UFJ Morgan Stanley Securities and Mitsubishi UFJ Morgan Stanley PB Securities Co., Ltd., a subsidiary of Mitsubishi UFJ Morgan Stanley Securities, agreed on a merger whereby Mitsubishi UFJ Morgan Stanley Securities will be the surviving company. The merger is currently scheduled to be completed on August 1, 2020, subject to changes in the circumstances including the impact of the COVID-19 pandemic. Through the merger, we aim to further strengthen our wealth management business by leveraging our broad customer base, utilizing Morgan Stanley’s global and high sophisticated expertise, and further collaborating with our and Morgan Stanley’s other group companies.

See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Major Investees—If our strategic alliance with Morgan Stanley fails, we could suffer financial or reputational loss.”

Competition

We face strong competition in all of our principal areas of operation. The structural reforms in financial industry regulations and recent developments in financial markets have resulted in some significant changes in the Japanese financial system and prompted banks to merge or reorganize their operations. In addition, development of new technologies such as artificial intelligence and blockchain has also allowed non-financial institutions to enter the financial services industry with alternative services, thus changing the nature of competition from other financial institutions as well as from other types of businesses. See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Strategies—Our business may be adversely affected by competitive pressures, which have partly increased due to regulatory changes and recent market changes in the financial industry domestically and globally.”

Japan

Since their formation in 2000 and 2001, the so-called Japanese “mega bank” groups, including us, the Mizuho Financial Group and the Sumitomo Mitsui Financial Group, have continued to expand their businesses and take measures designed to enhance their financial group capabilities. For example, in July 2013, Mizuho Bank, Ltd. and Mizuho Corporate Bank, Ltd. merged, and the merged entity presently operates under the corporate name of “Mizuho Bank, Ltd.” In November 2015, SMBC Trust Bank, Ltd., a subsidiary of Sumitomo Mitsui Financial Group, acquired the retail banking business of Citibank Japan, Ltd.

Competition among the mega bank groups are expected to continue in various financial sectors as they have recently announced plans to expand, or have expanded, their respective businesses. For example, in the securities sector, in May 2010, in conjunction with Morgan Stanley, we created two securities joint venture companies in Japan, Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities, by integrating the operations of Mitsubishi UFJ Securities and Morgan Stanley Japan. In January 2013, Mizuho Securities and Mizuho Investors Securities Co., Ltd. merged. For a discussion of the two securities joint venture companies created by us and Morgan Stanley, see “—B. Business Overview—Global Strategic Alliance with Morgan Stanley.”

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In the retail business sector, customers often have needs for a broad range of financial products and services, such as investment trusts and insurance products. Recently, competition has increased due to the development of new products and distribution channels. For example, Japanese banks compete with one another by developing innovative proprietary computer technologies that allow them to deliver basic banking services in a more efficient manner and to create sophisticated new products in response to customer demand. Competition has also increased since the introduction in January 2014 of the Japanese individual savings account system, generally referred to as the NISA program, which currently offers tax exemptions on capital gains and dividend income for investments up to ¥1.2 million a year for a maximum of five years and which is expected to be amended in 2024. In addition, in December 2015, Sumitomo Mitsui Trust Bank, Ltd. acquired Citi Cards Japan, Inc., which previously operated the credit card business of Citigroup Inc. in Japan.

In the private banking sector, competition among the mega bank groups has intensified as a result of recent corporate actions designed to strengthen their operations. We made Mitsubishi UFJ Merrill Lynch PB Securities Co., Ltd. a wholly owned subsidiary in December 2012 to enhance our private banking services for high net-worth customers, and changed its name to Mitsubishi UFJ Morgan Stanley PB Securities, Ltd. in March 2014. In April 2019, we announced a plan to merge Mitsubishi UFJ Morgan Stanley PB Securities into Mitsubishi UFJ Morgan Stanley Securities. Sumitomo Mitsui Banking Corporation acquired the former Société Générale Private Banking Japan, Ltd. from Société Générale S.A. and changed its name to SMBC Trust Bank, Ltd. in October 2013.

In the consumer finance sector, recent regulatory reforms and legal developments have negatively impacted the business environment, resulting in failures of several consumer finance companies and intensified

competition among consumer finance companies that have remained in business, particularly among those affiliated with the mega banks. In April 2012, Promise Co., Ltd. became a wholly owned subsidiary of the Sumitomo Mitsui Financial Group, and changed its name as SMBC Consumer Finance Co., Ltd. in July 2012. See “Item 3.D. Key Information—Risk Factors—Operational Risk—Because of our loans to consumers and our shareholdings in companies engaged in consumer lending, changes in the business or regulatory environment for consumer finance companies in Japan may further adversely affect our financial results.”

The trust assets business is an area that is becoming increasingly competitive because of regulatory changes in the industry that have expanded the products and services that can be offered since the mid-2000s. In addition, there is growing corporate demand for changes in the trust regulatory environment, such as reforms of the pension system and related accounting regulations under Japanese GAAP. Competition may increase in the future as changes are made to respond to such corporate demand and regulatory barriers to entry are lowered. Competition is also expected to intensify as a result of recent integrations and entrants in the industry. For example, in August 2015, JP Asset Management Co., Ltd. was established as a joint venture with the Japan Post Group, Sumitomo Mitsui Trust Bank and Nomura Holdings, Inc. holding 50%, 30% and 20% equity interests, respectively, in the joint venture. In October 2016, the Mizuho Financial Group integrated Mizuho Asset Management Co., Ltd., Shinko Asset Management Co., Ltd. and the asset management business of Mizuho Trust & Banking Co., Ltd., all of which were asset management subsidiaries of the Mizuho Financial Group in Japan, and DIAM Co., Ltd., which was an asset management joint venture between the Mizuho Financial Group and Dai-ichi Life Insurance Company in Japan, creating Asset Management One Co., Ltd. In July 2016, the Sumitomo Mitsui Financial Group made Sumitomo Mitsui Asset Management Co., Ltd. a consolidated subsidiary through the acquisition of additional equity interest in the asset management company. In March 2017, the Mizuho Financial Group announced plans to integrate Trust and Custody Services Bank, Ltd., its trust bank subsidiary specialized in the asset administration business, with Japan Trustee Services Bank, Ltd., which is a trust bank joint venture between Sumitomo Mitsui Trust Holdings and Resona Bank, Ltd. specialized in the asset administration business. In May 2018, the Sumitomo Mitsui Financial Group announced a planned merger between Sumitomo Mitsui Asset Management and Daiwa SB Investments Ltd.

In recent years, the Japanese government has identified several governmental financial institutions as candidates to privatize. Under the current postal privatization law, Japan Post Bank and Japan Post Insurance may enter into new business areas upon obtaining government approvals, and if Japan Post Holdings’ equity

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holdings decrease to 50% or below, the two companies will be allowed to enter into new business areas upon submission of a notice to the government. In such case, the Japan Post Group companies may seek to enter into new financial businesses and increasingly compete with us. Japan Post Holdings currently holds approximately 89% of the shares of Japan Post Bank. Japan Post Holdings’ equity holding in Japan Post Insurance decreased from around 89% to around 64% through a public offering of shares in April 2019. In addition, Japan Post Bank is one of the world’s largest holders of deposits, which provide a cost-effective source of funding for the bank. In April 2019, the cap imposed by law on the amount of deposits that Japan Post Bank may accept from each customer was raised from an aggregate of ¥13 million to ¥13 million in ordinary deposits plus ¥13 million in time deposits. See “—B. Business Overview—The Japanese Financial System—Government Financial Institutions.”

The mega bank groups face significant competition with other financial groups as well as companies that have traditionally not been engaged in banking services. For example, the Nomura Group has been a major player in the securities market in Japan. In addition, various Japanese non-bank financial institutions and non-financial companies have entered into the Japanese banking sector. For example, Orix Corporation, a non-bank financial institution, as well as the Seven & i Holdings Co., Ltd., Sony Corporation and Aeon Co., Ltd., which were non-financial companies, offer various banking services, often through non-traditional distribution channels. Further, development of new technologies such as artificial intelligence, or AI, and blockchain has also allowed non-financial institutions to enter financial services industry with alternative services such as electronic settlement services, and these new entrants could become substantial competition to us. In June 2020, the Diet passed an amendment to the Payment Services Act, under which funds transfer services providers that provide only funds transfer services but do not provide deposit or loan services may be authorized by the FSA to provide funds transfer services exceeding one million yen, which is the current upper limit for their funds transfer services.

Foreign

In the United States, we face substantial competition in all aspects of our business. We face competition from other large U.S. and non-U.S. money-center banks, as well as from similar institutions that provide financial services. Through MUFG Union Bank, we currently compete principally with U.S. and non-U.S. money-center and regional banks, thrift institutions, asset management companies, investment advisory companies, consumer finance companies, credit unions and other financial institutions.

In other international markets, we face competition from commercial banks and similar financial institutions, particularly major international banks and the leading domestic banks in the local financial markets in which we conduct business. For example, Japanese mega banks, including us, and other major international banks have been expanding their operations in the Asian market, where leading local banks also have been growing and increasing their presence recently. Furthermore, we are aiming to expand our retail and small and medium-sized enterprise businesses along with our corporate banking business in Southeast Asia through our acquisition of Krungsri in Thailand and Bank Danamon in Indonesia as well as our strategic investments in VietinBank in Vietnam and Security Bank in the Philippines, and to compete with leading local banks in such businesses. See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Strategies—Our strategy to expand the range of our financial products and services and the geographic scope of our business globally may fail if we are unable to anticipate or manage new or expanded risks that entail such expansion.” For a discussion of recent developments, see “Item 5. Operating and Financial Review and Prospects—Recent Developments.”

In addition, we may face further competition as a result of recent investments, mergers and other business tie-ups among global financial institutions, including, for example, our recent acquisitions of, and business and capital alliances with, asset management, administration and custody services companies.

The Japanese Financial System

Japanese financial institutions may be categorized into three types:

• the central bank, namely the Bank of Japan;

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• private banking institutions; and

• government financial institutions.

The Bank of Japan

The Bank of Japan’s role is to maintain price stability and the stability of the financial system to ensure a solid foundation for sound economic development.

Private Banking Institutions

Private banking institutions in Japan are commonly classified into two categories (the following numbers are based on information published by the FSA available as of February 10, 2020):

• ordinary banks (122 ordinary banks and 55 foreign commercial banks with ordinary banking operations); and

• trust banks (14 trust banks, including two Japanese subsidiaries of foreign financial institutions).

Ordinary banks in turn are classified as city banks, of which there are four, including MUFG Bank, and regional banks, of which there are 103 and other banks, of which there are 15. In general, the operations of ordinary banks correspond to commercial banking operations in the United States. City banks and regional banks are distinguished based on head office location as well as the size and scope of their operations.

The city banks are generally considered to constitute the largest and most influential group of banks in Japan. Generally, these banks are based in large cities, such as Tokyo and Osaka, and operate nationally through networks of branch offices. The city banks provide a wide variety of banking and other financial products and services to large corporate customers, including the major industrial companies in Japan, as well as small and medium-sized companies and retail customers.

With some exceptions, the regional banks tend to be much smaller in terms of total assets than the city banks. Historically, each of the regional banks has been based in one of the Japanese prefectures and has extended its operations into neighboring prefectures. Their customers are mostly regional enterprises and local public utilities. The regional banks also lend to large corporations. In line with the recent trend among financial institutions toward mergers or business tie-ups, various regional banks have announced or are currently negotiating or pursuing integration transactions. The Japanese government currently promotes mergers between regional banks to ensure the stable availability of financial services in regional areas and, in May 2020, enacted special legislation to exempt such mergers from the application of certain anti-trust restrictions for 10 years.

Trust banks, including Mitsubishi UFJ Trust and Banking, provide various trust services relating to money trusts, pension trusts and investment trusts and offer other services relating to real estate, stock transfer agency and testamentary services, as well as banking services.

In recent years, almost all of the city banks have consolidated with other city banks and, in some cases, integrated with trust banks. Consolidation or integration among these banks was achieved, in most cases, through the use of a bank holding company.

In addition to ordinary banks and trust banks, other private financial institutions in Japan, including banks operated by non-financial companies, shinkin banks, or credit associations, and credit cooperatives, are engaged primarily in making loans to small businesses and individuals.

Government Financial Institutions

There are a number of government financial institutions in Japan, which are corporations wholly owned or majority-owned by the government and operate under the government’s supervision. Their funds are provided

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mainly from government sources. Certain types of operations undertaken by these institutions have been or are planned to be assumed by, or integrated with the operations of, private corporations through privatizations and other measures.

Among them are the following:

• The Development Bank of Japan, which was established for the purpose of contributing to the economic development of Japan by extending long-term loans, mainly to primary and secondary sector industries, and which was reorganized as a joint stock company in October 2008 as part of its ongoing privatization process, with the government being required by law to continue to hold 50% or more of the shares in the bank until the completion of certain specified investment operations, which the bank is required to endeavor to achieve by March 2026, and more than one-third for an unspecified period thereafter;

• Japan Finance Corporation, which was formed in October 2008, through the merger of the international financial operations of the former Japan Bank for International Cooperation, National Life Finance Corporation, Agriculture, Forestry and Fisheries Finance Corporation, and Japan Finance Corporation for Small and Medium Enterprise, for the primary purposes of supplementing and encouraging the private financing of exports, imports, overseas investments and overseas economic cooperation, and supplementing private financing to the general public, small and medium-sized enterprises and those engaged in agriculture, forestry and fishery. In April 2012, Japan Finance Corporation spun off its international operations to create Japan Bank for International Cooperation as a separate government-owned entity;

• Japan Housing Finance Agency, which was originally established in June 1950 as the Government Housing Loan Corporation for the purpose of providing housing loans to the general public, and which was reorganized as an incorporated administrative agency and started to specialize in securitization of housing loans in April 2007; and

• The Japan Post Group companies, a group of joint stock companies including Japan Post Bank, which were formed in October 2007 as part of the Japanese government’s privatization plan for the former Japan Post, a government-run public services corporation, which had been the Postal Service Agency until March 2003. In November 2015, approximately 11% of the outstanding shares of each of Japan Post Bank, Japan Post Insurance and Japan Post Holdings were sold to the public, and these companies are currently listed on the Tokyo Stock Exchange. In September 2017, an additional 22% of the outstanding shares of Japan Post Holdings were sold to the public.

Supervision and Regulation

Japan

Supervision.    The FSA is responsible for supervising and overseeing financial institutions, making policy for the overall Japanese financial system and conducting insolvency proceedings with respect to financial institutions. The Bank of Japan, as the central bank for financial institutions, also has supervisory authority over banks in Japan, based primarily on its contractual agreements and transactions with the banks.

The Banking Law.    Among the various laws that regulate financial institutions, the Banking Law and its subordinated orders and ordinances are regarded as the fundamental law for ordinary banks and other private financial institutions. The Banking Law addresses capital adequacy, inspections and reporting of banks and bank holding companies, as well as the scope of business activities, disclosure, accounting, limitation on granting credit and standards for arm’s length transactions for them. Bank holding companies, banks and other financial institutions are required to establish an appropriate system to better cope with conflicts of interest that may arise from their business operations.

The Banking Law and various other financial regulation related laws have recently been amended, including certain deregulations on restrictions for shareholdings by banks. For example, although a bank is generally

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prohibited from holding more than 5% of the outstanding shares of another company (other than certain financial businesses) under the Banking Law, an amendment to the Banking Law which took effect in April 2017 allows banks and bank holding companies to acquire and hold more than 5% of the voting rights in certain financial technology companies if approved by the FSA. An additional amendment to the Banking Law which took effect in June 2018 introduced a framework for affiliation and cooperation between financial institutions and financial technology companies while adding measures designed to ensure customer protection . A further amendment to the Banking Law which took effect in May 2020 allows banks to engage in certain information provision services relating to customer and other information.

Bank holding company regulations.    A bank holding company is prohibited from carrying out any business other than the management of its subsidiaries and other incidental businesses. A bank holding company may have any of the following as a subsidiary: a bank, a securities company, an insurance company, a foreign subsidiary that is engaged in the banking, securities or insurance business and any company that is engaged in a finance-related business, such as a credit card company, a leasing company, investment advisory company, or financial

technology company as permitted by the April 1, 2017 amendments to the Banking Law. Certain companies that are designated by a ministerial ordinance as those that cultivate new business fields may also become the subsidiaries of a bank holding company.

In addition, under the April 1, 2017 amendments to the Banking Law, a bank holding company (i) is required to perform certain specified functions as a bank holding company to ensure effective management of its subsidiaries and (ii) is allowed to engage in certain specified common operations of its subsidiaries so as to improve the efficiency of the operations of its group companies.

Capital adequacy.    The capital adequacy guidelines adopted by the FSA that are applicable to Japanese bank holding companies and banks with international operations closely follow the risk-weighted approach introduced by the Basel Committee on Banking Supervision of the Bank for International Settlements.

Basel II, as adopted by the FSA, has been applied to Japanese banks since March 31, 2007. Basel III, as adopted by the FSA, has been applied to Japanese banking institutions with international operations conducted through their foreign offices since March 31, 2013. Basel III is built on “three pillars”: (1) minimum capital requirements, (2) the self-regulation of financial institutions based on supervisory review process, and (3) market discipline through the disclosure of information.

The Group of Central Bank Governors and Heads of Supervision reached an agreement on the new global regulatory framework, which has been referred to as “Basel III,” in July and September 2010. In December 2010, the Basel Committee agreed on the details of the Basel III rules. The agreement on Basel III includes the following: (1) raising the quality of capital to ensure banks are able to better absorb losses both on a going concern basis and on a gone concern basis, (2) increasing the risk coverage of the capital framework, in particular for trading activities, securitizations, exposures to off-balance sheet vehicles and counterparty credit exposures arising from derivatives, (3) raising the level of minimum capital requirements, including an increase in the minimum common equity requirement from 2% to 4.5%, which was phased in between January 1, 2013 and the end of the calendar year 2014, and a capital conservation buffer of 2.5%, which was phased in between January 1, 2016 and the end of the calendar year 2018, bringing the total common equity requirement to 7%, (4) introducing an internationally harmonized leverage ratio to serve as a backstop to the risk-based capital measure and to contain the build-up of excessive leverage in the system, (5) raising standards for the supervisory review process (Pillar 2) and public disclosures (Pillar 3), together with additional guidance in the areas of valuation practices, stress testing, liquidity risk management, corporate governance and compensation, (6) introducing minimum global liquidity standards consisting of both a short term liquidity coverage ratio and a longer term structural net stable funding ratio, and (7) promoting the build-up of capital buffers that can be drawn down in periods of stress, including both a capital conservation buffer and a countercyclical buffer to protect the banking sector from periods of excess credit growth.

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Under Basel III, Common Equity Tier 1, Tier 1 and total capital ratios are used to assess capital adequacy, which ratios are determined by dividing applicable capital components by risk-weighted assets. Total capital is defined as the sum of Tier 1 and Tier 2 capital.

Under Basel III, Tier 1 capital is defined to include Common Equity Tier 1 and Additional Tier 1 capital. Common Equity Tier 1 capital is a new category of capital primarily consisting of:

• common stock,

• capital surplus,

• retained earnings, and

• accumulated other comprehensive income.

Regulatory adjustments including certain intangible fixed assets, such as goodwill, and defined benefit pension fund net assets (prepaid pension costs) will be deducted from Common Equity Tier 1 capital.

Additional Tier 1 capital generally consists of Basel III compliant preferred securities and, during the transition period, other capital that meets Tier I requirements under the former Basel II standards, net of regulatory adjustments.

Tier 2 capital generally consists of:

• Basel III compliant subordinated obligations,

• during the transition period, capital that meets Tier II requirements under the former Basel II standards,

• allowances for credit losses, and

• non-controlling interests in subsidiaries’ Tier 2 capital instruments.

In order to qualify as Tier 1 or Tier 2 capital under Basel III, applicable instruments such as preferred shares and subordinated debt must have a clause in their terms and conditions that requires them to be written-off or forced to be converted into common stock upon the occurrence of certain trigger events.

Risk-weighted assets are the sum of risk-weighted assets compiled for credit risk purposes, quotient of dividing the amount equivalent to market risk by 8%, and quotient of dividing the amount equivalent to operational risk by 8%, and also include any amount to be added due to transitional measures as well as floor adjustments, if necessary. Risk-weighted assets include the capital charge of the credit valuation adjustment, or CVA, the credit risk related to asset value correlation multiplier for large financial institutions, the 250% risk-weighted threshold items not deducted from Common Equity Tier 1 capital, and certain Basel II capital deductions that were converted to risk-weighted assets under Basel III, such as securitizations and significant investments in commercial entities. Certain Basel III provisions were adopted by the FSA with transitional measures and became effective March 31, 2013.

The capital ratio standards applicable to us are as follows:

• a minimum total capital ratio of 8.0%,

• a minimum Tier 1 capital ratio of 6.0%, and

• a minimum Common Equity Tier 1 capital ratio of 4.5%.

These minimum capital ratios are applicable to MUFG on a consolidated basis and to MUFG Bank and Mitsubishi UFJ Trust and Banking on a consolidated as well as stand-alone basis.

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We have been granted an approval by the FSA to exclude the majority of our investment in Morgan Stanley from being subject to double gearing adjustments. The approval was granted for a 10-year period, but the approval amount will be phased out by 20% each year starting from March 31, 2019. As of March 31, 2020, a full application of double gearing adjustments with respect to our investment in Morgan Stanley would have reduced our Common Equity Tier 1 capital ratio by approximately 0.7 percentage points.

The Financial Stability Board identified us as a global systematically important bank, or G-SIB, in its most recent annual report published in November 2019, and is expected to update the list of G-SIB annually. In December 2015, the FSA also designated us as a G-SIB as well as a domestic systemically important bank generally referred to as a “D-SIB.”

Effective March 31, 2016, the FSA’s capital conservation buffer, countercyclical buffer and G-SIB surcharge requirements became applicable to Japanese banking institutions with international operations conducted through foreign offices, including us. The requirements as of March 31, 2020 consist of a capital conservation buffer of 2.5%, a G-SIB surcharge of 1.5% and a countercyclical buffer of 0.01% in addition to the 4.50% minimum Common Equity Tier 1 capital ratio.

In December 2017, the Group of Central Bank Governors and Heads of Supervision released final Basel III reforms. The reforms are designed, among other things, to help reduce excessive variability in risk-weighted assets among banks and improve the comparability and transparency of banks’ risk-based capital ratios. The reforms endorsed by the Group of Central Bank Governors and Heads of Supervision include the following elements:

• a revised standardized approach for credit risk, which is designed to improve the robustness and risk sensitivity of the existing approach;

• revisions to the internal ratings-based approach for credit risk, where the use of the most advanced internally modelled approaches for low-default portfolios will be limited;

• revisions to CVA framework, including the removal of the internally modelled approach and the introduction of a revised standardized approach;

• a revised standardized approach for operational risk, which will replace the existing standardized approaches and the advanced measurement approaches;

• revisions to the measurement of the leverage ratio and a leverage ratio buffer for G-SIBs, which will take the form of a Tier 1 capital buffer set at 50% of a G-SIB’s risk-weighted capital buffer; and

• an aggregate output floor, which is designed to ensure that banks’ risk-weighted assets generated by internal models are no lower than 72.5% of risk-weighted assets as calculated by the Basel III framework’s standardized approaches. Banks will also be required to disclose their risk-weighted assets based on these standardized approaches.

Most of the reforms was scheduled to become effective on January 1, 2022, subject to implementation through legislation and regulation in each of the relevant jurisdictions, including Japan. In March 2020, the implementation date was deferred by one year to January 1, 2023 in light of the COVID-19 pandemic.

In January 2019, the Group of Central Bank Governors and Heads of Supervision approved the Basel Committee on Banking Supervision’s finalized market risk capital framework. The approved market risk framework was scheduled to become effective on January 1, 2022, subject to implementation through legislation and regulation in each of the relevant jurisdictions, including Japan. In March 2020, the implementation date was deferred by one year to January 1, 2023 in light of the COVID-19 pandemic.

For a discussion on our capital ratios, see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Adequacy.”

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Leverage ratio.    Japanese banks and bank holding companies with international operations are required to disclose their leverage ratios calculated in accordance with the methodology prescribed in the FSA guidance that has been adopted to implement the relevant Basel III standard. The leverage ratio is designed for monitoring and preventing the build-up of excessive leverage in the banking sector and is expressed as the ratio of Tier 1 capital to total balance sheet assets adjusted in accordance with the FSA guidance. In December 2017, the Group of Central Bank Governors and Heads of Supervision announced final Basel III reforms. The announced reforms include the revisions to the measurement of the leverage ratio and a 3.00% minimum leverage ratio requirement, plus a G-SIB leverage ratio buffer equal to 50% of the applicable G-SIB capital surcharge. The announcement sets forth implementation dates of January 1, 2018 for the minimum leverage ratio requirement and January 1, 2022 for the G-SIB leverage ratio buffer requirement. In Japan, the FSA adopted the minimum leverage ratio requirement effective March 31, 2019, and the minimum leverage ratio requirement as of March 31, 2020 is 3.00%. In March 2020, the implementation date for the G-SIB leverage ratio buffer requirement was deferred by one year to January 1, 2023 in light of the COVID-19 pandemic. On June 30, 2020, in coordination with the Bank of Japan in implementing its monetary policy in response to the COVID-19 pandemic, the FSA published amendments to the leverage ratio regulations, effective June 30, 2020. Under the amendments, deposits with the Bank of Japan are excluded from the calculation of the leverage ratio during the period from June 30, 2020 to March 31, 2021.

Total loss-absorbing capacity.    In November 2015, the Financial Stability Board issued the final Total Loss-Absorbing Capacity, or TLAC, standard for G-SIBs, including us. The Financial Stability Board’s TLAC standard is designed to ensure that if a G-SIB fails, it has sufficient loss-absorbing and recapitalization capacity available in resolution to implement an orderly resolution that minimizes impacts on financial stability, ensures the continuity of critical functions, and avoids exposing public funds to loss. The Financial Stability Board’s TLAC standard defines a minimum requirement for the instruments and liabilities that should be readily available to absorb losses in resolution.

The TLAC standard which was set forth in the regulatory notices and related materials for the implementation of the TLAC requirements in Japan published by the FSA in March 2019 and which became applicable to G-SIBs in Japan on March 31, 2019, or the Japanese TLAC Standard, and the Financial Stability Board’s TLAC standard require entities designated as Domestic Resolution Entities for Covered SIBs to meet certain minimum external total loss-absorbing capacity, or External TLAC, requirements and to cause any of their material subsidiaries in Japan deemed systemically important by the FSA or their foreign subsidiaries subject to TLAC or similar requirements in the relevant jurisdictions to maintain certain minimum level of capital and debt having internal total loss-absorbing and recapitalization capacity, or Internal TLAC.

In the Japanese TLAC Standard, the FSA has designated the relevant ultimate holding companies in Japan as Domestic Resolution Entities for the Covered SIBs and, in our case, MUFG as the Domestic Resolution Entity for our Group, making MUFG subject to the External TLAC requirements in Japan. The FSA has also designated MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Morgan Stanley Securities as MUFG’s material subsidiaries in Japan, which are subject to the Internal TLAC requirements applicable to MUFG.

External TLAC debt generally consists of Basel III compliant regulatory capital, including, during the transition period, capital that meets the applicable regulatory capital requirements under the former Basel II standards, and the Japanese TLAC Standard compliant obligations, net of regulatory adjustments. Internal TLAC debt generally consists of Basel III compliant regulatory capital, including, during the transition period, capital that meets the applicable regulatory capital requirements under the former Basel II standards, and the Japanese TLAC Standard compliant subordinated obligations, net of regulatory adjustments. The Japanese TLAC Standard does not require that, in order for unsecured senior debt issued by the Domestic Resolution Entity of a Japanese G-SIB to qualify as External TLAC debt, such debt be subject to any contractual write-down, write-off or conversion provisions or to any subordination provisions so long as its creditors are recognized as structurally subordinated to the creditors of its subsidiaries and affiliates by the FSA on the ground that the amount of excluded liabilities of such Domestic Resolution Entity ranking pari passu with, or junior to, its unsecured senior

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liabilities does not, in principle, exceed 5% of the aggregate amount of its External TLAC. In contrast, Internal TLAC debt incurred by a material subsidiary of a Japanese G-SIB is required to be subject to contractual loss absorption provisions and to be subordinated to such subsidiary’s excluded liabilities.

The Financial Stability Board’s TLAC standard requires a G-SIB to issue and maintain TLAC in an amount not less than 16% of its risk-weighted assets and 6% of the applicable Basel III leverage ratio denominator by January 1, 2019, and not less than 18% of its risk-weighted assets and 6.75% of the applicable Basel III leverage ratio denominator by January 1, 2022.

The Japanese TLAC Standard requires a Japanese G-SIB, including us, to issue and maintain TLAC debt in an amount not less than 16% of its risk-weighted assets and 6% of the applicable Basel III leverage ratio denominator on and after March 31, 2019, and not less than 18% of its risk-weighted assets and 6.75% of the applicable Basel III leverage ratio denominator on and after March 31, 2022. Under the FSA TLAC Standard, Japanese G-SIBs are or will be allowed to count the Japanese Deposit Insurance Fund Reserves in an amount equivalent to 2.5% of their consolidated risk-weighted assets from 2019 and 3.5% of their consolidated risk-weighted assets from 2022 as external TLAC.

On June 30, 2020, in coordination with the Bank of Japan in implementing its monetary policy in response to the COVID-19 pandemic, the FSA published amendments to the Japanese TLAC Standard, together with amendments to the leverage ratio regulations, effective June 30, 2020. Under the amendments, deposits with the Bank of Japan are excluded from the calculation of External TLAC ratio and Internal TLAC amounts on a total exposure basis as well as the leverage ratio during the period from June 30, 2020 to March 31, 2021.

The Domestic Resolution Entity may also be subject to a capital distribution constraints plan if the capital buffers are used and reduced below the required level to make up for its required External TLAC on a risk-weighted assets basis.

See “Item 3.D Key Information—Risk Factors—Risks Related to Our Ability to Meet Regulatory Capital Requirements—We may not be able to maintain our capital ratios and other regulatory ratios above minimum required levels, which could result in various regulatory actions, including the suspension of some or all of our operations.”

Prompt corrective action system.    Under the prompt corrective action system, the FSA may take corrective action, if a bank or a bank holding company fails to meet the minimum capital adequacy ratio or leverage ratio. These actions include requiring such bank or bank holding company to formulate and implement capital improvement measures, requiring it to reduce assets or the bank’s business operations or take other specific actions, and issuing an order to dispose of shares of its subsidiaries or suspend all or part of the bank’s business operations.

Capital distribution constraints system.    Under the capital distribution constraints system, the FSA may order a bank or a bank holding company to submit and carry out a capital distribution constraints plan, if the bank or the bank holding company fails to maintain Common Equity Tier 1 capital required as applicable capital buffers. A capital distribution plan must be determined to be reasonably designed to restore the required capital buffers by restricting capital distributions, such as dividends, share buybacks and bonus payments, up to a certain amount depending on the level of the deficit in the required capital buffers of the bank or the bank holding company.

Prompt warning system.    Under the prompt warning system, the FSA may take precautionary measures to maintain and promote the sound operations of financial institutions, even before those financial institutions become subject to prompt corrective actions. These measures require a financial institution to enhance profitability, credit risk management, stability and cash flows.

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Deposit insurance system and government measures for troubled financial institutions.    The Deposit Insurance Act is intended to protect depositors if a financial institution fails to meet its obligations. The Deposit Insurance Corporation was established in accordance with the Deposit Insurance Act.

City banks, including MUFG Bank, regional banks, trust banks, including Mitsubishi UFJ Trust and Banking, and various other credit institutions participate in the deposit insurance system on a compulsory basis.

Under the Deposit Insurance Act, the maximum amount of protection is ¥10 million per customer within one bank. The ¥10 million maximum applies to all deposits except for non-interest bearing deposits, which are non-interest bearing deposits redeemable on demand and maintained by depositors primarily in settlement accounts for payment and settlement purposes. Deposits in settlement accounts are fully protected without a maximum amount limitation. Certain types of deposits are not covered by the deposit insurance system, such as foreign currency deposits and negotiable certificates of deposit. As of April 1, 2020, the Deposit Insurance Corporation charged an insurance premium equal to 0.045% per year on the deposits in the settlement accounts, and a premium equal to 0.031% per year on the deposits in other accounts.

Under the Deposit Insurance Act, a Financial Reorganization Administrator can be appointed by the Prime Minister if a bank’s liabilities exceed its obligations or has suspended, or is likely to suspend, repayment of deposits. The Financial Reorganization Administrator will take control of the assets of the troubled bank, dispose of the assets and search for another institution willing to take over the troubled bank’s business. The troubled bank’s business may also be transferred to a “bridge bank” established by the Deposit Insurance Corporation to enable the troubled bank’s operations to be maintained and continue temporarily, and the bridge bank will seek to transfer the troubled bank’s assets to another financial institution or dissolve the troubled bank. The Deposit Insurance Corporation protects deposits, as described above, either by providing financial aid for costs incurred by the financial institution succeeding the insolvent bank or by paying insurance money directly to depositors. The financial aid provided by the Deposit Insurance Corporation may take the form of a monetary grant, loan or deposit of funds, purchase of assets, guarantee or assumption of debt, subscription for preferred stock, or loss sharing.

The Deposit Insurance Act also provides for exceptional measures to cope with systemic risk in the financial industry. Where the Prime Minister recognizes that the failure of a bank which falls into any of (i) through (iii) below may cause an extremely grave problem to the maintenance of the financial order in Japan or the region where such bank is operating, or systemic risk, if none of the measures described in (i) through (iii) below is implemented, the Prime Minister may, following deliberation by the Financial Crisis Response Council, confirm (nintei) the need to take any of the following measures: (i) if the bank does not fall into either of the categories described in (ii) or (iii) below, the Deposit Insurance Corporation may subscribe for shares or subordinated bonds of, or extend subordinated loans to the bank, or subscribe for shares of the bank holding company of the bank, in order to enhance the bank’s regulatory capital (“Item 1 measures” (dai ichigo sochi)); (ii) if the bank has suspended, or is likely to suspend, repayment of deposits, or its liabilities exceed its assets, financial aid exceeding the pay-off cost may be made available to such bank (“Item 2 measures” (dai nigo sochi)); and (iii) if the bank has suspended, or is likely suspend, repayment of deposits, and its liabilities exceed its assets, and the systemic risk cannot be avoided by the measures mentioned in (ii) above, the Deposit Insurance Corporation may acquire all of the bank’s shares (“Item 3 measures” (dai sango sochi)). The expenses for the implementation of the above measures will be borne by the banking industry, with an exception under which the Japanese government may provide partial subsidies for such expenses.

Under the new orderly resolution regime established by amendments to the Deposit Insurance Act that were promulgated in June 2013 and became effective on March 6, 2014, financial institutions, including banks, insurance companies and securities companies and their holding companies, are subject to the regime. Further, where the Prime Minister recognizes that the failure of a financial institution which falls into either of (a) or (b) below may cause a significant disruption to the Japanese financial market or system in Japan if measures described in (a) or measures described in (b) are not taken, the Prime Minister may, following deliberation by the

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Financial Response Crisis Council, confirm (nintei) that any of the following measures need to be applied to the financial institution:

(a) if the financial institution is not a financial institution whose liabilities exceed its assets, the financial institution shall be placed under the special supervision by the Deposit Insurance Corporation over the financial institution’s business operations and management and the disposal of the financial institution’s assets, and the Deposit Insurance Corporation may provide the financial institution with loans or guarantees necessary to avoid the risk of significant disruption to the financial system in Japan, or subscribe for shares or subordinated bonds of, or extend subordinated loans to, the financial institution, taking into consideration the financial condition of the financial institution (“Specified Item 1 measures” (tokutei dai ichigo sochi) under Article 126-2, Paragraph 1, Item 1 of the Deposit Insurance Act); or

(b) if the financial institution is a financial institution whose liabilities exceed, or are likely to exceed, its assets or which has suspended, or is likely to suspend, payments on its obligations, the financial institution shall be placed under the special supervision by the Deposit Insurance Corporation over the financial institution’s business operations and management and the disposal of the financial institution’s assets, and the Deposit Insurance Corporation may provide financial aid necessary to assist a merger, business transfer, corporate split or other reorganization in respect of such failed financial institution (“Specified Item 2 measures” (tokutei dai nigo sochi) under Article 126-2, Paragraph 1, Item 2 of the Deposit Insurance Act).

If the Prime Minister confirms that any of the measures set out in (b) above needs to be applied to a failed financial institution, the Prime Minister may order that the failed financial institution’s business operations and management and the disposal of the failed financial institution’s assets be placed under the special control of the Deposit Insurance Corporation under Article 126-5 of the Deposit Insurance Act. The business or liabilities of the financial institution subject to the special supervision or the special control of the Deposit Insurance Corporation as set forth above may also be transferred to a “bridge financial institution” established by the Deposit Insurance Corporation to enable the financial institution’s operations to be maintained and continue temporarily, or the financial institution’s liabilities to be repaid, and the bridge financial institution will seek to transfer the financial institution’s business or liabilities to another financial institution or dissolve the financial institution. The financial aid provided by the Deposit Insurance Corporation to assist a merger, business transfer, corporate split or other reorganization in respect of the failed financial institution set out in (b) above may take the form of a monetary grant, loan or deposit of funds, purchase of assets, guarantee or assumption of debts, subscription for preferred stock or subordinated bonds, subordinated loan, or loss sharing. If the Deposit Insurance Corporation has provided such financial assistance, the Prime Minister may designate the movable assets and claims of the failed financial institution as not subject to attachment under Article 126-16 of the Deposit Insurance Act, and such merger, business transfer, corporate split or other reorganization may be conducted outside of the court-administrated insolvency proceedings. If the financial institution subject to the special supervision or the special control by the Deposit Insurance Corporation as set forth above has liabilities that exceed, or are likely to exceed, its assets, or has suspended, or is likely to suspend, payments on its obligations, the financial institution may transfer all or a material portion of its business or all or a material portion of shares of its subsidiaries or implement corporate split or certain other corporate actions with court permission in lieu of any shareholder resolutions under Article 126-13 of the Deposit Insurance Act. In addition, the Deposit Insurance Corporation must request other financial institution creditors of the failed financial institution to refrain from exercising their rights against the failed financial institution until measures necessary to avoid the risk of significant disruption to the financial system in Japan have been taken, if it is recognized that such exercise of their rights is likely to make the orderly resolution of the failed financial institution difficult.

The expenses for implementation of the measures under this regime will be borne by the financial industry, with an exception under which the Japanese government may provide partial subsidies for such expenses within the limit to be specified in the government budget in cases where it is likely to cause extremely serious hindrance

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to the maintenance of the credit system in Japan or significant turmoil in the Japanese financial market or system if such expenses are to be borne only by the financial industry.

According to the announcement made by the FSA in March 2014, (i) Additional Tier 1 instruments and Tier 2 instruments under Basel III issued by a bank must be written down or converted into common shares when the Prime Minister confirms (nintei) that Item 2 measures (dai nigo sochi), Item 3 measures (dai sango sochi), or Specified Item 2 measures (tokutei dai nigo sochi) need to be applied to the bank and (ii) Additional Tier 1 instruments and Tier 2 instruments under Basel III issued by a bank holding company must be written down or converted into common shares when the Prime Minister confirms (nintei) that Specified Item 2 measures (tokutei dai nigo sochi) need to be applied to the bank holding company.

Further, in an explanatory paper outlining the FSA’s approach for the introduction of the TLAC framework in Japan published by the FSA in April 2016 and revisions to the paper published by the FSA in April 2018, collectively the FSA TLAC Approach, as well as in the Japanese TLAC Standard, the FSA expressed its view that single point of entry, or SPE, resolution, in which a single national resolution authority applies its resolution tools to the ultimate holding company in Japan of a financial group, would be the preferred strategy for resolution of Japanese G-SIBs and a domestic systemically important bank, or D-SIBs, deemed to be in particular need for a cross-border resolution arrangement and of particular systemic significance to the Japanese financial system if it fails (such G-SIBs and D-SIBs, collectively, “Covered SIBs”). However, it is uncertain which measure is to be taken in a given case, including whether or not the SPE resolution strategy will actually be elected and implemented in a given case, and the actual measures to be taken will be determined on a case-by-case basis considering the actual condition of the relevant Japanese G-SIB in distress. Under a possible model of resolution of a Japanese G-SIB based on the SPE resolution strategy as described in the Japanese TLAC Standard, if the FSA determines that a material subsidiary in Japan of a financial institution that is a Japanese G-SIB is non-viable due to material deterioration in its financial condition and issues an order concerning restoration of financial soundness, including recapitalization and restoration of liquidity of such material subsidiary, to the ultimate holding company in Japan designated by the FSA as Domestic Resolution Entity for the financial institution under Article 52-33, Paragraph 1 of the Banking Act of Japan (Act No. 59 of 1981), the material subsidiary’s Internal TLAC instruments will be written off or, if applicable, converted into equity in accordance with the applicable contractual loss absorption provisions of such Internal TLAC instruments. Following the write-off or conversion of Internal TLAC instruments, if the Prime Minister recognizes that the financial institution’s liabilities exceed, or are likely to exceed, its assets, or that it has suspended, or is likely to suspend, payments on its obligations, as a result of the financial institution’s loans to, or other investment in, the material subsidiary becoming subject to loss absorption or otherwise, and further recognizes that the failure of such financial institution is likely to cause a significant disruption to the Japanese financial market or system, the Prime Minister may, following deliberation by the Financial Crisis Response Council, confirm that measures set forth in Article 126-2, Paragraph 1, Item 2 of the Deposit Insurance Act, generally referred to as Specified Item 2 Measures (tokutei dai nigo sochi), need to be applied to the financial institution for its orderly resolution. Any such confirmation by the Prime Minister also triggers the point of non-viability clauses of Additional Tier 1 and Tier 2 instruments issued by the financial institution, causing such instruments to be written off or, if applicable, converted into equity, as described above.

Upon the application of Specified Item 2 Measures (tokutei dai nigo sochi), a financial institution will be placed under the special supervision by, or if the Prime Minister so orders, under the special control of, the Deposit Insurance Corporation. In an orderly resolution, the Deposit Insurance Corporation would control the operation and management of a financial institution’s business, assets and liabilities, including the potential transfer to a bridge financial institution established by the Deposit Insurance Corporation as its subsidiary, or such other financial institution as the Deposit Insurance Corporation may determine, of the financial institution’s systemically important assets and liabilities, which we expect in the case of MUFG would include the shares of our material subsidiaries based on the Japanese TLAC Standard. The Prime Minister may prohibit creditors of the financial institution from attaching any of our assets and claims which are to be transferred to a bridge financial institution or another financial institution pursuant to Article 126-16 of the Deposit Insurance Act.

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Based on the Japanese TLAC Standard, it is currently expected that the External TLAC eligible senior notes issued by the financial institution will not be transferred to a bridge financial institution or other transferee in the orderly resolution process but will remain as such financial institution’s liabilities subject to court-administered insolvency proceedings. On the other hand, in an orderly resolution process, the shares of material subsidiaries of such financial institution may be transferred to a bridge financial institution or other transferee, and such financial institution would only be entitled to receive consideration representing the fair value of such shares, which could be significantly less than the book value of such shares. Following such business transfer, the recoverable value of such financial institution’s residual assets in court-administered insolvency proceedings may not be sufficient to fully satisfy any payment obligations that such financial institution may have under its liabilities, including the External TLAC eligible senior notes.

Recovery and resolution plan.    In November 2019, the Financial Stability Board published the latest list of G-SIBs, which includes us. The list is annually updated by the Financial Stability Board. A recovery and resolution plan must be put in place for each G-SIB, and the plans must be regularly reviewed and updated. In Japan, under the Banking Law and the Comprehensive Guidelines for Supervision of Major Banks, etc., financial institutions identified as G-SIBs must, as part of their crisis management, prepare and submit a recovery plan, including triggers for the recovery plan and an analysis of recovery options, to the FSA. The Comprehensive Guidelines also provide that resolution plans for such financial institutions are prepared by the FSA. We submitted our recovery plan to the FSA in December 2019.

Liquidity Coverage Ratio.    Japanese banks and bank holding companies with international operations are required to disclose their LCRs calculated in accordance with the methodology prescribed in the FSA guidance that has been adopted to implement the relevant Basel III standard. The LCR is a measure to determine whether a bank has a sufficient amount of high-quality liquid assets, which are assets that can be converted easily and immediately into cash in private markets in order to meet the bank’s liquidity needs, to survive in a 30-day financial stress scenario, including sizable deposit outflows, inability to issue new bonds or access the interbank market, stoppage of the collateralized funding market, need for additional collateral in connection with derivative transactions, and significant outflows of cash under commitment lines to customers. Once a bank or bank holding company fails to meet the minimum LCR of 100%, it is required to immediately report such failure to the FSA. If the FSA deems the financial condition of the bank or bank holding company to be serious, the FSA may issue a business improvement order. A minimum LCR of 100% is currently required. In light of the COVID-19 pandemic, the FSA issued a statement on March 17, 2020 that the FSA will tolerate LCR under 100% in the case of stressed conditions. In addition, in cases where LCR declines under 100%, the FSA has stated that they will respond in a flexible manner with respect to applicable reporting requirements established by the FSA.

Net Stable Funding Ratio.    The NSFR is a measure to determine whether a bank has sustainable and long-term liabilities and capital for its assets and activities. The Basel Committee on Banking Supervision issued the final standard of NSFR in October 2014. In Japan, details of the NSFR requirements are currently under discussion and the FSA confirmed in March 2020 that it would not implement the NSFR requirements prior to April 2021.

Inspection and reporting.    The FSA has the authority to order reporting from, and inspect, banks and banking holding companies in Japan. Based on its “Principles and Approaches of Inspection and Supervision,” the FSA seeks to evaluate the effectiveness of the operations and functions of financial institutions, supervise financial institutions based on proactive and forward-looking analyses, facilitate best practices among financial institutions, focus monitoring on high-priority issues, and integrate on- and off-site monitoring. The FSA abolished the Financial Institutions Inspection Manual which had traditionally been understood to set forth the minimum standard for the operations of financial institutions in Japan in December 2019.

Furthermore, the Securities and Exchange Surveillance Commission of Japan, or SESC, inspects banks in connection with their securities business as well as financial instruments business operators, such as securities firms. The Bank of Japan also conducts inspections of banks. The Bank of Japan Law provides that the Bank of Japan and financial institutions may agree as to the form of inspection to be conducted by the Bank of Japan.

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Laws limiting shareholdings of banks.    The provisions of the Antimonopoly Act that generally prohibit a bank from holding more than 5% of another company’s voting rights do not apply to a bank holding company.

However, the Banking Law prohibits a bank holding company and its subsidiaries from holding, on an aggregated basis, more than 15% of the voting rights of companies other than those which can legally become subsidiaries of bank holding companies. There have recently been amendments to various financial regulation related laws, including the Banking Law, which includes certain deregulations on restrictions for shareholdings by banks, as described above.

In addition, a bank is prohibited from holding shares in other companies exceeding the aggregate of its Common Equity Tier 1 capital amount and Additional Tier 1 capital amount.

Restrictions on exposures to single large counterparties.    The Banking Law prohibits banks and bank holding companies (on a consolidated basis with their subsidiaries and affiliates) from having large exposure exceeding 25% of their Tier 1 capital to a single counterparty and also prohibits a G-SIB’s exposure to another G-SIB exceeding 15% of its Tier 1 capital.

Financial Instruments and Exchange Act.    The Financial Instruments and Exchange Act provides protection for investors and also regulates sales of a wide range of financial instruments and services, requiring financial institutions to improve their sales rules and strengthen compliance frameworks and procedures. Among the instruments that the Japanese banks deal in, derivatives, foreign currency-denominated deposits, and variable insurance and annuity products are subject to regulations covered by the sales-related rules of conduct under the law.

Article 33 of the Financial Instruments and Exchange Act generally prohibits banks from engaging in securities transactions. However, bank holding companies and banks may, through a domestic or overseas securities subsidiary, conduct all types of securities businesses, with appropriate approval from the FSA. Similarly, registered banks are permitted to provide securities intermediation services and engage in certain other similar types of securities related transactions, including retail sales of investment funds and government and municipal bonds.

Subsidiaries of bank holding companies engaging in the securities business are subject to the supervision of the FSA as financial instruments business operators. The Prime Minister has the authority to regulate the

securities industry and securities companies, which authority is delegated to the Commissioner of the FSA under the Financial Instruments and Exchange Act. In addition, the SESC, an external agency of the FSA, is independent from the FSA’s other bureaus and is vested with the authority to conduct day-to-day monitoring of the securities markets and to investigate irregular activities that hinder fair trading of securities, including inspections of securities companies as well as banks in connection with their securities business. Furthermore, the Commissioner of the FSA delegates certain authority to the Director General of the Local Finance Bureau to inspect local securities companies and their branches. A violation of applicable laws and ordinances may result in various administrative sanctions, including revocation of registration, suspension of business, administrative monetary penalty or an order to discharge any director or executive officer who has failed to comply with applicable laws and ordinances. Securities companies are also subject to the rules and regulations of the Japanese stock exchanges and the Japan Securities Dealers Association, a self-regulatory organization of securities companies.

Act on Sales, etc. of Financial Instruments.    The Act on Sales, etc. of Financial Instruments was enacted to protect customers from incurring unexpected losses as a result of purchasing financial instruments. Under this act, sellers of financial instruments have a duty to their potential customers to explain important matters such as the nature and magnitude of risks involved regarding the financial instruments that they intend to sell. If a seller fails to comply with the duty, there is a rebuttable presumption that the loss suffered by the customer due to the seller’s failure to explain is equal to the amount of decrease in the value of the purchased financial instruments.

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Anti-money laundering laws.    Under the Act on Prevention of Transfer of Criminal Proceeds, specified business operators, including financial institutions, are required to verify customer identification data, preserve transaction records, and file Suspicions Transaction Reports with the FSA or other regulatory authorities in cases where any asset received through their business operations is suspected of being criminal proceeds.

In February 2018, the FSA issued “Guidelines on Anti-Money Laundering and Terrorist Financing” to require financial institutions to further strengthen their management of anti-money laundering and terrorist financing functions and their risk-based approach used in such functions.

Further, recent amendments to the Enforcement Ordinance of the Act introduced requirements relating to online KYC processes in November 2018 and strengthened the requirements for KYC processes for customers residing in remote areas in April 2020.

Acts concerning trust business conducted by financial institutions.    Under the Trust Business Act, joint stock companies that are licensed by the Prime Minister as trust companies, including non-financial companies, are allowed to conduct trust business. In addition, under the Act on Provision, etc. of Trust Business by Financial Institutions, banks and other financial institutions, as permitted by the Prime Minister, are able to conduct trust business. The Trust Business Act provides for a separate type of registration for trustees who conduct only administration type trust business. The Trust Business Act also provides for various duties imposed on the trustee in accordance with and in addition to the Trust Act.

Act on the Protection of Personal Information.    With regard to protection of personal information, the Act on the Protection of Personal Information requires, among other things, Japanese banking institutions to limit the use of personal information to the stated purposes and to properly manage the personal information in their possession, and forbids them from providing personal information to third parties without consent. If a bank violates certain provisions of the act, the Personal Information Protection Commission of Japan may advise or order the bank to take proper action. In addition, the Banking Law and the Financial Instruments and Exchange Act contain certain provisions with respect to appropriate handling of customer information.

Act on the Use of Personal Identification Numbers in the Administration of Government Affairs.    Pursuant to the Act on the Use of Personal Identification Numbers in the Administration of Government Affairs, which became effective in October 2015, the Japanese government has adopted a Social Security and Tax Number System, which is designed to (1) improve social security services, (2) enhance public convenience in obtaining government services, and (3) increase the efficiency of the administration of government affairs. Under this system, a 12-digit unique number is assigned to each resident of Japan to identify and manage information relating to the resident for government service and tax purposes. Financial institutions are required to implement measures to ensure that such customer information will be protected from inappropriate disclosure and other unauthorized use.

Act Concerning Protection of Depositors from Illegal Withdrawals Made by Counterfeit or Stolen Cards.    The Act on Protection, etc. of Depositors and Postal Saving Holders from Unauthorized Automated Withdrawal, etc. Using Counterfeit Cards, etc. and Stolen Cards, etc. requires financial institutions to establish internal systems to prevent illegal withdrawals of deposits made using counterfeit or stolen bank cards. The act also requires a financial institution to compensate depositors for any amount illegally withdrawn using stolen bank cards except in certain cases, including those where the financial institution can verify that it acted in good faith without negligence and there was gross negligence on the part of the relevant depositor. In addition, the act provides that illegal withdrawals with counterfeit bank cards are invalid unless the financial institution acted in good faith without negligence and there was gross negligence on the part of the relevant account holder.

Government reforms to restrict maximum interest rates on consumer lending business.    In December 2006, the Diet passed legislation to reform the regulations relating to the consumer lending business, including amendments to the Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates which,

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effective June 18, 2010, reduced the maximum permissible interest rate from 29.2% per annum to 20% per annum. The regulatory reforms also included amendments to the Law Concerning Lending Business which, effective June 18, 2010, abolished the so-called “gray-zone interest.” Gray-zone interest refers to interest rates exceeding the limits stipulated by the Interest Rate Restriction Act (between 15% per annum to 20% per annum depending on the amount of principal). Prior to June 18, 2010, gray-zone interests were permitted under certain conditions set forth in the Law Concerning Lending Business. As a result of the regulatory reforms, all interest rates are now subject to the lower limits imposed by the Interest Rate Restriction Act, compelling lending institutions, including our consumer finance subsidiaries and equity method investees, to lower the interest rates they charge borrowers. Furthermore, the new regulations, which became effective on June 18, 2010, require, among other things, consumer finance companies to limit their lending to a single customer to a maximum of one third of the customer’s annual income regardless of the customer’s repayment capability.

In addition, as a result of decisions made by the Supreme Court of Japan prior to June 18, 2010, imposing stringent requirements for charging such gray-zone interest rates, consumer finance companies have been responding to borrowers’ claims for reimbursement of previously collected interest payments in excess of the limits stipulated by the Interest Rate Restriction Act. See “Item 3.D. Key Information—Risk Factors—Operational Risk—Because of our loans to consumers and our shareholdings in companies engaged in consumer lending, changes in the business or regulatory environment for consumer finance companies in Japan may further adversely affect our financial results.”

Act on Special Provisions of the Income Tax Act, the Corporation Tax Act and the Local Tax Act Incidental to Enforcement of Tax Treaties.    Pursuant to the Amendments to the Act on Special Provisions of the Income Tax Act, the Corporation Tax Act and the Local Tax Act Incidental to Enforcement of Tax Treaties, which became effective in January 2017, financial institutions are required to collect certain information from their accountholders, including jurisdictions of tax residence, and report such information to the National Tax Agency in accordance with the Common Reporting Standard as developed by the Organization for Economic Co-operation and Development.

United States

As a result of our operations in the United States, we are subject to extensive U.S. federal and state supervision and regulation.

Overall supervision and regulation.    We are subject to supervision, regulation and examination with respect to our U.S. operations by the FRB pursuant to the U.S. Bank Holding Company Act of 1956, as amended, or the BHCA, and the International Banking Act of 1978, as amended, or the IBA, because we and MUFG Bank are bank holding companies and foreign banking organizations, as defined pursuant to those statutes. The FRB functions as our “umbrella” supervisor under amendments to the BHCA effected by the Gramm-Leach-Bliley Act of 1999, which among other things:

• prohibited further expansion of the types of activities in which bank holding companies, acting directly or through non-bank subsidiaries, may engage;

• authorized qualifying bank holding companies to opt to become “financial holding companies,” and thereby acquire the authority to engage in an expanded list of activities; and

• modified the role of the FRB by specifying new relationships between the FRB and the functional regulators of non-bank subsidiaries of both bank holding companies and financial holding companies.

The BHCA generally prohibits each of a bank holding company and a foreign banking organization that maintains branches or agencies in the United States from, directly or indirectly, acquiring more than 5% of the voting shares of any company engaged in non-banking activities in the United States unless the bank holding

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company or foreign banking organization has elected to become a financial holding company, as discussed above, or the FRB has determined, by order or regulation, that such activities are so closely related to banking as to be a proper incident thereto and has granted its approval to the bank holding company or foreign banking organization for such an acquisition. The BHCA also requires a bank holding company or foreign banking organization that maintains branches or agencies in the United States to obtain the prior approval of an appropriate federal banking authority before acquiring, directly or indirectly, the ownership of more than 5% of the voting shares or control of any U.S. bank or bank holding company. In addition, under the BHCA, a U.S. bank or a U.S. branch or agency of a foreign bank is prohibited from engaging in various tying arrangements involving it or its affiliates in connection with any extension of credit, sale or lease of any property or provision of any services.

In October 2008, we, MUFG Bank, Mitsubishi UFJ Trust and Banking and MUFG Americas Holdings initially attained financial holding company status. In August 2016, Mitsubishi UFJ Trust and Banking relinquished its financial holding company status. Financial holding company status is subject to periodic regulatory review. A financial holding company is authorized to engage in an expanded list of activities deemed to be financial in nature or incidental to such financial activity as well as certain specified non-banking activities deemed to be closely related to banking. In order to maintain the status as a financial holding company, a bank holding company must continue to meet certain standards established by the FRB. Those standards require that a financial holding company exceed the minimum standards applicable to bank holding companies that have not elected to become financial holding companies. These higher standards include meeting the “well capitalized” and “well managed” standards for financial holding companies as defined in the regulations of the FRB. Failure to meet these standards, due to inadequate capital management or shortcomings in operations, results in restrictions on the ability to engage in expanded activities as a financial holding company. In addition, a financial holding company must ensure that its U.S. banking subsidiaries meet certain minimum standards under the Community Reinvestment Act of 1977.

U.S. branches and agencies of subsidiary Japanese banks.    Under the authority of the IBA, our banking subsidiaries, MUFG Bank and Mitsubishi UFJ Trust and Banking, operate five branches, two agencies and seven representative offices in the United States. MUFG Bank operates branches in Los Angeles, California; Chicago, Illinois; and two branches in New York, New York; agencies in Houston and Dallas, Texas; and representative offices in Washington, D.C; San Francisco, California; Seattle, Washington; Atlanta, Georgia; Minnetonka, Minnesota; Jersey City, New Jersey; and Florence, Kentucky. Mitsubishi UFJ Trust and Banking operates a branch in New York, New York.

The IBA provides, among other things, that the FRB may examine U.S. branches and agencies of foreign banks, and each branch and agency shall be subject to on-site examination by the appropriate federal or state bank supervisor as frequently as would a U.S. bank. The IBA also provides that if the FRB determines that a foreign bank is not subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in its home country, or if there is reasonable cause to believe that the foreign bank or its affiliate has committed a violation of law or engaged in an unsafe or unsound banking practice in the United States, the FRB may order the foreign bank to terminate activities conducted at a branch or agency in the United States.

U.S. branches and agencies of foreign banks must be licensed, and are also supervised and regulated, by a state or by the Office of the Comptroller of the Currency, or the OCC, the federal regulator of U.S. national banks. The OCC is an independent bureau of the U.S. Department of the Treasury. Effective November 7, 2017, all of the branches and agencies of MUFG Bank and Mitsubishi UFJ Trust and Banking in the United States converted from state-licensed branches and agencies to federally-licensed branches and agencies supervised and regulated by the OCC.

When opening a federal branch or agency, a foreign bank must establish and maintain a deposit account with an FRB member bank of at least (1) the amount of capital that would be required of a national bank being organized at the same location or (2) five percent of the total liabilities of the federal branch or agency, including

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acceptances but excluding (i) accrued expenses and (ii) amounts due and other liabilities to offices, branches, and subsidiaries of the foreign bank, whichever is greater. Federally-licensed branches and agencies must also submit written reports concerning their assets and liabilities and other matters, to the extent required by the OCC or the FRB, and are examined at periodic intervals by the OCC and the FRB.

U.S. banking subsidiaries.    We indirectly own and control one U.S. bank, MUFG Union Bank, N.A. (known prior to July 1, 2014 as Union Bank, N.A.), through MUFG Bank and its subsidiary, MUFG Americas Holdings, a registered bank holding company.

MUFG Union Bank is a national bank subject to the supervision, examination and regulatory authority of the OCC pursuant to the National Bank Act.

In regulating national banks such as MUFG Union Bank, the OCC has the power to examine those banks; approve or deny applications for new charters, branches, capital, or other changes in corporate or banking structure; take supervisory actions against national banks that do not comply with laws and regulations or that otherwise engage in unsound practices; remove officers and directors, negotiate agreements to change banking practices, and issue cease and desist orders as well as civil money penalties; and issue rules and regulations, legal interpretations, and corporate decisions governing investments, lending, and other practices. The OCC’s staff of bank examiners conducts on-site reviews and provides sustained supervision of national banks. Examiners analyze loan and investment portfolios, funds management, capital, earnings, liquidity, and sensitivity to market risk for national banks. Examiners also review internal controls, internal and external audit, and compliance with law, and evaluate management’s ability to identify and control risk.

In addition, the FDIC insures the deposits of MUFG Union Bank up to legally specified maximum amounts. In the event of a failure of an FDIC-insured bank, the FDIC is virtually certain to be appointed as receiver, and would resolve the failure under provisions of the Federal Deposit Insurance Act. In the liquidation or other resolution of a failed FDIC-insured depository institution, deposits in its U.S. offices and other claims for administrative expenses and employee compensation are afforded priority over other general unsecured claims, including deposits in offices outside the United States, non-deposit claims in all offices and claims of a parent company. Moreover, under longstanding FRB policy, a bank holding company is expected to act as a source of financial strength for its banking subsidiaries and to commit resources to support such banks.

Bank capital requirements and capital distributions.    MUFG Union Bank is subject to applicable risk-based and leverage capital guidelines issued by U.S. regulators for banks and bank holding companies. In addition, MUFG Bank and Mitsubishi UFJ Trust and Banking, as foreign banking organizations that have U.S. branches and agencies and that are controlled by us, are subject to the FRB’s requirements that they be “well-capitalized” based on Japan’s risk based capital standards. MUFG Union Bank, MUFG Bank, Mitsubishi UFJ Trust and Banking, and MUFG Americas Holdings are all “well capitalized” as defined under, and otherwise comply with, all U.S. regulatory capital requirements applicable to them. The Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA, provides, among other things, for expanded regulation of insured depository institutions, including banks, and their parent holding companies. As required by FDICIA, the federal banking agencies have established five capital tiers ranging from “well capitalized” to “critically undercapitalized” for insured depository institutions. As an institution’s capital position deteriorates, the federal banking regulators may take progressively stronger actions, such as further restricting affiliate transactions, activities, asset growth or interest payments. In addition, FDICIA generally prohibits an insured depository institution from making capital distributions, including the payment of dividends, or the payment of any management fee to its holding company, if the insured depository institution would be undercapitalized after making such distribution or paying such dividend or fee.

The availability of dividends from insured depository institutions in the United States is limited by various other statutes and regulations. The National Bank Act and other federal laws prohibit the payment of dividends by a national bank under various circumstances and limit the amount a national bank can pay without the prior

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approval of the OCC. In addition, state-chartered banking institutions are subject to dividend limitations imposed by applicable federal and state laws.

Other regulated U.S. subsidiaries.    Our non-bank subsidiaries that engage in securities-related activities in the United States are regulated by appropriate functional regulators, such as the SEC, any self-regulatory organizations of which they are members, and the appropriate state regulatory agencies. These non-bank subsidiaries are required to meet separate minimum capital standards as imposed by those regulatory authorities.

Anti-Money Laundering Initiatives, the Bank Secrecy Act and the USA PATRIOT Act.    A major focus of U.S. governmental policy relating to financial institutions in recent years has been, and continues to be, aimed at preventing money laundering and terrorist financing. The USA PATRIOT Act of 2001, as incorporated into the Bank Secrecy Act, substantially broadened the scope of U.S. anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The U.S. Department of the Treasury has issued a number of regulations that impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report potential money laundering and terrorist financing, including the collection of beneficial ownership information. The bank regulatory agencies carefully scrutinize the adequacy of an institution’s compliance with these regulations and, as a result, there have been an increased number of regulatory enforcement actions. A financial institution’s failure to maintain and implement adequate policies, procedures and controls to prevent and detect money laundering and terrorist financing could have serious legal and reputational consequences for the institution, including the incurrence of expenses to enhance the relevant programs, the imposition of limitations on the scope of its operations and the imposition of fines and other monetary penalties. See “Item 3.D. Key Information—Risk Factors—Operational Risk—We may become subject to regulatory actions or other legal proceedings relating to our transactions or other aspects of our operations, which could result in significant financial losses, restrictions on our operations and damage to our reputation.”

Foreign Corrupt Practices Act.    In recent years, U.S. regulatory and enforcement agencies including the SEC and the U.S. Department of Justice have significantly increased their enforcement efforts of the Foreign Corrupt Practices Act, or the FCPA. The FCPA prohibits U.S. securities issuers, U.S. domestic entities, and parties doing substantial business within the United States (including their shareholders, directors, agents, officers, and employees) from giving, offering, or promising anything of value to foreign public officials in order to obtain or retain any business advantage. The FCPA also requires U.S. securities issuers to maintain adequate books and records in such a way that they fairly reflect all transactions and dispositions of assets. Enforcement efforts have targeted a wide range of U.S. and foreign-based entities and have been based on a broad variety of alleged fact patterns, and in a number of cases have resulted in the imposition of substantial criminal and civil penalties or in agreed payments in settlement of alleged violations. Failure to maintain adequate anti-bribery policies, procedures, internal controls, and books and records globally could have serious legal and reputational consequences for the institution, including the incurrence of expenses to enhance the relevant programs, as well as the imposition of civil and criminal penalties.

Regulatory Reform Legislation.    In response to the global financial crisis and the perception that lax supervision of the financial industry in the United States may have been a contributing cause, legislation designed to reform the system for supervision and regulation of financial firms doing business in the United States, the so-called Dodd-Frank Act, was signed into law on July 21, 2010. The Dodd-Frank Act is complex and extensive in its coverage and contains a wide range of provisions that affect financial institutions operating in the United States, including our U.S. operations. Included among these provisions are sweeping reforms designed to reduce systemic risk presented by very large financial firms, promote enhanced supervision, regulation, and prudential standards for financial firms, establish comprehensive supervision of financial markets, impose new limitations on permissible financial institution activities and investments, expand regulation of the derivatives markets, protect consumers and investors from financial abuse, and provide the government with the tools needed to manage a financial crisis. Key provisions that impact our operations are summarized

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below. However, certain regulatory rules under the Dodd-Frank Act are not yet finalized, require further interpretive guidance by the relevant supervisory agencies, or do not yet require us to fully implement compliance procedures. Accordingly, while the legislation has an impact on our operations, including the imposition of significant compliance costs, we are unable to assess with certainty the full degree of impact of the Dodd-Frank Act on our operations at this time.

Among the components of the Dodd-Frank Act that have impacted or may impact our operations are the provisions relating to enhanced prudential standards, including capital, liquidity and structural requirements, the “Volcker Rule,” derivatives regulation, credit reporting, resolution plans, incentive-based compensation, the establishment of the Consumer Financial Protection Bureau, and debit interchange fees. Although certain of the regulatory rules regarding the foregoing components are still pending, as noted above, based on information currently available to us, other than the Volcker Rule and derivatives regulations as discussed below, the impact of these components is expected to be mainly limited to our U.S. operations and not to be material to us on a

consolidated basis. We intend to continue to monitor developments relating to the Dodd-Frank Act and the potential impact on our activities inside and outside of the United States.

With respect to the Dodd-Frank Act provisions related to enhanced prudential standards, in February 2014 the FRB issued final rules that established enhanced prudential standards for the U.S. operations of foreign banking organizations such as MUFG. These rules required us to organize by July 1, 2016 all of our U.S. bank and non-bank subsidiaries, with certain limited exceptions, under a U.S. IHC that is subject to U.S. capital requirements and enhanced prudential standards comparable to those applicable to top-tier U.S. bank holding companies of the same size. Under these rules, we were required to change the structure of our U.S. operations, including the manner in which we oversee and manage those operations, and may be required to inject additional capital into our U.S. operations. We have designated MUFG Americas Holdings as our IHC.

MUFG Americas Holdings is subject to various U.S. prudential requirements and has become subject to others with the designation of MUFG Americas Holdings as our IHC as of July 1, 2016. MUFG Americas Holdings was previously subject to risk-based and leverage capital requirements, liquidity requirements, and other enhanced prudential standards applicable to large U.S. bank holding companies. MUFG Americas Holdings was also subject to capital planning and stress testing requirements. MUFG Americas Holdings is now subject to the capital planning and stress testing requirements and certain enhanced prudential standards applicable to IHCs. On June 22, 2017, the FRB released the results of the 2017 Dodd-Frank Act stress tests. It found that, even in the severely adverse economic stress test scenario, MUFG Americas Holdings would maintain capital ratios well above the required minimum levels. On June 28, 2017, the FRB announced that it had no objections to the capital plan submitted by MUFG Americas Holdings as part of the 2017 Comprehensive Capital Analysis and Review, or CCAR. The FRB announced early in 2017 that MUFG Americas Holdings would not be subject to the qualitative portion of the CCAR.

The FRB has the authority to examine an IHC and any of its subsidiaries. U.S. leverage requirements applicable to the IHC took effect beginning in January 2018. MUFG Americas Holdings is subject to a requirement to maintain an LCR equal to at least 100% based on total projected net cash outflows over a 30-calendar day period, effectively using net cash outflow assumptions equal to 70% of the outflow assumptions prescribed for internationally active banking organizations. Our combined U.S. operations, including MUFG Bank’s and Mitsubishi UFJ Trust and Banking’s branches, are also subject to certain requirements related to liquidity and risk management.

On June 25, 2020, the FRB will release the results of the 2020 Dodd-Frank Act and Comprehensive Capital Analysis and Review (CCAR) stress tests which will include results for MUFG Americas Holdings. The FRB announced early in 2017 that MUFG Americas Holdings would not be subject to the qualitative portion of the CCAR; further, beginning with CCAR 2019, the FRB limited its ability to object to firms’ capital plans on qualitative grounds to firms recently subject to CCAR that continue to exhibit material deficiencies in capital planning.

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The Volcker Rule was issued in final form by the Federal Reserve originally in December 2013, and substantive portions were subsequently amended in November 2019. Under the Volcker Rule, we are required to cease conducting certain proprietary trading activities, which means trading in securities and financial instruments for our own account, subject to certain exceptions, including market-making, hedging, and underwriting activities if such activities are conducted within a rigorous compliance framework. We are also restricted from engaging in certain activities regarding hedge funds and private equity funds, or covered funds. While the Volcker Rule excludes restrictions on such activities conducted solely outside of the United States, the regulatory definition of such exempted activities is narrow and complex and in some cases requires further clarification. Our proprietary trading and covered funds activities are generally executed outside of the United States, but certain activities within the United States are within the scope of the Rule, and, therefore, we have undertaken steps that we believe are appropriate to bring our activities and investments into compliance with the Rule. Although we are continuing to consider the effect of the recent changes and implement corresponding changes to our compliance program, given the limited amount of restricted activities in which we engage within the United States, we do not expect any final changes to the Volcker Rule to have a material negative impact on our operations.

U.S. regulators continue to issue final regulations and regulatory determinations governing swaps and derivatives markets as contemplated by the Dodd-Frank Act. To date, MUFG Bank and Mitsubishi UFJ Securities International, plc, have registered as swap dealers with the U.S. Commodity Futures Trading Commission, or CFTC. Depending on the finalization of regulations and regulatory determinations governing

swaps and derivatives markets under the Dodd-Frank Act, as well as the activities of our other subsidiaries located inside and outside of the United States, our other subsidiaries may have to register as swap dealers with, or be subject to the regulations of, the CFTC and/or SEC. Regulation of swap dealers by the CFTC and SEC imposes numerous corporate governance, business conduct, capital, margin, reporting, clearing, execution, and other regulatory requirements on our operations, which may adversely impact our derivatives businesses and make us less competitive than those competitors that are not subject to the same regulations. Although many regulations applicable to swap dealers are already in effect, it is difficult to assess the full impact of these requirements because some of the most important regulatory determinations have not yet been implemented or finalized. For example, U.S. regulators have previously adopted guidance and rules on the application of U.S. regulations to activities of registered swap dealers outside of the United States. The extraterritorial application of swap dealer regulatory requirements imposes significant operational and compliance burdens on our swaps activities outside of the United States. On December 18, 2019, the CFTC proposed rules that would modify and codify the cross-border application of certain of its Title VII swap rules to both U.S. and non-U.S. registered swap dealers. Similarly, in December 2019, the SEC adopted a package of rule amendments, guidance, and a related order designed to expand and clarify the framework for regulating cross-border security-based swaps, including single-name credit default swaps. We are continuing to consider the effects of these proposed and final regulatory changes.

On June 14, 2018, the FRB approved a final rule regarding single counterparty credit limits, or SCCL, for large banking organizations. The SCCL final rule is considered the last major piece of regulatory action needed to implement Section 165(e) of the Dodd-Frank Act. Section 165(e) was a response to the concern that failure or financial distress of one large, interconnected financial institution could cascade through the U.S. financial system and impair the financial condition of that firm’s counterparties, including other large, interconnected firms. Section 165(e) generally, and the SCCL final rule specifically, seek to mitigate this risk by limiting the aggregate exposure among such financial institutions and their counterparties.

The final rule establishes separate SCCLs, one applicable to the combined U.S. operations, or CUSO, of MUFG and another to MUAH, as MUFG’s U.S. intermediate holding company, or IHC. Originally, MUFG CUSO was required to comply with its SCCL beginning on January 1, 2020, while IHC compliance was scheduled to begin on July 1, 2020, unless that time is extended by the FRB in writing. The SCCL final rule allows FBOs to satisfy its CUSO-level requirements by certifying as to home-country compliance with Basel Committee standards in lieu of complying with the final U.S. SCCL rule. Earlier this year, the FRB extended by

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18 months the initial compliance dates of its SCCL rule as it applies to the CUSO of FBOs, in order to provide additional time for foreign jurisdictions’ implementation of the Basel standard to become effective. The compliance date is now July 1, 2021 for MUFG.

Separately, based on the preliminary categorization of MUAH as a Category IV entity under the final rules tailoring prudential standards for large banking organization (“Tailoring Final Rules”), SCCL will no longer apply to MUAH. The following paragraphs discuss the Tailoring Final Rules in greater detail.

On October 10, 2019, the FRB issued two final rules that (1) tailor the framework for application of enhanced prudential standards to U.S. and foreign banking organizations and (2) modify the application of capital and liquidity requirements to the operations of U.S. banking organizations and the U.S. operations of foreign banking organizations. The final rules apply the same framework as to the U.S. and foreign BHCs but use a differing calibration for foreign BHCs. The final rules became effective on December 31, 2019.

The final rule, promulgated solely by the FRB, determined the applicability of certain enhanced prudential standards requirements, including liquidity stress testing and management, capital planning and stress testing, risk management, single counterparty credit limits requirements, and related regulatory reporting by categorizing all foreign banking organizations with $100 billion or more in combined U.S. assets into three categories. The second final rule was issued jointly by the FRB, the OCC, and the FDIC, and similarly categorized foreign banking organizations and tailored the application of the agencies’ regulatory capital and standardized liquidity requirements on that basis. Under the framework of the final rules, MUFG’s U.S. operations are subject to a split category treatment: (i) the combined U.S. operations are classified as Category II, subject to the most stringent requirements other than those applicable to U.S. G-SIBs; and (ii) MUAH, the U.S. BHC and IHC is classified as Category IV, a classification that provides certain capital and liquidity relief from prior requirements, taking into account the size and other risk characteristics of MUFG’s U.S. subsidiary operations.

On October 10, 2019, the FRB jointly issued with the FDIC final rule amendments revising their joint resolution planning requirements of Section 165(d) of the Dodd-Frank Act. Resolution plans, also known as living wills, describe a firm’s strategy for orderly resolution under bankruptcy in the event of material financial distress or failure of the firm. The final rule tailors the rule’s requirements for firms that do not pose the same systemic risk as the largest institutions, requiring resolution plans to be submitted on a three-year cycle. MUFG is classified as a triennial full filer as applicable to large foreign and domestic banks classified within Category II and III, and MUFG is subject to alternating between submitting full and targeted resolution plans every three years. On May 6, 2020, the agencies, in recognition of immediate challenges of the COVID-19 pandemic, extended the next submission date by 90 days, to September 29, 2021, for the next required targeted resolution plan submission.

On January 30, 2020 the Federal Reserve adopted a final rule revising the “controlling influence” prong of its “control” rules under the Bank Holding Company Act of 1956, as amended. The final rule largely adopts the proposed rule issued by the FRB in April 2019, reaffirms the Federal Reserve’s conceptual framework for analyzing “controlling influence,” and rejects a number of banking industry recommendations for liberalization of the “control” rules. The issue of “control” is a central concept under the Bank Holding Company Act. Among other things, control determines whether an investor in a banking organization is subject to the requirements and restrictions of the Bank Holding Company Act, whether a bank holding company’s investment in a company is permissible and/or subjects the investee company to the requirements and restrictions of the Bank Holding Company Act, and whether an investor in any depository organization is subject to the Volcker Rule. As a result, a determination of whether or not an investment constitutes “control” is often determinative of whether an investment can be made (or, at least, must be restructured to avoid control). Originally effective on April 1, 2020, the FRB on March 31, 2020 announced that it would delay the effective date of the final rule to September 30, 2020.

Foreign Account Tax Compliance Act.    The Hiring Incentives to Restore Employment Act was enacted in March 2010 and contains provisions commonly referred to as the Foreign Account Tax Compliance Act, or

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FATCA. The U.S. Treasury, acting through the Internal Revenue Service, or the IRS, issued final FATCA regulations in January 2013. FATCA created a new reporting and withholding regime for U.S. and foreign financial institutions, or FFIs, and certain non-financial foreign entities, or NFFEs.

In addition, the FATCA framework has been expanded with the introduction of Intergovernmental Agreements between the U.S. Treasury and foreign governments, which pursue a framework for

intergovernmental cooperation to facilitate the implementation of FATCA. The United States has entered into various Intergovernmental Agreements with non-U.S. jurisdictions including Japan. FATCA and the Intergovernmental Agreements became effective from July 1, 2014.

In connection with FATCA, we have assessed and determined if our group entities are U.S. withholding agents, FFIs, or NFFEs. Each identified U.S. withholding agent and FFI has also evaluated pre-existing and new entity accounts to the extent required to determine their respective FATCA classifications. We have continuously developed internal procedures and processes that we believe address the regulatory requirements under FATCA.

However, FATCA compliance has required us to develop extensive systems capabilities and internal processes to identify and report U.S. account holders who are subject to FATCA requirements, which has been a complex and costly process requiring significant internal resources. If our procedures and processes are determined not to be adequate to meet the requirements of FATCA, we could potentially be subject to serious legal and reputational consequences, including the imposition of withholding taxes on certain amounts payable to us from U.S. sources, and could be required to expend additional resources to enhance our systems, procedures and processes and take other measures in response to such consequences.

Capital Adequacy.    MUFG Americas Holdings and MUFG Union Bank are required to maintain minimum capital ratios in accordance with rules issued by the U.S. Federal banking agencies. In July 2013, the U.S. Federal banking agencies issued final rules to implement the Basel Committee on Banking Supervision’s capital guidance for U.S. banking organizations, or U.S. Basel III. These rules establish more restrictive capital definitions, create additional categories and higher risk weightings for certain asset classes and off-balance sheet exposures, higher minimum capital and leverage ratios and capital conservation buffers that will be added to the minimum capital requirements. These rules supersede the U.S. federal banking agencies’ general risk-based capital rules generally referred to as Basel I, the advanced approaches rules generally referred to as Basel II, which are applicable to certain large banking organizations, and leverage rules, and are subject to certain transition provisions. MUFG Americas Holdings became subject to the U.S. Basel III capital rules in January 2015, with certain provisions subject to a phase-in period, while MUFG Union Bank continues to be subject to the U.S. Basel III capital rules which became effective for advanced approaches institutions on January 1, 2014. The U.S. Basel III capital rules were substantially phased in by January 1, 2019.

Both MUFG Americas Holdings and MUFG Union Bank are subject to the following regulatory minimum risk-based capital ratios: (1) 4.5% Common Equity Tier 1 capital ratio, (2) 6.0% Tier 1 capital ratio and (3) 8.0% total capital ratio. Failure to meet minimum capital requirements can result in certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a material effect on MUFG Americas Holdings’ consolidated financial statements.

In addition to these regulatory minimum ratio requirements, MUFG Americas Holdings and MUFG Union Bank are subject to a fully phased-in capital conservation buffer requirement of 2.5%. MUFG Americas Holdings and MUFG Union Bank are also subject to a Tier 1 leverage ratio regulatory minimum requirement of 4% and a well-capitalized prompt corrective action standard of 5%.

In October 2015, the FRB proposed long-term debt and TLAC requirements for U.S. globally systemically important bank holding companies and U.S. IHCs of non-U.S. globally systemically important banks, including MUFG Americas Holdings. In December 2016, the FRB finalized rules imposing such requirements. Under the final rules, a covered IHC such as MUFG Americas Holdings is required to maintain a minimum amount of

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eligible long-term debt issued to a non-U.S. parent entity that could be cancelled or converted to equity in order to absorb losses and recapitalize the IHC’s operating subsidiaries at or near the point of resolution. A covered IHC is also required to maintain a minimum level of eligible TLAC issued to a non-U.S. parent entity consisting of regulatory capital and eligible long-term debt and maintain related buffers consisting of Common Equity Tier 1 capital. In addition, an IHC is restricted from issuing short-term debt and certain other types of liabilities that are structurally senior to eligible long-term debt. MUFG Americas Holdings became subject to these rules on

January 1, 2019. Pursuant to 12 CFR § 252.164(a), we have certified to the FRB that we plan to follow an SPE resolution strategy, and that MUFG Americas Holdings would therefore be considered a “non-resolution covered IHC.”

For more information, see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Adequacy” and Note 21 to our audited consolidated financial statements included elsewhere in this Annual Report.

Disclosure pursuant to Section 13(r) of the US Securities Exchange Act of 1934

We are disclosing the following information pursuant to Section 13(r) of the Securities Exchange Act of 1934 (Exchange Act), which requires an issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with natural persons or entities designated by the U.S. government under specified Executive Orders. The scope of activities that must be reported includes activities not prohibited by U.S. law and conducted outside the United States in compliance with applicable local law.

During the fiscal year ended March 31, 2020, our non-U.S. subsidiary, MUFG Bank, engaged in certain limited business activities with entities in, or affiliated with, Iran, including counterparties owned or controlled by the Iranian government. Specifically, our non-U.S. banking subsidiary, MUFG Bank, issued letters of credit and guarantees and provided remittance and other settlement services mainly in connection with customer transactions related to the purchase and exportation of Iranian crude oil to Japan prior to the expiration of the Significant Reduction Exception granted to Japan, and in some cases, in connection with other petroleum-related transactions with Iran by its customers that were exempt from applicable Iran-related sanctions or otherwise permitted by OFAC. These transactions did not involve U.S. dollars or clearing services of U.S. banks for the settlement of payments. For the fiscal year ended March 31, 2020, the aggregate fee income relating to these transactions was less than ¥50 million, representing less than 0.001 percent of our total fee income. In addition, some Iranian financial institutions and other entities in, or affiliated with, Iran maintained non-U.S. dollar correspondent accounts and other similar settlement accounts with MUFG Bank outside the United States. In addition to such accounts, MUFG Bank received deposits in Japan from, and provided settlement services in Japan to, fewer than 10 Iranian government-related entities and fewer than 100 Iranian government-related individuals such as Iranian diplomats, and maintains settlement accounts outside the United States for certain other financial institutions specified in Executive Order 13382, which settlement accounts were frozen in accordance with applicable laws and regulations. For the fiscal year ended March 31, 2020, the average aggregate balance of deposits held in these accounts represented less than 0.1 percent of the average balance of our total deposits. The fee income from the transactions attributable to these account holders was less than ¥5 million, representing less than 0.001 percent of our total fee income.

MUFG Bank recognizes that following the withdrawal in May 2018 by the United States from the Joint Comprehensive Plan of Action, the United States has imposed secondary sanctions against non-U.S. persons who engage in or facilitate a broad range of transactions and activities involving Iran. MUFG Bank has taken the recent sanctions related developments into account and will continue to monitor transactions relating to Iran in order to comply with applicable U.S. and Japanese regulations as well as U.S., Japanese and other international sanctions.

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C. Organizational Structure

The following chart presents our corporate structure summary as of March 31, 2020:

Note: Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. and Mitsubishi UFJ Morgan Stanley PB Securities Co., Ltd. are scheduled to merge on August 1, 2020.

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Set forth below is a list of our principal consolidated subsidiaries as of March 31, 2020:

Name	Country of Incorporation		Proportion of Ownership Interest (%)			Proportion of Voting Interest (%)
MUFG Bank, Ltd.		Japan		100.00	%		100.00	%
Mitsubishi UFJ Information Technology, Ltd.		Japan		100.00	%		100.00	%
MU Business Service Co., Ltd.		Japan		100.00	%		100.00	%
MU Center Service Tokyo Co., Ltd.		Japan		100.00	%		100.00	%
Mitsubishi UFJ Loan Business Co., Ltd.		Japan		100.00	%		100.00	%
MU Center Service Osaka Co., Ltd.		Japan		100.00	%		100.00	%
MU Center Service Nagoya Co., Ltd.		Japan		100.00	%		100.00	%
MU Loan Administration Support Co., Ltd.		Japan		100.00	%		100.00	%
MU Property Research Company Limited		Japan		100.00	%		100.00	%
MU Business Partner Co., Ltd.		Japan		100.00	%		100.00	%
Mitsubishi UFJ Jinji Service Co., Ltd.		Japan		100.00	%		100.00	%
Mitsubishi UFJ Trust and Banking Corporation		Japan		100.00	%		100.00	%
Mitsubishi UFJ Real Estate Services Co., Ltd.		Japan		100.00	%		100.00	%
Japan Shareholder Services Ltd.		Japan		100.00	%		100.00	%
The Master Trust Bank of Japan, Ltd.		Japan		46.50	%		46.50	%
MU Investments Co., Ltd.		Japan		100.00	%		100.00	%
Mitsubishi UFJ Kokusai Asset Management Co., Ltd.		Japan		100.00	%		100.00	%
Mitsubishi UFJ Securities Holdings Co., Ltd.		Japan		100.00	%		100.00	%
Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.		Japan		60.00	%		60.00	%
Mitsubishi UFJ Morgan Stanley PB Securities Co., Ltd.		Japan		100.00	%		100.00	%
au Kabucom Securities Co., Ltd.		Japan		51.00	%		51.00	%
MUS Information Systems Co., Ltd.		Japan		100.00	%		100.00	%
Mitsubishi UFJ NICOS Co., Ltd.		Japan		100.00	%		100.00	%
Japan Digital Design, Inc.		Japan		86.11	%		86.11	%
MUMEC Visionary Design, Ltd.		Japan		60.00	%		60.00	%
Global Open Network, Inc.		Japan		80.00	%		80.00	%
MUFG Innovation Partners Co., Ltd.		Japan		100.00	%		100.00	%
MUFG Americas Holdings Corporation		USA		100.00	%		100.00	%
Bank of Ayudhya Public Company Limited		Thailand		76.88	%		76.88	%
PT Bank Danamon Indonesia, Tbk.		Indonesia		94.10	%		94.10	%
MUFG Bank (China), Ltd.		China		100.00	%		100.00	%
MUFG Bank (Malaysia) Berhad		Malaysia		100.00	%		100.00	%
MUFG Bank (Europe) N.V.		Netherlands		100.00	%		100.00	%
AO MUFG Bank (Eurasia)		Russia		100.00	%		100.00	%
MUFG Bank Turkey Anonim Sirketi		Turkey		100.00	%		100.00	%
MUFG Bank Mexico, S.A.		Mexico		100.00	%		100.00	%
Mitsubishi UFJ Baillie Gifford Asset Management Limited		UK		51.00	%		51.00	%
Mitsubishi UFJ Investor Services & Banking (Luxembourg) S.A.		Luxembourg		100.00	%		100.00	%
MUFG Lux Management Company S.A.		Luxembourg		100.00	%		100.00	%
Mitsubishi UFJ Asset Management (UK) Ltd.		UK		100.00	%		100.00	%
MUFG Investor Services Holdings Limited		Bermuda		100.00	%		100.00	%
First Sentier Investors Holdings Pty Ltd.		Australia		100.00	%		100.00	%
Mitsubishi UFJ Trust International Limited		UK		100.00	%		100.00	%
MUFG Securities EMEA plc.		UK		100.00	%		100.00	%
MUFG Securities Asia Limited		China		100.00	%		100.00	%
MUFG Securities Asia (Singapore) Limited		Singapore		100.00	%		100.00	%
MUFG Securities (Canada), Ltd.		Canada		100.00	%		100.00	%

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D. Property, Plant and Equipment

Premises and equipment as of March 31, 2019 and 2020 consisted of the following:

	As of March 31,
	2019		2020
	(in millions)
Land	¥	362,742	¥	380,477
Buildings		829,606		782,367
Equipment and furniture		648,598		623,676
Leasehold improvements		305,281		310,957
Construction in progress		34,002		35,594
Total		2,180,229		2,133,071
Less accumulated depreciation		1,206,629		1,203,542
Premises and equipment—net	¥	973,600	¥	929,529

Our registered address is 7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8330, Japan. As of March 31, 2020, we and our subsidiaries conducted our operations either in premises we owned or in properties we leased.

The following table presents the book values of our material offices and other properties as of March 31, 2020:

	Book Value
	(in millions)
Owned land	¥	380,477
Owned buildings		248,669

The buildings and land we own are primarily used by us and our subsidiaries as offices and branches. Most of the buildings and land we own are free from material encumbrances.

During the fiscal year ended March 31, 2020, we invested approximately ¥123,804 million in premises and equipment, primarily for office renovations and relocation.

Item 4A. Unresolved Staff Comments.

None.

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Item 5. Operating and Financial Review and Prospects.

The following discussion and analysis should be read in conjunction with “Item 3.A. Key Information—Selected Financial Data,” “Selected Statistical Data” and our consolidated financial statements and related notes included elsewhere in this Annual Report.

		Page
Business Environment			74
Principal Sources of Income and Expenses			77
Recent Developments			82
Critical Accounting Estimates			85
Accounting Changes and Recently Issued Accounting Pronouncements			88
A.	Operating Results		89
	Results of Operations		89
	Business Segment Analysis		99
	Geographic Segment Analysis		107
	Effect of Change in Exchange Rates on Foreign Currency Translation		108
B.	Liquidity and Capital Resources		108
	Financial Condition		108
	Capital Adequacy		131
	Non-exchange Traded Contracts Accounted for at Fair Value		136
C.	Research and Development, Patents and Licenses, etc.		137
D.	Trend Information		137
E.	Off-Balance Sheet Arrangements		138
F.	Tabular Disclosure of Contractual Obligations		139
G.	Safe Harbor		139

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Business Environment

Through our subsidiaries and affiliated companies, we engage in a broad range of financial businesses and services, including commercial banking, investment banking, trust assets and asset management services, securities businesses and credit card businesses, and provide related services to individuals primarily in Japan, the United States, Thailand and Indonesia and to corporate customers around the world. Our results of operations and financial condition are exposed to changes in various external economic factors, including:

• general economic conditions,

• interest rates,

• foreign currency exchange rates, and

• stock and real estate prices.

Recent Developments and Prospects

Our results of operations for the fiscal year ended March 31, 2020 were adversely affected by the COVID-19 pandemic. Among the negative consequences of the COVID-19 pandemic described elsewhere in this Annual Report, we provided for additional allowance for credit losses in light of the deteriorating credit quality of our borrowers.

The COVID-19 pandemic is expected to have a further adverse impact on our business and results of operations as economic and corporate activity deteriorates in Japan and around the world and financial markets remain volatile. More specifically, we currently expect that the COVID-19 pandemic will have a further adverse impact on, among other things,

• net interest income, particularly foreign currency net interest income, primarily due to interest rate reductions by central banks or declines in long-term interest rates in various markets,

• fees and commissions income mainly due to decreases in the value of assets under custody or management, declines in customer investments or other transactions, or changes in consumer spending trends, as any of these negative factors may be exacerbated by, among other things, weakened appetite for investments or other transaction under uncertain or volatile market conditions or governmental restrictions on business activities,

• net investment securities gains (losses) primarily due to losses on sales of securities or a decline in the value of our securities portfolio,

• net equity in earnings of equity method affiliates if the financial performance of our equity method affiliates deteriorates,

• other income and expenses, including impairment losses on goodwill or other intangible assets, due to weaker business prospects and other factors causing deterioration in the business environment, and

• regulatory capital ratios due to, among other factors, an increase in risk-weighted assets such as loans and a decrease in the value of our equity securities portfolio.

In addition, there is a risk that we will have to recognize credit losses if there is a further deterioration in the credit quality of our borrowers such as those in the air transportation and other industries that may be adversely impacted by weakened demand for, or governmental or other restrictions on, travel, retail operations, or other economic or recreational activities. For more information, see “—B. Liquidity and Capital Resources—Financial Condition—Loan Portfolio.”

At present, the timing of containment of COVID-19 cannot be forecasted, and the full extent of the impact of the pandemic on the real economy remains uncertain. Under these highly uncertain circumstances, our current expectations may be significantly different from actual results. We intend to continue to closely monitor, and endeavor to effectively deal with, further developments relating to the pandemic. For more information, see “Item 3.D. Risk Factors.” See also “Forward-Looking Statements.”

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General Economic Conditions

The global economy was generally on a downward trend due to negative effects of the U.S.-China trade conflict and other factors in the first half of the fiscal year ended March 31, 2020, with some signs of bottoming out and recovering at least in some industry sectors, including the semiconductor and other manufacturing sectors, around the beginning of the second half of the fiscal year. However, in and after the fourth quarter, the outbreak and global spread of the COVID-19 pandemic brought much of global economic activity to a halt. Public health measures of unprecedented scale have been implemented in various countries and regions in an effort to contain the pandemic. However, the full extent and severity of the impact of the pandemic on the global economy are yet to be known.

Japan’s economic growth continued at a moderate pace during the fiscal year ended March 31, 2020, while showing a mixture of positive and negative trends, with the quarter-on-quarter real gross domestic product, or GDP, growth rate being 0.5% for the quarter ended June 30, 2019, 0.0% for the quarter ended September 30, 2019, and negative 1.9% for the quarter ended December 31, 2019, and negative 0.6% for the quarter ended March 31, 2020. The year-over-year real GDP growth rate was 0.9% for the quarter ended June 30, 2019, 1.7% for the quarter ended September 30, 2019, negative 0.7% for the quarter ended December 31, 2019 and negative 1.7% for the quarter ended March 31, 2020. Japan’s Consumer Price Index, or CPI, fluctuated between negative 0.2% and positive 0.3% on a month-on-month basis and between positive 0.2% and 0.9% on a year-over-year basis during the fiscal year ended March 31, 2020. During the same period, the unemployment rate in Japan remained low, fluctuating between 2.1% and 2.6%. According to Teikoku Databank, a Japanese research institution, the number of companies that filed for legal bankruptcy in Japan during the fiscal year ended March 31, 2020 was 8,480, a 5.3% increase from the previous fiscal year. The total liabilities of companies that filed for legal bankruptcy during the fiscal year ended March 31, 2020 were ¥1,218 billion, a 21% decrease from the previous fiscal year. The Japanese economy remains subject to the impact of the COVID-19 pandemic, continuing deflationary pressure, increasing public debt, intensifying trade conflicts and global competition, declining domestic population, stagnant private consumption, and various other factors that could adversely affect economic conditions in Japan.

The U.S. economy expanded during the three quarters ended December 31, 2019, with the quarter-on-quarter annualized real GDP growth rate being 2.0% for the quarter ended June 30, 2019, 2.1% for the quarter ended September 30, 2019, and 2.1% for the quarter ended December 31, 2019, but turning to negative 5.0% for the quarter ended March 31, 2020. The year-over-year real GDP growth rate was 2.3% for the quarter ended June 30, 2019, 2.1% for the quarter ended September 30, 2019, 2.3% for the quarter ended December 31, 2019 and 0.2% for the quarter ended March 31, 2020. The U.S. economic growth was supported by the improvement in the labor market, higher wages and increased corporate production activities through the end of the quarter ended December 31, 2019, but the U.S. economy declined in the quarter ended March 31, 2020 due to the impact of COVID-19 pandemic. During the fiscal year ended March 31, 2020, the unemployment rate in the U.S. fluctuated between 3.8% and 4.4%. However, the long-term prospects of the U.S. economy remains uncertain in light of the economic impact of the COVID-19 pandemic, changes in the government’s economic, monetary, trade and foreign relations policies, the November 2020 presidential election, and various other factors.

The Eurozone’s economic growth continued at a slow rate during the three quarters ended December 31, 2019, with the quarter-on-quarter real GDP growth rate being 0.1% for the quarter ended June 30, 2019, 0.3% for the quarter ended September 30, 2019, and 0.1% for the quarter ended December 31, 2019, but turning to negative 3.6% for the quarter ended March 31, 2020. The year-over-year real GDP growth rate was 1.2% for the quarter ended June 30, 2019, 1.3% for the quarter ended September 30, 2019, 1.0% for the quarter ended December 31, 2019 and negative 3.1% for the quarter ended March 31, 2020. During the fiscal year ended March 31, 2020, the unemployment rate in the Eurozone declined to 7.1% for March 2020. There are still uncertainties in the Eurozone economy, including the impact of the COVID-19 pandemic, the process and ramifications of the United Kingdom’s withdrawal from the European Union and the large accumulation of non-performing loans in some European peripheral countries.

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In Asia excluding Japan, economic conditions in ASEAN (Association of Southeast Asian Nations) and NIEs (Newly Industrializing Economies) generally improved but the economic growth remained relatively modest during the fiscal year ended March 31, 2020. In China, economic conditions continued to improve at a moderate pace until the quarter ended December 31, 2019 but declined in the quarter ended March 31, 2020 due to the impact of the COVID-19 pandemic. China’s quarter-on-quarter real GDP growth rate was 1.5% for the quarter ended June 30, 2019, 1.3% for the quarter ended September 30, 2019, 1.5% for the quarter ended December 31, 2019 and negative 9.8% for the quarter ended March 31, 2020. China’s year-over-year real GDP growth rate was 6.2% for the quarter ended June 30, 2019, 6.0% for the quarter ended September 30, 2019, 6.0% for the quarter ended December 31, 2019 and negative 6.8% for the quarter ended March 31, 2020. The Thai economy was on a gradually stabilizing trend until the quarter ended December 31, 2019 but declined in the quarter ended March 31, 2020 due to the impact of the COVID-19 pandemic. Thailand’s quarter-on-quarter real GDP growth rate was 0.3% for the quarter ended June 30, 2019, 0.3% for the quarter ended September 30, 2019, negative 0.2% for the quarter ended December 31, 2019 and negative 2.2% for the quarter ended March 31, 2020. Thailand’s year-over-year real GDP growth rate was 2.4% for the quarter ended June 30, 2019, 2.6% for the quarter ended September 30, 2019, 1.5% for the quarter ended December 31, 2019 and negative 1.8% for the quarter ended March 31, 2020. Although there are some signs of further economic growth in ASEAN and NIEs, such as growth in exports to developed countries and larger investments in infrastructure projects in the region, uncertainties still remain in light of, among other things, the negative impact of the COVID-19 pandemic on the global economy, including importing developed countries, intensifying trade conflicts and potential geopolitical issues.

Interest Rates

Interest rates remained at historical low levels in Japan under the Bank of Japan’s monetary policy. The yield on 10-year Japanese government bonds fluctuated between negative 0.286% and negative 0.009% during the six months ended September 30, 2019, but subsequently rose to around 0% towards December 31, 2019, declined again to negative 0.153% in February 2020, and rose back to around 0% towards March 31, 2020. The Bank of Japan adopted its “quantitative and qualitative monetary easing” policy in April 2014 and commenced its “quantitative and qualitative monetary easing with negative interest rates” policy in January 2016. Under this policy, aiming to achieve the price stability target of 2.0%, the Bank of Japan applied a negative interest rate of minus 0.1% to the “Policy-Rate Balances,” which are a part of current account amounts held by financial institutions at the Bank of Japan, while increasing the Bank of Japan’s aggregate holding of Japanese government bonds by approximately ¥80 trillion each year. In September 2016, the Bank of Japan announced a new “quantitative and qualitative monetary easing with yield curve control” policy, adding to its monetary policy a Japanese government bond purchase program with an aim to keep the yield of 10-year Japanese government bonds around zero percent. In July 2018, the Bank of Japan slightly modified its monetary policy by adopting forward guidance on interest rates and adding language in its policy statement that long-term interest rates may fluctuate depending on economic and price developments. In October 2019, the Bank of Japan decided to maintain its monetary policy, while slightly modifying its forward guidance to clarify that it expects short- and long-term interest rates to remain at their present or lower levels without specifying the duration of its guidance. In March 2020, the Bank of Japan introduced a package of COVID-19 emergency measures, including those designed to facilitate corporate financing through lending up to ¥8.0 trillion yen against corporate debt collateral at a 0% interest rate with maturities up to one year and increasing the limit of purchases on commercial paper and corporate bonds to ¥2.0 trillion yen, and has since expanded its emergency measures, including elimination of the limit on purchases of Japanese government bonds. The yield on 10-year Japanese government bonds was negative 0.081% on March 29, 2019 and positive 0.022% on March 31, 2020. The yield currently fluctuates around negative 0.006%.

In the United States, the FRB reduced the target range for the federal funds rate to between 2.00% and 2.25% in July 2019, to between 1.75% and 2.00% in September 2019, and further to between 1.50% and 1.75% in December 2019. Subsequently, the FRB reduced the target range for the federal funds rate twice in March 2020 to between 1.00% and 1.25% and further to 0.00% and 0.25%. Following the Federal Open Market

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Committee meeting in June 2020, most of the FRB members indicated their willingness to maintain the rate at the current level until the end of the calendar year 2022 in light of increasing uncertainty in the economic outlook. The 10-year U.S. Treasury bond yield decreased from 2.406% at the end of March 2019 to 0.670% at the end of March 2020, while fluctuating between 0.543% and 2.595% during the period. The yield currently fluctuates around 0.717%.

The yield on 10-year German Bunds decreased from negative 0.070% at the end of March 2019 to negative 0.471% as of March 31, 2020, while fluctuating between negative 0.856% and positive 0.080% during the period. The yield currently fluctuates around negative 0.439%. The yield on 10-year French Obligations Assimilables du Trésor decreased from 0.318% at the end of March 2019 to negative 0.015% as of March 31, 2020, while fluctuating between negative 0.438% and positive 0.424% during the period. The yield currently fluctuates around negative 0.118%.

Foreign Currency Exchange Rates

The Japanese yen appreciated against the U.S. dollar from ¥110.86 to the U.S. dollar as of March 29, 2019 to ¥107.54 to the U.S. dollar as of March 31, 2020, while fluctuating between ¥102.36 to the U.S. dollar and ¥112.19 to the U.S. dollar during the period. The Japanese yen has since been fluctuating around ¥106.95 to the U.S. dollar.

The Japanese yen was on a generally appreciating trend against the euro during the fiscal year ended March 31, 2020, with the exchange rate being ¥118.64 to the euro as of March 31, 2020 compared to ¥124.35 to the euro as of March 29, 2019. The Japanese yen has been fluctuating around ¥120.55 to the euro since April 2020.

The Japanese yen was on a generally appreciating trend against the Thai baht during the fiscal year ended March 31, 2020, with the exchange rate being ¥3.2829 to the Thai baht as of March 31, 2020 compared to ¥3.4929 to the Thai baht as of March 29, 2019. The Japanese yen has been fluctuating around ¥3.4549 to the Thai baht since April 2020.

Stock and Real Estate Prices

The closing price of the Nikkei Stock Average, which is the average of 225 blue chip stocks listed on the Tokyo Stock Exchange, decreased from ¥21,205.81 on March 29, 2019 to ¥18,917.01 on March 31, 2020. The closing price of the Nikkei Stock Average reached ¥24,270.62, the highest closing price since November 1991, on October 2, 2018, and declined to ¥16,552.83 on March 19, 2020. The closing price of the Nikkei Stock Average has since risen and has been fluctuating around ¥22,654.76.

According to the latest land price survey conducted by the Japanese government, between January 1, 2019 and January 1, 2020, the average residential land price in Japan increased 0.8%, and the average commercial land price in Japan increased 3.1%. In the three major metropolitan areas of Tokyo, Osaka and Nagoya, between January 1, 2019 and January 1, 2020, the average residential land price increased 1.1% and the average commercial land price increased 5.4%. In the local regions of Japan, which consist of regions other than the three major metropolitan areas, between January 1, 2019 and January 1, 2020, the average residential land price increased 0.5% and the average commercial land price increased 1.5%.

Principal Sources of Income and Expenses

Net Interest Income

Net interest income is a function of:

• the amount of interest-earning assets,

• the amount of interest-bearing liabilities,

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• the general level of interest rates,

• the so-called “spread,” or the difference between the rate of interest earned on interest-earning assets and the rate of interest paid on interest-bearing liabilities, and

• the proportion of interest-earning assets financed by non-interest-bearing liabilities and equity.

Provision for (Reversal of) Credit Losses

Provision for (reversal of) credit losses is charged to operations to maintain the allowance for credit losses at a level deemed appropriate by management. For more information on our provision for (reversal of) credit losses and a description of the approach and methodology used to establish the allowance for credit losses, see “—B. Liquidity and Capital Resources—Financial Condition—Loan Portfolio—Allowance policy.”

Non-Interest Income

Non-interest income consists of the following:

Fees and commissions income

Fees and commissions income consist of the following:

• Fees and commissions on deposits consist of fees and commissions charged for ATM transactions and other deposit and withdrawal services.

• Fees and commissions on remittances and transfers consist of fees and commissions charged for settlement services such as domestic fund remittances, including those made through electronic banking.

• Fees and commissions on foreign trading business consist of fees and commissions charged for fund collection and financing services related to foreign trading business activities.

• Fees and commissions on credit card business consist of fees and commissions related to the credit card business such as interchange income, annual fees, royalty and other service charges from franchisees.

• Fees and commissions on security-related services primarily consist of fees and commissions for sales and transfers of securities, including investment funds, underwriting, brokerage and advisory services, securitization arrangement services, and agency services for the calculation and payment of dividends.

• Fees and commissions on administration and management services for investment funds primarily consist of fees and commissions earned on managing investment funds on behalf of clients.

• Trust fees consist primarily of fees earned on fiduciary asset management and administration services for corporate pension plans and investment funds.

• Guarantee fees consist of fees related to the guarantee business, including those charged for providing guarantees on residential mortgage loans and other loans.

• Insurance commissions consist of commissions earned by acting as an agent for insurance companies for the sale of insurance products.

• Fees and commissions on real estate business primarily consist of fees from real estate agent services.

• Other fees and commissions include various fees and commissions, such as arrangement fees and agent fees, other than the fees mentioned above.

Net foreign exchange gains (losses)

Net foreign exchange gains (losses) consist of the following:

• Net foreign exchange gains (losses) on derivative contracts are net gains (losses) primarily on currency derivative instruments entered into for trading purposes. For more information on our derivative

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contracts, see Note 23 to our consolidated financial statements included elsewhere in this Annual Report.

• Net foreign exchange gains (losses) on other than derivative contracts include foreign exchange trading gains (losses) as well as transaction gains (losses) on the translation into Japanese yen of monetary assets and liabilities denominated in foreign currencies. The transaction gains (losses) on the translation into Japanese yen fluctuate from period to period depending upon the spot rates at the end of each fiscal year. In principle, all transaction gains (losses) on translation of monetary assets and liabilities denominated in foreign currencies are included in current earnings.

• Net foreign exchange gains (losses) related to the fair value option include transaction gains (losses) on the translation into Japanese yen of securities under the fair value option. For more information on the fair value option, see Note 31 to our consolidated financial statements included elsewhere in this Annual Report.

Net trading account profits (losses)

Trading account assets and liabilities are carried at fair value and changes in the value of trading account assets and liabilities are recorded in net trading account profits (losses). Activities reported in our net trading account profits (losses) can generally be classified into two categories:

• trading purpose activities, which are conducted mainly for the purpose of generating profits either through transaction fees or arbitrage gains and involve frequent and short-term selling and buying of securities, commodities or others; and

• trading account assets relating to the application of certain accounting rules, which are generally not related to trading purpose activities, but simply classified as trading accounts due to the application of certain accounting rules.

Of the two categories, trading account assets relating to the application of certain accounting rules represent a larger portion of our trading account profits for the fiscal year ended March 31, 2020.

We generally do not separate, for financial reporting purposes, customer originated trading activities from non-customer related, proprietary trading activities. When an order for a financial product is placed by a customer, a dealer offers a price which includes certain transaction fees, often referred to as the “margin” to the market price. The margin is determined by considering factors such as administrative costs, transaction amount and liquidity of the applicable financial product. Once the customer agrees to the offered price, the deal is completed and the position is recorded in our ledger as a single entry without any separation of components. To manage the risk relating to the customer side position, we often enter into an offsetting transaction with the market. Unrealized gains and losses as of the period-end for both the customer side position and the market side position are recorded within the same trading account profits and losses.

Net trading account profits (losses) consist of net profits (losses) on interest rate and other derivative contracts and net profits (losses) on trading account securities, excluding derivatives.

Net profits (losses) on interest rate and other derivative contracts are reported for net profits (losses) on derivative instruments which primarily relate to trading purpose activities and include:

• Interest rate contracts: Interest rate contracts are mainly utilized to manage interest rate risks which could arise from mismatches between assets and liabilities resulting from customer originated trading activities;

• Equity contracts: Equity contracts are mainly utilized to manage the risk that would arise from price fluctuations of stocks held in connection with customer transactions;

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• Commodity contracts: Commodity contracts are mainly utilized to meet customers’ demand for hedging the risks relating to their transactions, and to diversify our portfolio; and

• Credit derivatives: Credit derivatives are mainly utilized as a part of our credit portfolio risk management.

Derivative instruments for trading purposes also include those used as hedges of net exposures rather than for specifically identified assets or liabilities, which do not meet the specific criteria for hedge accounting.

Net profits (losses) on trading account securities, excluding derivatives, consist of:

• Net profits (losses) on trading account securities, which primarily consist of gains and losses on trading and valuation of trading securities which relate to trading purpose activities. Net profits (losses) on investment securities held by certain consolidated variable interest entities, or VIEs, are included in accordance with the applicable accounting rules.

• Net profits (losses) on trading account securities under the fair value option, which are classified into trading accounts profits (losses) in accordance with certain accounting rules. For more information on the fair value option, see Note 31 to our consolidated financial statements included elsewhere in this Annual Report.

Net investment securities gains (losses)

Net investment securities gains (losses) include net gains (losses) on sales of available-for-sale debt securities and net gains (losses) from marketable equity securities. Impairment losses on available-for-sale debt securities are recognized when management concludes that declines in the fair value of such debt securities are other than temporary, and offset net gains on sales of available-for-sale debt securities. Net gains (losses) from marketable equity securities include net gains (losses) on sales of marketable equity securities. In addition, as a result of our adoption of new guidance on recognition and measurement of financial assets and financial liabilities on April 1, 2018, unrealized gains (losses), or holding gains (losses), on equity investments are reflected in net gains (losses) from marketable equity securities. This new guidance is not applied retrospectively to the fiscal years ended March 31, 2017 and 2018. Prior to adoption, such unrealized gains and losses were reflected in other comprehensive income. For more information, see Note 1 to our consolidated financial statements included elsewhere in this Annual Report.

Net equity in earnings (losses) of equity method investees

Net equity in earnings (losses) of equity method investees includes our equity interest in the earnings of our equity method investees and impairment losses on our investments in equity method investees.

Non-Interest Expense

Non-interest expense consists of:

• salaries and employee benefits, which include the amount of money paid as salaries and bonuses as well as the cost of fringe-benefits,

• occupancy expenses—net, which include the amount of money paid as rents for offices and other facilities,

• fees and commissions expenses, which include the amount of money paid as fees and commissions on services received,

• outsourcing expenses, including data processing, which include the amount of money paid for the outsourcing services, including IT-related services,

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• depreciation of premises and equipment, which includes the depreciation of the value of buildings, equipment and furniture through the passage of time,

• amortization of intangible assets, which includes the amount of deductions of the cost of investments in software and other intangible assets over their estimated useful lives,

• impairment of intangible assets, which includes the amount of reductions in the carrying amounts of intangible assets with indefinite useful lives in excess of their fair values,

• insurance premiums, including deposits insurance, which include the amount of money paid as the insurance premiums including the deposit insurance premiums paid to the Deposit Insurance Corporation of Japan

• communications, which include the amount of money paid for communications such as postal services and telecommunications,

• taxes and public charges, which include the amount of tax payments and other public charges,

• impairment of goodwill, which includes the amount of reductions in the carrying amount of goodwill recorded in connection with the acquisition of companies in excess of their fair values,

• provision for (reversal of) off-balance sheet credit instruments, which includes the amount of money reserved for the estimated amount of losses on off-balance sheet credit instruments or reversal of any portion of such amount, and

• other non-interest expenses.

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Recent Developments

During the fiscal year ended March 31, 2020, we continued to pursue a strategy to improve our operational efficiency and financial performance and achieve sustainable growth. We sought to strengthen our management structure, while selectively reviewing and considering growth opportunities that would enhance our global competitiveness. We also continued to monitor regulatory developments and pursue prudent transactions that would create a strong capital structure to enable us to contribute to the real economy, both domestically and globally, as a provider of a stable source of funds and high-quality financial services. In addition, in order to respond to the increasingly complex market and legal risks, we continued to endeavor to enhance our compliance and internal control frameworks. Under our current medium-term business plan, for the three fiscal years ending March 31, 2022, we aim to integrate the expertise and capabilities of our subsidiaries to build a foundation for future growth.

The COVID-19 pandemic has impacted, and is expected to further impact, our business and financial performance as economic and corporate activity deteriorates and the financial market remains volatile. At present, the timing of containment of COVID-19 cannot be forecasted, and the impact of the pandemic on the real economy remains uncertain. We will continue to closely monitor and seek to flexibly and effectively deal with developments relating to the pandemic. However, our efforts to deal with the impact of the pandemic may prove insufficient, in which case our results of operations and financial condition may be materially and negatively affected. See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Business Environment” and “—Business Environment—Recent Developments and Prospects.”

Implementation of Share Repurchase Program and Cancellation of Purchased Shares

During November 2019 and December 2019, we repurchased 85,775,400 shares of our common stock for ¥49,999,996,482 under a share repurchase program that was adopted in November 2019 and completed in December 2019. Under the program, we were authorized by the Board of Directors to repurchase up to the lesser of an aggregate of 100,000,000 shares of our common stock and an aggregate of ¥50.0 billion between November 14, 2019 and December 31, 2019 and to cancel the repurchased shares. We cancelled all of the repurchased shares on January 20, 2020.

The purposes of the above share repurchase program were to enhance shareholder value, to improve our capital efficiency and to allow the implementation of flexible capital policies in response to changes in the business environment.

Issuances and Repurchases of TLAC Eligible Senior Debt Securities

During and after the fiscal year ended March 31, 2020, we issued $10.3 billion, or ¥1,125.3 billion, €1.5 billion, or ¥180.6 billion, HK$0.2 billion, or ¥3.3 billion, and AU$0.5 billion, or ¥33.0 billion, aggregate principal amount of external TLAC eligible senior debt securities.

In March 2020, we repurchased through tender offers $1,624.4 million aggregate principal amount of our outstanding external TALC eligible senior notes. All of the repurchased senior notes were cancelled.

As of March 31, 2020, our external TLAC ratios were 18.62% on a risk-weighted assets basis and 7.38% on a leverage exposure basis. We are required to maintain external TLAC ratios of 16% on a risk-weighted assets basis and 6% on a leverage exposure basis as of March 31, 2020 and 18% on a risk-weighted assets basis and 6.75% on a leverage exposure basis from March 31, 2022. See “Capital Adequacy” below and “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Total loss-absorbing capacity.”

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Redemption of Preferred Securities Issued by Special Purpose Company

On January 27, 2020, we redeemed in full ¥240.0 billion of Japanese yen-denominated non-cumulative preferred securities issued by an overseas special purpose company in the Cayman Islands called MUFG Capital Finance 9 Limited.

In July 2019, we redeemed in full ¥90.0 billion of Japanese yen-denominated non-cumulative preferred securities issued by an overseas special purpose company in the Cayman Islands called MUFG Capital Finance 8 Limited.

Issuances of Basel III-Compliant Domestic Subordinated Bonds

In October 2019, we issued, in a public offering in Japan, ¥273.0 billion aggregate principal amount of unsecured perpetual subordinated Additional Tier 1 notes. These notes are subject to our discretion to cease interest payments and a write-down of the principal upon the occurrence of certain events, including when our Common Equity Tier 1 capital ratio declines below 5.125%, when we are deemed to be at risk of becoming non-viable or when we become subject to bankruptcy proceedings, but, following any write-down, the principal may be reinstated to the extent permitted by the Japanese banking regulator. See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan.”

Strategic Investment in Bank Danamon in Indonesia

In December 2017, MUFG Bank acquired an initial 19.9% equity interest in PT Bank Danamon Indonesia, Tbk, or Bank Danamon, for an aggregate purchase price of IDR 15.875 trillion, or ¥133.4 billion, based on a price of IDR 8,323, or ¥70, per share. In August 2018, MUFG Bank acquired an additional 20.1% equity interest for an aggregate purchase price of IDR 17.187 trillion, or ¥132.3 billion, based on a price of IDR 8,921, or ¥69, per share. As a result, MUFG Bank’s equity interest in Bank Danamon increased to 40%, and MUFG Bank started to apply the equity method of accounting to its investment in Bank Danamon during the six months ended September 30, 2018.

In April 2019, MUFG Bank further increased its shareholding in Bank Danamon from 40.0% to 94.0% by acquiring additional shares for an aggregate purchase price of IDR 49,620 billion, or ¥397.0 billion, based on a price of IDR 9,590, or ¥77, per share. In addition, in April 2019, MUFG Bank increased its shareholding in PT Bank Nusantara Parahyangan Tbk., or Bank BNP, in Indonesia from 7.9% to 99.9% by acquiring shares from ACOM Co., Ltd., our equity method affiliate, and other shareholders for an aggregate purchase price of IDR 3,011 billion, or ¥24.1 billion, based on a price of IDR 4,088, or ¥33, per share. As a result, Bank Danamon and Bank BNP became our consolidated subsidiaries. In May 2019, Bank BNP was merged into Bank Danamon through a share exchange transaction, resulting in our shareholding in Bank Danamon being 94.1%.

As of the acquisition date, total assets acquired amounted to ¥1,728.5 billion, including loans of ¥1,086.6 billion and intangible assets of ¥146.9 billion, and total liabilities assumed amounted to ¥1,242.1 billion, including deposits of ¥915.1 billion. We also recorded goodwill of ¥254.3 billion in connection with our acquisition of Bank Danamon. For the fiscal year ended March 31, 2020, we recognized an impairment loss on the goodwill as further discussed in “Results of Operations—Non-interest Expenses—Impairment of goodwill” below and Notes 2 and 6 to our consolidated financial statements included elsewhere in this Annual Report.

Our investment in Bank Danamon is part of our strategic plan to expand our presence in Asia and Oceania and contribute to the economic growth in the region. The investment is expected to enable us to leverage our financial strength, relationships with Japan’s leading companies, and global network as well as our product and sectorial expertise to further enhance our growth strategy. In our capacity as a long-term shareholder, we aim to build on Bank Danamon’s established and respected brand franchise to foster synergies and enhance Bank Danamon’s position as a leading and prominent Indonesian bank that remains committed to delivering high quality services to its customers.

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Bank Danamon, which was established in 1956, provides banking and financial products and services to consumer, small and medium enterprise, and corporate customers, with a network of approximately 900 offices in Indonesia.

Acquisition of Aviation Finance Division from DVB Bank

In November 2019, MUFG Bank completed its acquisition from DVB Bank SE in Germany of DVB Bank’s aviation finance lending portfolio of approximately €4.0 billion, or ¥480.0 billion, employees and related operating infrastructure, based on an agreement entered into among the two banks and BOT Lease Co., Ltd., a consolidated subsidiary of MUFG Bank, in March 2019. In connection with this agreement, MUFG Bank and BOT Lease agreed to purchase from DVB Bank its aviation investment management and asset management businesses. This transaction is expected to be closed in the first half of the fiscal year ending March 31 2021, subject to regulatory approvals and certain other conditions. Aviation finance is a key growth pillar for us and, through the acquisition, we aim to enhance our Global Corporate & Investment Banking Business platform in terms of higher returns, portfolio diversification and solution offering to our clients. See Note 2 to our consolidated financial statements included elsewhere in this Annual Report.

Acquisition of Shares in Colonial First State Group Limited Subsidiaries and Rebranding of Acquired Business as First Sentier Investors

In August 2019, Mitsubishi UFJ Trust and Banking completed its acquisition of 100% of the shares in each of nine subsidiaries of Colonial First State Group Limited which collectively represent a global asset management business known as Colonial First State Global Asset Management, or CFSGAM, from Australian financial group Commonwealth Bank of Australia and its wholly owned subsidiary Colonial First State Group Limited for an aggregate purchase price of approximately AU$4.2 billion, or ¥312 billion, in cash. As a result of the acquisition, the nine subsidiaries became our consolidated subsidiaries. Total assets acquired amounted to ¥197.9 billion, including cash and bank deposits of ¥42.0 billion and intangible assets of ¥106.0 billion, and total liabilities assumed amounted to ¥68.5 billion, including accrued bonuses of ¥18.8 billion. We also recorded goodwill of ¥177.1 billion in connection with the acquisition. The purpose of this transaction is to enhance Mitsubishi UFJ Trust and Banking’s asset management capabilities and product competitiveness in the global asset management market. In September 2019, CFSGAM was rebranded as First Sentier Investors.

Agreement concerning Capital Transfer and Merger between Mitsubishi UFJ Morgan Stanley Securities and Mitsubishi UFJ Morgan Stanley PB Securities

In April 2019, Mitsubishi UFJ Morgan Stanley Securities and one of its subsidiaries, Mitsubishi UFJ Morgan Stanley PB Securities Co., Ltd., or PB Securities, agreed on a merger whereby Mitsubishi UFJ Morgan Stanley Securities will be the surviving company. In connection with the planned merger, in October 2019, MUFG Bank transferred the shares it held representing 25% of the equity interest in PB Securities to Mitsubishi UFJ Morgan Stanley Securities, resulting in Mitsubishi UFJ Morgan Stanley Securities holding 100% of the equity interest in PB Securities. The merger has been postponed since the previous target completion date of June 1, 2020, and is currently scheduled to be completed on August 1, 2020, subject to changes in the circumstances including the impact of the COVID-19 pandemic. Through the planned merger, Mitsubishi UFJ Morgan Stanley Securities aims to enhance its wealth management business.

Strategic Investment in Grab Holdings Inc. in Singapore

In February 2020, we entered into a strategic alliance agreement with Grab Holdings Inc., or Grab, which is headquartered in Singapore and provides on-demand transport services, food and package delivery services, digital payments and financial services in Southeast Asia. Under the agreement, we will invest up to $706 million, or ¥78.3 billion, in Grab to jointly develop next generation custom-made financial services in Southeast Asia to promote financial inclusion in the region. While Grab is not expected to become our subsidiary

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or equity method investee with our investment in Grab in the agreed-upon maximum amount, Grab will confer “First Choice Bank” status on us and our Southeast Asian partner banks, such as Bank Danamon and Krungsri. We and Grab plan to co-develop innovative financial products and services based on our combined customer insight to better cater to the financial needs of Grab’s users, driver-partners and merchant-partners as well as our customers.

Critical Accounting Estimates

Our consolidated financial statements included elsewhere in this Annual Report are prepared in accordance with U.S. GAAP. Certain accounting policies require management to make difficult, complex or subjective judgments regarding the valuation of assets and liabilities. The accounting policies are fundamental to understanding our operating and financial review and prospects. The notes to our consolidated financial statements included elsewhere in this Annual Report provide a summary of our significant accounting policies. The following is a summary of the critical accounting estimates:

Allowance for Credit Losses

The allowance for credit losses represents management’s best estimate of probable losses in our loan portfolio. The evaluation process, including credit-ratings and self-assessments, involves a number of estimates and judgments. The allowance is based on two principles of accounting guidance: (1) the guidance on contingencies requires that losses be accrued when they are probable of occurring and can be estimated, and (2) the guidance on accounting by creditors for impairment of a loan requires that losses be accrued based on the difference between the loan balance, on the one hand, and the present value of expected future cash flows discounted at the loan’s original effective interest rate, the fair value of collateral or the loan’s observable market value, on the other hand. We divide our loan portfolio into the following segments—Commercial, Residential, Card, MUFG Americas Holdings, Krungsri, and Other—based on the segments used to determine the allowance for credit losses.

At March 31, 2020, we had ¥86,622.8 billion of loans in the Commercial segment and recorded an allowance for credit losses against these loans of ¥482.3 billion. We divide the Commercial segment into classes based on initial measurement attributes, risk characteristics, and our approach to monitoring and assessing credit risk. We determine the appropriate level of the allowance for credit losses for the Commercial segment by evaluating various factors and assumptions, such as the borrower’s internal credit rating and historical loss experience as well as adjustments to reflect existing economic conditions. We update these factors and assumptions on a regular basis and upon the occurrence of unexpected changes in the economic environment. Of the various factors and assumptions, the determination of the allowance for credit losses for the Commercial segment requires management to make significant judgements, due to the subjectivity and uncertainty associated with the determination of borrowers’ internal credit ratings which are highly dependent on the estimation of the borrowers’ performance and business sustainability in case the borrowers experience financial problems. Key elements relating to the policies and discipline used in determining the allowance for credit losses for the Commercial segment are our credit classification and the related borrower categorization process. Each of these components is determined based on estimates subject to change when actual events occur. The categorization is based on conditions that may affect the ability of borrowers to service their debt, taking into consideration current financial information, historical payment experience, credit documentation, public information, analyses of relevant industry segments and current trends. In determining the appropriate level of allowance, we evaluate the probable loss by category of the loan based on its type and characteristics.

In addition, we recognized a qualitative reserve for loan losses, specific to the Commercial segment, as a result of the estimated impact that the COVID-19 had on borrowers’ credit risk which has been incurred but did not appear on the individual borrower’s financials. The estimate included assumptions regarding which borrowers (certain industries and regions) have suffered significant impacts on their performance as a result of the COVID-19. Assumptions about the severity and duration of the COVID-19 were also used to estimate the impact of the COVID-19 on the borrowers.

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Determining the adequacy of the allowance for credit losses requires the exercise of considerable judgment and the use of estimates, such as those discussed above. Our actual losses could be more or less than the estimates. To the extent that actual losses differ from management’s estimates, additional provisions for credit losses may be required that would adversely impact our operating results and financial condition in future periods. For further information regarding our methodologies used in establishing the allowance for credit losses by portfolio segments and allowance for credit losses policies, see Note 1 to our consolidated financial statements included elsewhere in this Annual Report and “—B. Liquidity and Capital Resources—Financial Condition—Loan Portfolio.” For more information on our credit and borrower ratings, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Credit Risk Management.”

On April 1, 2020, we adopted Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments. The new guidance replaces the incurred loss impairment methodology in current U.S. GAAP with the current expected credit loss model that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. For more information on this guidance, see Note 1 to our consolidated financial statements included elsewhere in this Annual Report.

Allowance for Repayment of Excess Interest

We maintain an allowance for repayment of excess interest based on our estimate of the potential liability exposure. Our estimate of the potential liability exposure represents the estimated amount of claims for repayment of excess interest to be received in the future. We expect that any such claim will be made on the basis of a 2006 ruling of the Japanese Supreme Court, or the Ruling. Under the Ruling, lenders are generally required to reimburse borrowers for interest payments made in excess of the limits stipulated by the Interest Rate Restriction Act upon receiving claims for reimbursement, despite the then-effective provisions of the Law Concerning Lending Business that exempted a lender from this requirement if the lender provided required notices to the borrower and met other specified requirements, and the borrower voluntarily made the interest payment.

While we have not entered into any consumer loan agreement after April 2007 that imposes an interest rate exceeding the limits stipulated by the Interest Rate Restriction Act, we need to estimate the number of possible claims for reimbursement of excess interest payments. To determine the allowance for repayment of excess interest, we analyze the historical number of repayment claims we have received, the amount of such claims, borrowers’ profiles, the actual amount of reimbursements we have made, management’s future forecasts, and other events that are expected to possibly affect the repayment claim trends in order to arrive at our best estimate of the potential liability. We believe that the provision for repayment of excess interest is adequate and the allowance is at the appropriate amount to absorb probable losses, so that the impact of future claims for reimbursement of excess interest will not have a material adverse effect on our financial position and results of operations. The allowance is recorded as a liability in Other liabilities.

For further information, see Note 26 to our consolidated financial statements included elsewhere in this Annual Report and “Item 3.D. Key Information—Risk Factors—Operational Risk—Because of our loans to consumers and our shareholdings in companies engaged in consumer lending, changes in the business or regulatory environment for consumer finance companies in Japan may further adversely affect our financial results.”

Business Developments

As part of our global strategies, we have executed multiple large-scale acquisitions, investments and capital alliances. We completed the acquisition of PT Bank Danamon Indonesia, Tbk. (“Danamon”) on April 29, 2019 and the acquisition of nine subsidiaries of Colonial First State Group Limited, which collectively, including their subsidiaries represent the global asset management business of Colonial First State Global Asset Management, on August 2, 2019, which were renamed First Sentier Investors (“FSI”) after the acquisition. We accounted for

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these acquisitions under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including Danamon’s relationships with agents of ¥79.6 billion and core deposit intangibles of ¥44.1 billion and FSI’s customer relationships of ¥100.9 billion, respectively. Management estimated the fair values of these intangible assets using the multi-period excess earnings method, which is a specific discounted cash flow method.

The estimation of the fair values of these intangible assets requires management to make significant judgements related to significant assumptions. For the Danamon’s relationships with agents, the significant assumptions included the growth rate of loan origination amounts reflecting market growth forecast, the attrition rate of the existing agents based on historical actual results, and the discount rate in which the risk that the future cash flow differ from the estimate is taken into consideration. The fair value of Danamon’s intangible assets of relationships with agents was determined, discounting expected cash flows based on excess earnings through the period for which relationships with existing agents was expected to continue. These cash flows were calculated using the growth rate of loan origination amounts reflecting forecast of motorcycle sales market in Indonesia and the attrition rate of existing agents based on historical actual results. The discount rate was determined based on cost of shareholders’ equity, considering risks of changes in relationship continuity, transaction size and profitability, relating to intangible assets, and risks involved in business scale. In addition, the fair value of Danamon’s core deposit intangibles was determined, discounting expected cash flows based on the effect of reduced funding cost through the period for which the deposit balance was expected to be kept. These cash flows were calculated using the assumptions, such as the attrition rate of depositors. For the FSI’s customer relationships, the significant assumptions included the growth rate of asset under management reflecting market growth forecast, the attrition rate of the existing customers based on historical actual results, and the discount rate in which the risk that the future cash flows differ from the estimate is taken into consideration. The fair value of FSI’s customer relationships was determined, discounting expected cash flows based on excess earnings through the period for which relationship with customers was expected to continue. These cash flows were calculated using the growth rate of assets under management reflecting expected market growth of investment objectives such as equity securities, debt securities, and infrastructures, and the attrition rate of existing customers based on historical actual results. The discount rate was determined based on cost of shareholders’ equity, considering business risks relating to intangible assets. Changes in these significant assumptions could have a significant impact on the fair value of these intangible assets.

Impairment on Goodwill

As part of our global strategies, we have executed multiple large-scale acquisitions, investments and capital alliances, and recorded goodwill resulting from these business combinations. U.S. GAAP requires us to test goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired, using a process that compares the carrying amount of a reporting unit with its fair value. An impairment loss is recognized to the extent that the carrying amount of a reporting exceeds its fair value, but not exceeding the total amount of goodwill allocated to that reporting unit. A reporting unit is an operating segment or component of an operating segment that constitutes a business for which discrete financial information is available and is regularly reviewed by management. The fair value of a reporting unit is defined as the amount at which the unit as a whole could be bought or sold in a current transaction between willing parties. Our consolidated goodwill balance was ¥517.6 billion at March 31, 2020, which was allocated to our reporting units. The measurement of the fair value of the Danamon reporting unit was primarily based on a market approach, and was also corroborated by multiple valuation techniques. We determined that the carrying value of Danamon exceeded the fair value as of the measurement date, resulting in the impairment loss on goodwill of ¥241.4 billion for the fiscal year ended March 31, 2020. In addition, we determined the fair values of the MUFG Americas Holdings Corporation (“MUAH”) reporting units within the Global Commercial Banking Business Group segment and Global Corporate & Investment Banking Business Group segment (“MUAH reporting units”) using a combination of the income and the market approaches. The income approach determined the fair value of the reporting units by discounting management’s projections of each reporting unit’s cash flows,

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including a terminal value to estimate the fair value of cash flows beyond the final year of projected results, using a discount rate derived from the Capital Asset Pricing Model. The market approach incorporates comparable public company price to tangible book value and price to earnings multiples. The principal factors used in the discounted cash flow analysis requiring judgment are the projected future operating cash flows based on forecasted future income. We determined that the carrying values of MUAH reporting units exceeded the fair values as of the measurement date, resulting in the impairment loss on goodwill of ¥80.3 billion for the fiscal year ended March 31, 2020.

The determination of the fair value of these reporting units requires management to make significant judgments related to significant assumptions due to the subjectively and uncertainty associated with the assumptions. The significant assumptions included the market capitalization to estimate the fair value of the Danamon reporting units, and the control premium considered in relation to market capitalization, for Danamon reporting unit and projected future operating cash flows based on forecasted future income in the income approach, for MUAH reporting units.

Valuation of Financial Instruments

We measure certain financial assets and liabilities at fair value. The majority of such assets and liabilities are measured at fair value on a recurring basis, including trading securities, trading derivatives and investment securities. In addition, certain other assets and liabilities are measured at fair value on a non-recurring basis, including held for sale loans which are carried at the lower of cost or fair value, collateral dependent loans and nonmarketable equity securities subject to impairment.

We have elected the fair value option for certain foreign securities classified as available-for-sale debt securities, whose unrealized gains and losses are reported in income, and marketable equity securities.

The guidance on the measurement of fair value defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We have an established and documented process for determining fair value in accordance with the guidance. To determine the fair value, we use quoted prices which include those provided from pricing vendors, where available. We generally obtain one price or quote per instrument and do not adjust it to determine the fair value of the instrument. We perform internal price verification procedures to ensure that the prices and quotes provided from the independent pricing vendors are reasonable. Such verification procedures include a comparison of pricing sources and analysis of variances among pricing sources. These verification procedures are periodically performed by independent risk management departments. For collateralized loan obligations, or CLOs, backed by general corporate loans, the fair value is determined by weighting the internal model valuation and the non-binding broker-dealer quotes. If quoted prices are not available to determine the fair value of derivatives, the fair value is based upon valuation techniques that use, where possible, current market-based or independently sourced parameters, such as interest rates, yield curves, foreign exchange rates, volatilities and credit curves. The fair values of trading liabilities are determined by discounting future cash flows at a rate which incorporates our own creditworthiness. In addition, valuation adjustments may be made to ensure that the financial instruments are recorded at fair value. These adjustments include, but are not limited to, amounts that reflect counterparty credit quality, funding cost, liquidity risk, and model risk. Our financial models are validated and periodically reviewed by risk management departments independent of divisions that created the models.

For a further discussion of the valuation techniques applied to the material assets or liabilities, see Note 31 to our consolidated financial statements included elsewhere in this Annual Report.

Accounting Changes and Recently Issued Accounting Pronouncements

See “Accounting Changes” and “Recently Issued Accounting Pronouncements” in Note 1 to our consolidated financial statements included elsewhere in this Annual Report.

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A. Operating Results

The following discussion relates to our operating results for the fiscal years ended March 31, 2019 and 2020. For the discussion on our operating results for the fiscal year ended March 31, 2018, including certain comparative discussion on our operating results for the fiscal years ended March 31, 2018 and 2019, please refer to “Item 5. Operating and Financial Review and Prospectus—5.A. Operating Results” in our annual report on Form 20-F for the fiscal year ended March 31, 2019, filed with the SEC on July 10, 2019.

Results of Operations

The following table sets forth a summary of our results of operations for the fiscal years ended March 31, 2019 and 2020:

	Fiscal years ended March 31,
	2019		2020
	(in billions)
Interest income	¥	3,813.4	¥	3,927.1
Interest expense		1,518.0		1,684.3
Net interest income		2,295.4		2,242.8
Provision for (reversal of) credit losses		34.3		321.7
Non-interest income		1,595.2		1,875.8
Non-interest expense		2,985.5		3,363.6
Income before income tax expense		870.8		433.3
Income tax expense		133.2		114.6
Net income before attribution of noncontrolling interests	¥	737.6	¥	318.7
Net income (loss) attributable to noncontrolling interests		19.0		12.7
Net income attributable to Mitsubishi UFJ Financial Group	¥	718.6	¥	306.0

Major components of our net income attributable to Mitsubishi UFJ Financial Group for the fiscal years ended March 31, 2019 and 2020 are discussed in further detail below.

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Net Interest Income

The following table is a summary of our interest rate spread, including the average balances of, and interest and average interest rates on, our assets and liabilities, for the fiscal years ended March 31, 2019 and 2020. Average balances are generally based on a daily average while a month-end average is used for certain average balances when it is not practicable to obtain applicable daily averages.

	Fiscal years ended March 31,
	2019								2020
	Average balance		Interest income (expense)			Average rate			Average balance		Interest income (expense)			Average rate
	(in billions, except percentages)
Interest-earning assets:
Domestic	¥	145,279.1	¥	1,048.6			0.72	%	¥	145,258.9	¥	998.4			0.69	%
Foreign		96,128.3		2,764.8			2.88			101,024.8		2,928.7			2.90
Total	¥	241,407.4	¥	3,813.4			1.58	%	¥	246,283.7	¥	3,927.1			1.59	%
Financed by:
Interest-bearing liabilities:
Domestic	¥	173,199.6	¥	(504.2	)		0.29	%	¥	172,878.9	¥	(473.4	)		0.27	%
Foreign		61,443.6		(1,013.8	)		1.65			65,982.7		(1,210.9	)		1.84
Total		234,643.2		(1,518.0	)		0.65			238,861.6		(1,684.3	)		0.71
Non-interest-bearing liabilities		6,764.2					—			7,422.1					—
Total	¥	241,407.4					0.63	%	¥	246,283.7					0.68	%
Net interest income and interest rate spread			¥	2,295.4			0.93	%			¥	2,242.8			0.88	%
Net interest income as a percentage of total interest-earning assets							0.95	%							0.91	%

The following table shows changes in our net interest income by changes in volume and by changes in rates for the fiscal year ended March 31, 2020 compared to the fiscal year ended March 31, 2019:

	Fiscal Year Ended March 31, 2019 versus Fiscal Year Ended March 31, 2020
	Increase (decrease) due to changes in
	Volume(1)			Rate(1)			Net change
	(in millions)
Domestic	¥	(3,478	)	¥	(15,969	)	¥	(19,447	)
Foreign		35,026			(68,178	)		(33,152	)
Total	¥	31,548		¥	(84,147	)	¥	(52,599	)

Note:

(1) Volume/rate variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total “net change.”

Fiscal Year Ended March 31, 2020 Compared to Fiscal Year Ended March 31, 2019

Net interest income decreased ¥52.6 billion to ¥2,242.8 billion for the fiscal year ended March 31, 2020 from ¥2,295.4 billion for the fiscal year ended March 31, 2019. This decrease was due to higher foreign interest expense, mainly reflecting higher average interest rates on, and higher average balance of, foreign deposits. This decrease was also attributable to lower domestic interest income, mainly reflecting lower interest rates on domestic loans. These negative impacts on net interest income were partially offset by an increase in foreign interest income, primarily reflecting higher interest rates on foreign loans. See “—Business Environment—Recent Developments and Prospects.”

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Interest income increased ¥113.7 billion to ¥3,927.1 billion for the fiscal year ended March 31, 2020 from ¥3,813.4 billion for the previous fiscal year. Domestic interest income decreased ¥50.2 billion, mainly due to lower interest rates on domestic loans, reflecting the competitive downward pressure in the continued low interest rate environment in Japan. Foreign interest income increased ¥163.9 billion primarily due to higher interest rates on foreign loans and higher volumes of, and higher interest rates on, foreign money market transactions.

Interest expense increased ¥166.3 billion to ¥1,684.3 billion for the fiscal year ended March 31, 2020 from ¥1,518.0 billion for the previous fiscal year. Domestic interest expense decreased ¥30.8 billion mainly due to lower interest rates on call money, funds purchased, and payables under repurchase agreements and securities lending transactions, reflecting lower U.S dollar funding rates in Japan. Foreign interest expense increased ¥197.1 billion. The higher foreign interest expense was mainly due to higher interest rates on deposits and higher money market interest rates in the United States.

Our average interest rate spread (which is the average interest rate on interest-earning assets less the average interest rate on interest-bearing liabilities) decreased five basis point to 0.88% for the fiscal year ended March 31, 2020 from 0.93% for the previous fiscal year. Between the same periods, the average interest rate spread on domestic activities decreased one basis point to 0.42% from 0.43%, and the average interest rate spread on foreign activities decreased 17 basis points to 1.06% from 1.23%. The decrease in the average interest rate spread on domestic activities mainly reflected lower interest rates on loans, reflecting the competitive downward pressure in the continued low interest rate environment in Japan. The decrease in the average interest rate spread on foreign activities mainly reflected the declining gap between long-term interest rates and short-term interest rates.

The yield on 10-year Japanese government bonds fluctuated between negative 0.286% and negative 0.009% during the six months ended September 30, 2019, but subsequently rose to around 0% towards December 31, 2019, declined again to negative 0.153% in February 2020, and rose back to around 0% towards March 31, 2020. During the previous fiscal year, the yield on such bonds fluctuated between negative 0.10% and positive 0.15%. In October 2019, the Bank of Japan decided to maintain its monetary policy, while slightly modifying its forward guidance to clarify that it expects short- and long-term interest rates to remain at their present or lower levels without specifying the duration of its guidance. As a result, long-term interest rates may fluctuate at lower levels or to greater degrees for an extended period, increasing uncertainty in the long-term interest rate market in Japan. In the United States, the FRB reduced the target range for the federal funds rate from between 2.25% and 2.50% to between 2.00% and 2.25% in July 2019, and to between 1.75% and 2.00% in September 2019, and further to between 1.50% and 1.75% in October 2019, and, in light of the COVID-19 pandemic risks, further to between 0% to 0.25% in March 2020. See “—Business Environment.”

The average balance of interest-earning assets increased ¥4,876.3 billion to ¥246,283.7 billion for the fiscal year ended March 31, 2020 from ¥241,407.4 billion for the fiscal year ended March 31, 2019. The average balance of domestic interest-earning assets decreased ¥20.2 billion to ¥145,258.9 billion mainly due to a decrease in the average balance of our interest-earning deposits in other banks and loans, largely offset by increases in the average balance of our call loans, funds sold, and receivables under resale agreements and securities borrowing transactions as well as trading account assets. The average balance of foreign interest-earning assets increased ¥4,896.5 billion primarily due to increases in call loans, funds sold, and receivables under resale agreements and securities borrowing transactions and trading account assets.

The average balance of interest-bearing liabilities increased ¥4,218.4 billion to ¥238,861.6 billion for the fiscal year ended March 31, 2020 from ¥234,643.2 billion for the fiscal year ended March 31, 2019. The average balance of domestic interest-bearing liabilities decreased ¥320.7 billion mainly due to a decrease in domestic deposits. The average balance of foreign interest-bearing liabilities increased ¥4,539.1 billion mainly due to an increase in foreign deposits and call money, funds purchased, and payables under repurchase agreements and securities lending transactions.

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Our net interest income for each of the fiscal years ended March 31, 2020 was not materially affected by gains or losses resulting from interest rate and other derivative contracts. We use such derivative instruments to manage the risks affecting the values of our financial assets and liabilities. Although these contracts are generally entered into for risk management purposes, a majority of them do not meet the specific conditions to qualify for hedge accounting under U.S. GAAP and thus are accounted for as trading assets or liabilities. Any gains or losses resulting from such derivative instruments are recorded as part of Trading account profits—net. For a detailed discussion of our risk management activities, see “—A. Operating Results—Results of Operations—Non-Interest Income” and “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk.”

Provision for (reversal of) credit losses

Fiscal Year Ended March 31, 2020 Compared to Fiscal Year Ended March 31, 2019

We recorded ¥321.7 billion of provision for credit losses for the fiscal year ended March 31, 2020, compared to ¥34.3 billion of provision for credit losses for the previous fiscal year. By segment, for the fiscal year ended March 31, 2020, ¥153.8 billion, ¥26.5 billion, ¥30.9 billion, ¥70.0 billion and ¥41.5 billion of provision for credit losses were recorded in the Commercial, Card, MUFG Americas Holdings, Krungsri and Other segments, respectively, while ¥1.0 billion of reversal of credit losses was recorded in the Residential segment. For the previous fiscal year, ¥43.9 billion and ¥4.5 billion of reversal of credit losses were recorded in the Commercial and Residential segments, respectively, while ¥23.9 billion, ¥9.3 billion and ¥49.5 billion of provision for credit losses were recorded in the Card, MUFG Americas Holdings and Krungsri segments, respectively.

The provision for credit losses recorded in the Commercial segment for the fiscal year ended March 31, 2020 mainly reflected, the financing provided to a domestic borrower in the services sector to facilitate the borrower’s restructuring efforts, and the deterioration in the business and financial performance of some large domestic borrowers in the manufacturing sector and some large foreign borrowers in the oil and gas sector and the electric power sector. The provision for credit losses for the Commercial segment also included ¥46.4 billion of qualitative reserves in light of the estimated impact that the COVID-19 pandemic had on the credit risk of our borrowers. See Note 4 to our consolidated financial statements included elsewhere in this Annual Report.

The larger provision for credit losses in the Card segment for the fiscal year ended March 31, 2020 mainly reflected an increase in default borrowers who filed for bankruptcy as part of their debt workout efforts. The increase in provision for credit losses in the MUFG Americas Holdings segment for the fiscal year ended March 31, 2020 reflected the deteriorated in the financial condition of large borrowers in the electric power sector and the real estate rental sector as well as the growth in the unsecured consumer loan portfolio. The larger provision for credit losses in the Krungsri segment mainly reflected the expansion of the retail and consumer loan portfolio, particularly automobile loans.

The reversal of credit losses in the Residential segment for the fiscal year ended March 31, 2020 reflected our assessment that the credit quality of the portfolio remained substantially unchanged as the stable corporate environment in recent periods continued to have a positive impact on the financial condition of residential borrowers.

We recorded ¥90.4 billion of provision for credit losses for our domestic loan portfolio for the fiscal year ended March 31, 2020, compared to reversal of credit losses of ¥40.2 billion for the previous fiscal year. This reflected, the financing provided to the domestic borrower in the services sector to facilitate the borrower’s restructuring efforts, and the deteriorated business and financial condition of large domestic borrowers in the manufacturing sector in the Commercial segment. We recorded ¥231.3 billion of provision for credit losses for our foreign portfolio for the fiscal year ended March 31, 2020, compared to ¥74.5 billion of provision for credit losses for the previous fiscal year. The larger provision reflected, the deteriorated financial condition of some

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large foreign borrowers that belong to the foreign oil and gas sector and the foreign electric power sector in the Commercial and MUFG Americas Holdings segments, the expansion of the retail and consumer loan portfolio in the Krungsri segment, and newly extended loans to automobile purchasers and small and medium-sized enterprises as well as unsecured consumer loans in Bank Danamon, which became our consolidated subsidiary in April 2019, in the Other segment.

For more information, see “—Liquidity and Capital Resources—Financial Condition—Loan Portfolio.” See also “—Business Environment—Recent Developments and Prospects.”

Non-Interest Income

The following table is a summary of our non-interest income for the fiscal years ended March 31, 2019 and 2020:

	Fiscal years ended March 31,
	2019			2020
	(in billions)
Fees and commissions income:
Fees and commissions on deposits	¥	52.6		¥	53.7
Fees and commissions on remittances and transfers		168.7			169.4
Fees and commissions on foreign trading business		73.2			66.0
Fees and commissions on credit card business		225.9			238.1
Fees and commissions on security-related services		233.4			221.5
Fees and commissions on administration and management services for investment funds		147.6			184.6
Trust fees		115.0			119.9
Guarantee fees		45.0			46.3
Insurance commissions		46.9			44.4
Fees and commissions on real estate business		45.2			49.8
Other fees and commissions		285.1			308.4
Total		1,438.6			1,502.1
Foreign exchange losses—net		(96.0	)		(281.8	)
Trading account profits (losses)—net:
Net losses on interest rate and other derivative contracts		(24.0	)		(159.0	)
Net profits on trading account securities, excluding derivatives		192.9			924.4
Total		168.9			765.4
Investment securities gains (losses)—net:
Net gains on sales of available-for-sale debt securities		28.7			106.4
Impairment losses on available-for-sale debt securities		(0.6	)		(1.6	)
Net losses from marketable equity securities		(355.8	)		(646.0	)
Other		75.4			9.0
Total		(252.3	)		(532.2	)
Equity in earnings of equity method investees—net		209.7			282.7
Gains on sales of loans		22.7			10.0
Gain on remeasurement of previously held equity method investment(1)		—			41.2
Other non-interest income		103.6			88.4
Total non-interest income	¥	1,595.2		¥	1,875.8

Note:

(1) Represents profits recognized in connection with our acquisition of Bank Danamon. See Note 2 to our consolidated financial statements included elsewhere in this Report.

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Fiscal Year Ended March 31, 2020 Compared to Fiscal Year Ended March 31, 2019

Non-interest income increased ¥280.6 billion to ¥1,875.8 billion for the fiscal year ended March 31, 2020 from ¥1,595.2 billion for the fiscal year ended March 31, 2019. This increase was mainly attributable to an increase in trading account profits, partially offset by net investment securities losses and net foreign exchange losses. See “—Business Environment—Recent Developments and Prospects.”

Fees and commissions income

Fees and commissions income increased ¥63.5 billion to ¥1,502.1 billion for the fiscal year ended March 31, 2020 from ¥1,438.6 billion for the fiscal year ended March 31, 2019. This increase was primarily due to an increase in fees and commissions on administration and management services for investment funds mainly due to higher fees from asset management services, reflecting the consolidation of First Sentier Investors as well as an increase in the volume of investment products held by domestic corporate investors. The increase was also attributable to an increase in other fees and commissions, reflecting the consolidation of Bank Danamon, as well as an increase in in fees and commissions on credit card business, reflecting an increase in payment processing fees and an increase in credit card issuance fees as credit card use grew in Japan. These increases were partially offset by a decrease in fees and commissions on securities-related services mainly due to lower volumes of selling and buying transactions by retail customers.

Net foreign exchange gains (losses)

The following table sets forth the details of our foreign exchange gains and losses for the fiscal years ended March 31, 2019 and 2020:

	Fiscal years ended March 31,
	2019			2020
	(in billions)
Foreign exchange losses—net:
Net foreign exchange losses on derivative contracts	¥	(354.4	)	¥	(434.1	)
Net foreign exchange gains on other than derivative contracts		71.8			748.3
Net foreign exchange gains (losses) related to the fair value option		186.6			(596.0	)
Total	¥	(96.0	)	¥	(281.8	)

Net foreign exchange losses for the fiscal year ended March 31, 2020 were ¥281.8 billion, compared to net losses of ¥96.0 billion for the fiscal year ended March 31, 2019. This was mainly due to larger net foreign exchange losses on foreign currency-denominated trading account securities, such as U.S. Treasury bonds, under the fair value option as the Japanese yen appreciated against the U.S. dollar from ¥110.99 to the U.S. dollar as of March 31, 2019 to ¥108.83 to the U.S. dollar as of March 31, 2020, while the Japanese yen depreciated against the U.S. dollar during the previous fiscal year resulting in net foreign exchange gains on U.S. dollar-denominated trading account securities under the fair value option. The larger total net foreign exchange losses also resulted from larger net foreign exchange losses on derivative contracts mainly due to the lower mark to market valuation on currency swaps entered into in connection with our U.S. dollar funding. These losses were largely offset by an increase in net foreign exchange gains on other than derivative contracts, reflecting the positive impact of fluctuations in the foreign currency exchange rates on the Japanese yen translated amounts of monetary liabilities of our commercial banking subsidiaries as the Japanese yen appreciated against other major currencies on a spot rate basis between March 31, 2019 and March 31, 2020.

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Net trading account profits (losses)

The following table sets forth the details of our trading account profits and losses for the fiscal years ended March 31, 2019 and 2020:

	Fiscal years ended March 31,
	2019			2020
	(in billions)
Trading account profits (losses)—net:
Net profits (losses) on interest rate and other derivative contracts
Interest rate contracts	¥	5.6		¥	(173.2	)
Equity contracts		80.1			29.8
Commodity contracts		0.3			—
Credit derivatives		(39.8	)		14.9
Other		(70.2	)		(30.5	)
Total	¥	(24.0	)	¥	(159.0	)
Net profits (losses) on trading account securities, excluding derivatives
Trading account securities	¥	(16.0	)	¥	86.6
Trading account securities under the fair value option		208.9			837.8
Total	¥	192.9		¥	924.4
Total	¥	168.9		¥	765.4

Net trading account profits were ¥765.4 billion for the fiscal year ended March 31, 2020, compared to net profits of ¥168.9 billion for the fiscal year ended March 31, 2019. This improvement was mainly due to an increase in net profits on trading account securities, excluding derivatives, resulting mainly from an increase in net profits on trading account securities under the fair value option, particularly U.S. Treasury bonds, as long-term interest rates declined in the United States during the fiscal year ended March 31, 2020. The yield on 10-year U.S. Treasury bonds declined to around 0.6% as of March 31, 2020 from around 2.4% as of March 31, 2019.

The improvement in net profits on trading account securities, excluding derivatives, was partially offset by larger net losses on interest rate and other derivative contracts, which primarily reflected ¥173.2 billion of net losses on interest rate contracts for the fiscal year ended March 31, 2020, compared to ¥5.6 billion of net profits on such contracts for the fiscal year ended March 31, 2019 mainly due to fluctuations in interest rates particularly in the United States towards March 31, 2020.

Net investment securities gains (losses)

Net investment securities losses were ¥532.2 billion for the fiscal year ended March 31, 2020, compared to net losses of ¥252.3 billion for the fiscal year ended March 31, 2019. This was mainly due to ¥646.0 billion of net losses from marketable equity securities, reflecting a decline in stock prices towards March 31, 2020 in Japan.

Net equity in earnings of equity method investees

Net equity in earnings of equity method investees for the fiscal year ended March 31, 2020 was ¥282.7 billion, compared to ¥209.7 billion for the previous fiscal year, reflecting higher earnings of our equity method investees, including Morgan Stanley.

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Non-Interest Expense

The following table shows a summary of our non-interest expense for the fiscal years ended March 31, 2019 and 2020:

	Fiscal years ended March 31,
	2019		2020
	(in billions)
Salaries and employee benefits	¥	1,175.4	¥	1,242.6
Occupancy expenses—net		179.8		182.9
Fees and commissions expenses		313.7		332.0
Outsourcing expenses, including data processing		275.1		303.6
Depreciation of premises and equipment		98.9		113.5
Amortization of intangible assets		235.1		237.3
Impairment of intangible assets		118.1		3.7
Insurance premiums, including deposit insurance		93.8		98.4
Communications		59.2		60.0
Taxes and public charges		95.4		100.2
Impairment of goodwill		—		383.8
Provision for (reversal of) off-balance sheet credit instruments		38.5		(62.3	)
Other non-interest expenses		302.5		367.9
Total non-interest expense	¥	2,985.5	¥	3,363.6

Fiscal Year Ended March 31, 2020 Compared to Fiscal Year Ended March 31, 2019

Non-interest expense increased ¥378.1 billion to ¥3,363.6 billion for the fiscal year ended March 31, 2020 from ¥2,985.5 billion for the previous fiscal year. Major factors affecting this increase are discussed below. See “—Business Environment—Recent Developments and Prospects.”

Salaries and employee benefits

Salaries and employee benefits increased ¥67.2 billion to ¥1,242.6 billion for the fiscal year ended March 31, 2020. The increase was due to an increase in overseas salaries and employee benefits, mainly reflecting the impact of the consolidation of Bank Danamon.

Impairment of intangible assets

Impairment of intangible assets decreased ¥114.4 billion to ¥3.7 billion. This was primarily attributable to ¥116.1 billion of impairment losses on system integration-related assets of Mitsubishi UFJ NICOS recorded in the previous fiscal year, as we fundamentally revised our system integration plan, comprehensively taking into account the scale of, the complexity of, and the degree of difficulty in, developing the system and responding to rapid changes in payments market in an appropriate manner.

Impairment of goodwill

We recognized ¥383.8 billion of impairment loss on goodwill for the fiscal year ended March 31, 2020. Of this amount, the impairment loss recorded in connection with our investment in Bank Danamon was ¥241.4 billion. In light of Bank Danamon’s publicly traded stock price in comparison to the per-share purchase price for Bank Danamon and considering other factors, we performed a quantitative goodwill impairment test, as a result of which we concluded that the fair value of Bank Danamon as a reporting unit had fallen below its carrying amount. The measurement of the fair value of the reporting unit was primarily based on a market approach and was corroborated by multiple valuation techniques. The amount of the recognized impairment loss represented all of the goodwill recorded in connection with our acquisition of Bank Danamon. See Notes 2 and 6 to our consolidated financial statements included elsewhere in this Annual Report.

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We also recognized ¥80.3 billion of impairment loss relating to MUFG Americas Holdings for the fiscal year ended March 31, 2020. Due to the decline in interest rates and weaker business prospects than previously forecasted, our previous cash flow projections for certain reporting units relating to MUFG Americas Holdings were revised downward. As a result of our quantitative goodwill impairment test, we concluded that the fair values of these reporting units, measured on December 31, 2019, were below the carrying amounts of such reporting units. We measured the fair values of the reporting units using a combination of the income and market approaches.

We consolidate MUFG Americas Holdings based on financial information for the fiscal year ended December 31 as this date and our fiscal year which ended on March 31 have been treated as coterminous. For the fiscal year ended March 31, 2020, the effect of recording a goodwill impairment as an intervening event primarily due to the economic environment triggered by COVID-19 pandemic for the three-month period ended March 31, 2020 would have been approximately ¥80 billion to ¥110 billion. This intervening event occurring during the three-month period ended March 31, 2020, if recorded, would not have had a substantial and permanent effects on consolidated total assets, net income or total equity as of March 31, 2020, and therefore, the intervening event was not recognized for the fiscal year ended March 31, 2020. See Note 6 to our audited consolidated financial statements included elsewhere in this Annual Report.

We recognized ¥62.2 billion of impairment loss relating to Krungsri for the fiscal year ended March 31, 2020. As Thailand’s economy slowed down, Krungsri’s stock price declined. As a result our quantitative goodwill impairment test, we concluded that the fair value of Krungsri as a reporting unit, measured on December 31, 2019, had fallen below its carrying amount. We measured the fair value of the reporting unit primarily based on the market approach as corroborated by multiple valuation techniques.

Provision for (reversal of) off-balance sheet credit instruments

We recognized ¥62.3 billion of reversal of off-balance sheet credit instruments for the fiscal year ended March 31, 2020, compared to ¥38.5 billion of provision for off-balance sheet credit instruments for the previous fiscal year, mainly due to reversal reported in our commercial banking subsidiaries.

We consolidate certain foreign subsidiaries based on financial information for the fiscal year ended December 31 as this date and our fiscal year which ended on March 31 have been treated as coterminous. For the fiscal year ended March 31, 2020, the effect of recording a provision for credit losses and a provision for off-balance sheet credit instruments, including commitments to extend credit, financial guarantees and standby letters of credit as an intervening event primarily due to the economic environment triggered by COVID-19 pandemic for the three-month period ended March 31 2020 would have been approximately ¥84 billion and would have resulted in a decrease of ¥58 billion to net income attributable to Mitsubishi UFJ Financial Group. This intervening event occurring during the three-month period ended March 31, 2020, if recorded, would not have had a substantial and permanent effects on consolidated total assets, net income or total equity as of March 31, 2020, and therefore, the intervening event was not recognized for the fiscal year ended March 31, 2020. See Note 4 to our audited consolidated financial statements included elsewhere in this Annual Report.

On April 1, 2020, we adopted Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments. The new guidance replaces the incurred loss impairment methodology in current U.S. GAAP with the current expected credit loss model that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. As a result, considering the COVID-19 pandemic and macroeconomic variables under the circumstances, our allowance for credit losses and our allowance for off-balance sheet credit instruments increased an aggregate of approximately ¥380 billion to ¥450 billion as of the opening balance sheet date. For more information on this guidance, see Note 1 to our consolidated financial statements included elsewhere in this Annual Report.

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Income Tax Expense

The following table shows a summary of our income tax expense for the fiscal years ended March 31, 2019 and 2020:

	Fiscal years ended March 31,
	2019			2020
	(in billions, except percentages)
Income before income tax expense	¥	870.8		¥	433.2
Income tax expense		133.2			114.5
Effective income tax rate		15.3	%		26.4	%
Combined normal effective statutory tax rate		30.6	%		30.6	%

Reconciling items between the combined normal effective statutory tax rates and the effective income tax rates for the fiscal years ended March 31, 2019 and 2020 are summarized as follows:

	Fiscal years ended March 31,
	2019			2020
Combined normal effective statutory tax rate		30.6	%		30.6	%
Increase (decrease) in taxes resulting from:
Nondeductible expenses		0.5			1.2
Impairment of goodwill		—			26.1
Foreign tax credit and payments		(3.3	)		(9.2	)
Lower tax rates applicable to income of subsidiaries		(2.5	)		(3.2	)
Change in valuation allowance		(1.4	)		7.9
Realization of previously unrecognized tax effects of subsidiaries		—			(19.8	)
Nontaxable dividends received		(9.1	)		(15.6	)
Undistributed earnings of subsidiaries		0.6			3.6
Tax and interest expense for uncertainty in income taxes		0.6			0.0
Noncontrolling interest income (loss)		0.2			(0.1	)
Effect of changes in tax laws		0.0			—
Expiration of loss carryforward		0.1			1.9
Other—net		(1.0	)		3.0
Effective income tax rate		15.3	%		26.4	%

Income taxes applicable to us in Japan are imposed by the national, prefectural and municipal governments, and the aggregate of these taxes resulted in a combined normal effective statutory tax rate of 30.6% for each of the fiscal years ended March 31, 2019 and 2020. Foreign subsidiaries are subject to income taxes of the jurisdictions in which they operate. These taxes are reflected in the effective income tax rate.

Fiscal Year Ended March 31, 2020

The effective income tax rate for the fiscal year ended March 31, 2020 was 26.4%, which was 4.2 percentage points lower than the combined normal effective statutory rate of 30.6%. This was primarily due to the sale of a wholly owned subsidiary, as a result of which we recognized tax benefits from temporary differences not previously recognized as part of deferred tax assets, decreasing our income tax expense by ¥85.6 billion and our effective income tax rate by 19.8 percentage points for the fiscal year ended March 31, 2020. Another factor contributing to the lower effective income tax rate was our receipt of nontaxable dividends, which resulted in a decrease of ¥67.6 billion in income tax expense and a decrease of 15.6 percentage points in the effective income tax rate for the fiscal year ended March 31, 2020. Under Japanese tax law, a certain percentage of dividends received is considered nontaxable and excluded from gross revenue in computing taxable income. This creates a permanent difference between our taxable income for Japanese tax purposes and

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our income before income tax expense reported under U.S. GAAP. These impact were partially offset by an increase of 26.1 percentage points in the effective income tax rate resulting from recognition of the goodwill impairment loss discussed above, which had the effect of decreasing our income before income tax expense under U.S. GAAP by ¥113.1 billion for the fiscal year ended March 31, 2020, since such loss was not deductible in computing our taxable income under Japanese tax law.

Fiscal Year Ended March 31, 2019

The effective income tax rate for the fiscal year ended March 31, 2019 was 15.3%, which was 15.3 percentage points lower than the combined normal effective statutory rate of 30.6%. This primarily reflected our receipt of nontaxable dividends, which resulted in a decrease of ¥79.6 billion in income tax expense and a decrease of 9.1 percentage points in the effective income tax rate for the fiscal year ended March 31, 2019. Under Japanese tax law, a certain percentage of dividends received is considered nontaxable and excluded from gross revenue in computing taxable income. This creates a permanent difference between our taxable income for Japanese tax purposes and our income before income tax expense reported under U.S. GAAP. Another factor contributing to the lower effective income tax rate was foreign tax credit, which resulted in a decrease of ¥28.5 billion in income tax expense and a decrease of 3.3 percentage points in the effective income tax rate for the fiscal year ended March 31, 2019.

Net income (loss) attributable to noncontrolling interests

Fiscal Year Ended March 31, 2020 Compared to Fiscal Year Ended March 31, 2019

We recorded ¥12.7 billion of net income attributable to noncontrolling interests for the fiscal year ended March 31, 2020, compared to ¥19.0 billion of net income attributable to noncontrolling interests for the previous fiscal year. This mainly reflected decrease in net income of Mitsubishi UFJ Morgan Stanley Securities.

Business Segment Analysis

We measure the performance of each of our business segments primarily in terms of “operating profit.” Operating profit and other segment information in this Annual Report are based on the financial information prepared in accordance with Japanese GAAP as adjusted in accordance with internal management accounting rules and practices. Accordingly, the format and information are not consistent with our consolidated financial statements prepared in accordance with U.S. GAAP. For example, operating profit does not reflect items such as a component of the provision for (reversal of) credit losses (primarily equivalent to the formula allowance under U.S. GAAP), foreign exchange gains (losses) and investment securities gains (losses). For a reconciliation of operating profit under the internal management reporting system to income before income tax expense shown on the consolidated statements of income, see Note 29 to our consolidated financial statements included elsewhere in this Annual Report. We do not use information on the segments’ total assets to allocate our resources and assess performance. Accordingly, business segment information on total assets is not presented.

The following is a brief explanation of our business segments for the fiscal year ended March 31, 2020:

Retail & Commercial Banking Business Group—Covers the domestic retail and commercial banking businesses of MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Securities Holdings, Mitsubishi UFJ NICOS and other group companies of MUFG. This business group offers retail and small and medium-sized enterprise customers in Japan an extensive array of commercial banking, trust banking and securities products and services.

Japanese Corporate & Investment Banking Business Group—Covers the large Japanese corporate businesses of MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities Holdings, including the transaction banking, investment banking, trust banking and securities businesses. This business

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group offers large Japanese corporations advanced financial solutions designed to respond to their diversified and globalized needs and to contribute to their business and financial strategies through the global network of our group companies.

Global Corporate & Investment Banking Business Group—Covers the corporate, investment and transaction banking businesses of MUFG Bank and Mitsubishi UFJ Securities Holdings. Through a global network of offices and branches, this business group provides non-Japanese large corporate and financial institution customers outside Japan with a comprehensive set of solutions that meet their increasingly diverse and sophisticated financing needs.

Global Commercial Banking Business Group—Covers the retail and commercial banking businesses of MUFG Union Bank and Krungsri. Starting in the current fiscal year ended March 31, 2020, this business group also covers Bank Danamon. This business group offers a comprehensive array of financial products and services such as loans, deposits, fund transfers, investments and asset management services for local retail, small and medium-sized enterprise, and corporate customers across the Asia-Pacific region.

Asset Management & Investor Services Business Group—Covers the asset management and asset administration businesses of Mitsubishi UFJ Trust and Banking and MUFG Bank. Starting in the current fiscal year ended March 31, 2020, this business group also covers First Sentier Investors. By integrating the trust banking expertise of Mitsubishi UFJ Trust and Banking and the global strengths of MUFG Bank, the business group offers a full range of asset management and administration services for corporations and pension funds, including pension fund management and administration, advice on pension structures, and payments to beneficiaries, and also offers investment trusts for retail customers.

Global Markets Business Group—Covers the customer business and the treasury operations of MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities Holdings. The customer business includes sales and trading in fixed income instruments, currencies, equities and other investment products as well as origination and distribution of financial products. The treasury operations include asset and liability management as well as global investments for the MUFG Group.

Other—Consists mainly of the corporate centers of MUFG, MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Morgan Stanley Securities. The elimination of duplicated amounts of net revenues among business segments was also reflected in Other.

We made modifications to our internal management accounting rules and practices to clarify the responsibility for profits of each business segment, effective April 1, 2019. Major rule changes are (i) reallocation of certain overseas Japanese corporates business in MUFG Americas Holdings previously included in the Global Commercial Banking Business Group into the Japanese Corporate & Investment Banking Business Group due to refinement of the business segment definition, (ii) reallocation of operating expenses among the Business Groups based on cost drivers due to refinement of the business segment definition, and (iii) allocation of adjustments related to the derivative counterparty risk previously included in Other to the Customer Business Groups and the Global Markets Business Group that held the derivative assets. These modifications had the following impact for the fiscal years ended March 31, 2018 and 2019:

• increasing the operating profits of the Global Corporate & Investment Banking Business Group by ¥1.8 billion, the Global Markets Business Group by ¥6.3 billion, and Other by ¥29.7 billion for the fiscal year ended March 31, 2018,

• reducing the operating profits of the Retail & Commercial Banking Business Group by ¥0.5 billion, the Japanese Corporate & Investment Banking Business Group by ¥18.6 billion, and the Global Commercial Banking Business Group by ¥18.7 billion for the fiscal year ended March 31, 2018,

• increasing the operating profits of the Retail & Commercial Banking Business Group by ¥1.9 billion, the Global Markets Business Group by ¥5.1 billion, and Other by ¥30.6 billion for the fiscal year ended March 31, 2019, and

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• reducing the operating profits of the Global Corporate & Investment Banking Business Group by ¥10.4 billion, the Japanese Corporate & Investment Banking Business Group by ¥13.8 billion, and the Global Commercial Banking Business Group by ¥13.4 billion for the fiscal year ended March 31, 2019.

Prior period business segment information has been restated to enable comparison between the relevant amounts for the fiscal years ended March 31, 2018, 2019 and 2020.

For further information, see Note 29 to our consolidated financial statements included elsewhere in this Annual Report.

The following tables set forth our business segment information for the fiscal years ended March 31, 2018, 2019 and 2020:

	Customer Business
Fiscal year ended March 31, 2018	Retail & Commercial Banking Business Group		Japanese Corporate & Investment Banking Business Group		Global Corporate & Investment Banking Business Group			Global Commercial Banking Business Group			Asset Management & Investor Services Business Group		Total		Global Markets Business Group			Other			Total
	(in billions)
Net revenue	¥	1,582.5	¥	523.2	¥	364.3		¥	652.8		¥	190.4	¥	3,313.2	¥	574.5		¥	30.4		¥	3,918.1
BK and TB(1):		781.6		433.0		236.9			(3.3	)		83.8		1,532.0		369.3			128.6			2,029.9
Net interest income		463.4		148.9		92.1			(3.3	)		—		701.1		235.1			183.5			1,119.7
Net fees		246.4		225.1		146.8			—			83.8		702.1		(12.0	)		(22.9	)		667.2
Other		71.8		59.0		(2.0	)		—			—		128.8		146.2			(32.0	)		243.0
Other than BK and TB		800.9		90.2		127.4			656.1			106.6		1,781.2		205.2			(98.2	)		1,888.2
Operating expenses		1,226.3		314.8		226.7			468.8			119.4		2,356.0		228.7			132.8			2,717.5
Operating profit (loss)	¥	356.2	¥	208.4	¥	137.6		¥	184.0		¥	71.0	¥	957.2	¥	345.8		¥	(102.4	)	¥	1,200.6

Note:

(1) “BK and TB” is a sum of MUFG Bank on a stand-alone basis and Mitsubishi UFJ Trust and Banking on a stand-alone basis.

	Customer Business
Fiscal year ended March 31, 2019	Retail & Commercial Banking Business Group		Japanese Corporate & Investment Banking Business Group		Global Corporate & Investment Banking Business Group		Global Commercial Banking Business Group			Asset Management & Investor Services Business Group		Total		Global Markets Business Group			Other			Total
	(in billions)
Net revenue	¥	1,522.0	¥	545.2	¥	383.8	¥	690.5		¥	203.0	¥	3,344.5	¥	479.8		¥	(11.9	)	¥	3,812.4
BK and TB(1):		737.1		415.0		254.0		(1.3	)		93.2		1,498.0		303.9			59.1			1,861.0
Net interest income		457.2		150.2		110.9		(1.3	)		—		717.0		227.8			200.4			1,145.2
Net fees		243.8		210.3		142.4		—			93.2		689.7		(13.9	)		(54.9	)		620.9
Other		36.1		54.5		0.7		—			—		91.3		90.0			(86.4	)		94.9
Other than BK and TB		784.9		130.2		129.8		691.8			109.8		1,846.5		175.9			(71.0	)		1,951.4
Operating expenses		1,221.3		309.3		241.5		483.5			124.6		2,380.2		223.5			136.4			2,740.1
Operating profit (loss)	¥	300.7	¥	235.9	¥	142.3	¥	207.0		¥	78.4	¥	964.3	¥	256.3		¥	(148.3	)	¥	1,072.3

Note:

(1) “BK and TB” is a sum of MUFG Bank on a stand-alone basis and Mitsubishi UFJ Trust and Banking on a stand-alone basis.

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	Customer Business
Fiscal year ended March 31, 2020	Retail & Commercial Banking Business Group		Japanese Corporate & Investment Banking Business Group		Global Corporate & Investment Banking Business Group		Global Commercial Banking Business Group			Asset Management & Investor Services Business Group			Total		Global Markets Business Group			Other			Total
	(in billions)
Net revenue	¥	1,501.6	¥	551.1	¥	376.8	¥	804.6		¥	243.0		¥	3,477.1	¥	575.2		¥	15.7		¥	4,068.0
BK and TB(1):		721.1		420.7		270.5		0.1			94.6			1,507.0		358.4			12.7			1,878.1
Net interest income		439.0		164.2		115.2		0.9			2.5			721.8		123.1			85.4			930.3
Net fees		248.0		205.0		137.6		—			92.2			682.8		(12.6	)		(64.8	)		605.4
Other		34.1		51.5		17.7		(0.8	)		(0.1	)		102.4		247.9			(7.9	)		342.4
Other than BK and TB		780.5		130.4		106.3		804.5			148.4			1,970.1		216.8			3.0			2,189.9
Operating expenses		1,203.0		315.8		247.8		571.8			171.7			2,510.1		232.2			150.7			2,893.0
Operating profit (loss)	¥	298.6	¥	235.3	¥	129.0	¥	232.8		¥	71.3		¥	967.0	¥	343.0		¥	(135.0	)	¥	1,175.0

Note:

(1) “BK and TB” is a sum of MUFG Bank on a stand-alone basis and Mitsubishi UFJ Trust and Banking on a stand-alone basis.

Fiscal Year Ended March 31, 2020 Compared to Fiscal Year Ended March 31, 2019

Retail & Commercial Banking Business Group

Net revenue of the Retail & Commercial Banking Business Group decreased ¥20.4 billion to ¥1,501.6 billion for the fiscal year ended March 31, 2020 from ¥1,522.0 billion for the fiscal year ended March 31, 2019. The Retail & Commercial Banking Business Group’s net revenue mainly consists of interest income from lending and deposit-taking operations and fees relating to credit card settlement, consumer financing, real estate and stock transfer services for Japanese domestic individual and small to medium-sized corporate customers. The decrease in net revenue was mainly due to a decrease in net interest income due to lower interest rate spreads on domestic loans due to competitive downward pressure on interest rates on such loans in the continued low interest rate environment in Japan. The decrease in net revenue was also attributable to a decrease in investment products sales reflecting weaker retail customer demand for investment products under unfavorable market conditions. These decreases were partially offset by higher payment processing fees from the credit card business and higher fees from the consumer finance business as credit card use and consumer lending grew in Japan.

Operating expenses of the Retail & Commercial Banking Business Group decreased ¥18.3 billion to ¥1,203.0 billion for the fiscal year ended March 31, 2020 from ¥1,221.3 billion for the fiscal year ended March 31, 2019. The decrease primarily resulted from our cost reduction measures, partially offset by higher expenses relating to the “Channel Strategy and Business Process Re-engineering” project pursuant to our current medium-term business plan and the system integration for our consumer finance business.

As a result, operating profit of the Retail & Commercial Banking Business Group decreased ¥2.1 billion to ¥298.6 billion for the fiscal year ended March 31, 2020 from ¥300.7 billion for the fiscal year ended March 31, 2019.

Japanese Corporate & Investment Banking Business Group

Net revenue of the Japanese Corporate & Investment Banking Business Group increased ¥5.9 billion to ¥551.1 billion for the fiscal year ended March 31, 2020 from ¥545.2 billion for the fiscal year ended March 31, 2019. The Japanese Corporate & Investment Banking Business Group’s net revenue mainly consists of interest income from lending and deposit-taking operations and fees relating to financing, investment banking, real estate and stock transfer services for large Japanese corporate customers. The increase in net revenue was mainly due to

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higher net interest income from both Japanese yen-denominated loans and foreign currency-denominated loans to large Japanese corporate customers, reflecting higher interest rate spreads on such loans.

Operating expenses of the Japanese Corporate & Investment Banking Business Group increased ¥6.5 billion to ¥315.8 billion for the fiscal year ended March 31, 2020 from ¥309.3 billion for the fiscal year ended March 31, 2019. The increase mainly reflected higher expenses for financial regulatory compliance purposes in Europe and our investment to enhance the information system platform in the Asia and Oceania region.

As a result, operating profit of the Japanese Corporate & Investment Banking Business Group decreased ¥0.6 billion to ¥235.3 billion for the fiscal year ended March 31, 2020 from ¥235.9 billion for the fiscal year ended March 31, 2019.

Global Corporate & Investment Banking Business Group

Net revenue of the Global Corporate & Investment Banking Business Group decreased ¥7.0 billion to ¥376.8 billion for the fiscal year ended March 31, 2020 from ¥383.8 billion for the fiscal year ended March 31, 2019. The Global Corporate & Investment Banking Business Group’s net revenue mainly consists of interest income from lending and deposit-taking operations and fees and commissions from investment banking services and foreign exchange and derivatives transactions for large non-Japanese corporate and institutional customers outside Japan. The decrease in net revenue was mainly attributable to a decrease in the translated Japanese yen value of foreign currency-denominated revenues reflecting the negative impact of the appreciation of the Japanese yen against other major currencies on a spot rate basis between March 31, 2019 and 2020 as well as losses on sales of high yield bonds in our securities business. These negative impacts more than offset the positive impact of the closings of several large financing deals in the Americas and the Asia and Oceania region as well as higher net interest income from foreign loans reflecting higher interest rate spreads on such loans due in part to our efforts to reduce assets that were not generating sufficient profits.

Operating expenses of the Global Corporate & Investment Banking Business Group increased ¥6.3 billion to ¥247.8 billion for the fiscal year ended March 31, 2020 from ¥241.5 billion for the fiscal year ended March 31, 2019. The increase was mainly attributable to the one-time cost for our acquisition from DVB Bank SE in Germany of DVB Bank’s aviation finance lending portfolio.

As a result, operating profit of the Global Corporate & Investment Banking Business Group decreased ¥13.3 billion to ¥129.0 billion for the fiscal year ended March 31, 2020 from ¥142.3 billion for the fiscal year ended March 31, 2019.

Global Commercial Banking Business Group

Net revenue of the Global Commercial Banking Business Group increased ¥114.1 billion to ¥804.6 billion for the fiscal year ended March 31, 2020 from ¥690.5 billion for the fiscal year ended March 31, 2019. The Global Commercial Banking Business Group’s net revenue mainly consists of interest income from lending and deposit-taking operations and fees from remittances and transfers, consumer finance and wealth-related services for individual and small to medium-sized corporate customers of MUFG Union Bank, Krungsri and Bank Danamon. The increase in net revenue was mainly due to the consolidation of Bank Danamon and higher net interest income reflecting an increase in Krungsri’s loan portfolio. The increase in net revenue was partially offset by lower net interest income in MUFG Union Bank mainly reflecting declines in interest rates in the United States.

Operating expenses of the Global Commercial Banking Business Group increased ¥88.3 billion to ¥571.8 billion for the fiscal year ended March 31, 2020 from ¥483.5 billion for the fiscal year ended March 31, 2019. The increase was mainly attributable to the consolidation of Bank Danamon and an increase in expenses in Krungsri primarily reflecting larger volumes of business. The increase in operating expenses was also attributable to an increase in expenses for IT system development projects in the United States.

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As a result, operating profit of the Global Commercial Banking Business Group increased ¥25.8 billion to ¥232.8billion for the fiscal year ended March 31, 2020 from ¥207.0 billion for the fiscal year ended March 31, 2019.

Asset Management & Investor Services Business Group

Net revenue of the Asset Management & Investor Services Business Group increased ¥40.0 billion to ¥243.0 billion for the fiscal year ended March 31, 2020 from ¥203.0 billion for the fiscal year ended March 31, 2019. The Asset Management & Investor Services Business Group’s net revenue mainly consists of fees from asset management and administration services for products, such as pension trusts and mutual funds. The increase in net revenue was primarily attributable to higher fees from asset management services reflecting the consolidation of First Sentier Investors as well as an increase in investment products sales to domestic corporate investors. The increase in net revenue was also attributable to higher fees from investor services both in and outside Japan mainly because we expanded our offerings of bundled services, including fund financing, to global fund customers.

Operating expenses of the Asset Management & Investor Services Business Group increased ¥47.1 billion to ¥171.7 billion for the fiscal year ended March 31, 2020 from ¥124.6 billion for the fiscal year ended March 31, 2019. The increase was mainly attributable to the one-time cost for our acquisition of First Sentier Investors as well as higher cost commensurate with business volume growth.

As a result, operating profit of the Asset Management & Investor Services Business Group decreased ¥7.1 billion to ¥71.3 billion for the fiscal year ended March 31, 2020 from ¥78.4 billion for the fiscal year ended March 31, 2019.

Global Markets Business Group

Net revenue of the Global Markets Business Group increased ¥95.4 billion to ¥575.2 billion for the fiscal year ended March 31, 2020 from ¥479.8 billion for the fiscal year ended March 31, 2019. This was mainly due to higher net revenue from our overseas sales and trading business as we continued to work to improve our business model to better capture customer business opportunities abroad to increase volume as well as higher net revenue from our asset and liability management operations particularly reflecting our effort to deal with the declining interest rate environment. These increases in net revenue were partially offset by a decrease in net interest income reflecting tighter interest rate spreads between long-term and short-term interest rates in the United States.

Operating expenses of the Global Markets Business Group increased ¥8.7 billion to ¥232.2 billion for the fiscal year ended March 31, 2020 from ¥223.5 billion for the fiscal year ended March 31, 2019. This increase primarily reflected the amortization cost for IT system development projects and the cost for our business model improvement measures.

As a result, operating profit of the Global Markets Business Group increased ¥86.7 billion to ¥343.0 billion for the fiscal year ended March 31, 2020 from ¥256.3 billion for the fiscal year ended March 31, 2019.

Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018

Retail & Commercial Banking Business Group

Net revenue of the Retail & Commercial Banking Business Group decreased ¥60.5 billion to ¥1,522.0 billion for the fiscal year ended March 31, 2019 from ¥1,582.5 billion for the fiscal year ended March 31, 2018. The Retail & Commercial Banking Business Group’s net revenue mainly consists of interest income from lending and deposit-taking operations and fees relating to credit card settlement, consumer

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financing, real estate and stock transfer services for Japanese domestic individual and small to medium-sized corporate customers. The decrease in net revenue was mainly due to a decrease in investment products sales reflecting weaker retail customer demand for investment products under unfavorable market conditions. The decrease was partially offset by higher payment processing fees from the credit card business and higher fees from the consumer finance business as credit card use and consumer lending grew in Japan.

Operating expenses of the Retail & Commercial Banking Business Group decreased ¥5.0 billion to ¥1,221.3 billion for the fiscal year ended March 31, 2019 from ¥1,226.3 billion for the fiscal year ended March 31, 2018. The decrease primarily resulted from our cost reduction measures, partially offset by higher expenses relating to the “Channel Strategy and Business Process Re-engineering” project pursuant to our current medium-term business plan and the system integration for our consumer finance business.

As a result, operating profit of the Retail & Commercial Banking Business Group decreased ¥55.5 billion to ¥300.7 billion for the fiscal year ended March 31, 2019 from ¥356.2 billion for the fiscal year ended March 31, 2018.

Japanese Corporate & Investment Banking Business Group

Net revenue of the Japanese Corporate & Investment Banking Business Group increased ¥23.0 billion to ¥545.2 billion for the fiscal year ended March 31, 2019 from ¥523.2 billion for the fiscal year ended March 31, 2018. The Japanese Corporate & Investment Banking Business Group’s net revenue mainly consists of interest income from lending and deposit-taking operations and fees relating to financing, investment banking, real estate and stock transfer services for large Japanese corporate customers. The increase in net revenue was mainly due to higher net interest income from foreign currency-denominated loans and deposits reflecting higher interest rate spreads on such loans and deposits and larger balances of such deposits as well as higher fees and commissions from the investment banking business relating to M&A and IPO transactions.

Operating expenses of the Japanese Corporate & Investment Banking Business Group decreased ¥5.5 billion to ¥309.3 billion for the fiscal year ended March 31, 2019 from ¥314.8 billion for the fiscal year ended March 31, 2018. The decrease mainly reflected the results of our cost reduction measures.

As a result, operating profit of the Japanese Corporate & Investment Banking Business Group increased ¥27.5 billion to ¥235.9 billion for the fiscal year ended March 31, 2019 from ¥208.4 billion for the fiscal year ended March 31, 2018.

Global Corporate & Investment Banking Business Group

Net revenue of the Global Corporate & Investment Banking Business Group increased ¥19.5 billion to ¥383.8 billion for the fiscal year ended March 31, 2019 from ¥364.3 billion for the fiscal year ended March 31, 2018. The Global Corporate & Investment Banking Business Group’s net revenue mainly consists of interest income from lending and deposit-taking operations and fees and commissions from investment banking services and foreign exchange and derivatives transactions for large non-Japanese corporate and institutional customers outside Japan. The increase in net revenue was mainly attributable to larger balances of loans and a decline in foreign currency-denominated mid- to long term funding costs as well as the closings of several large event-driven financing deals in the Americas and the Asia and Oceania region.

Operating expenses of the Global Corporate & Investment Banking Business Group increased ¥14.8 billion to ¥241.5 billion for the fiscal year ended March 31, 2019 from ¥226.7 billion for the fiscal year ended March 31, 2018. The increase was mainly attributable to higher expenses for system development and global financial regulatory compliance purposes.

As a result, operating profit of the Global Corporate & Investment Banking Business Group increased ¥4.7 billion to ¥142.3 billion for the fiscal year ended March 31, 2019 from ¥137.6 billion for the fiscal year ended March 31, 2018.

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Global Commercial Banking Business Group

Net revenue of the Global Commercial Banking Business Group increased ¥37.7 billion to ¥690.5 billion for the fiscal year ended March 31, 2019 from ¥652.8 billion for the fiscal year ended March 31, 2018. The Global Commercial Banking Business Group’s net revenue mainly consists of interest income from lending and deposit-taking operations and fees from remittances and transfers, consumer finance and wealth-related services for individual and small to medium-sized corporate customers of MUFG Union Bank and Krungsri. The increase in net revenue was mainly due to higher net interest income reflecting an increase in Krungsri’s automobile loan portfolio. The increase in net revenue was also attributable to higher net interest income in MUFG Union Bank mainly reflecting an increase in its retail loan portfolio.

Operating expenses of the Global Commercial Banking Business Group increased ¥14.7 billion to ¥483.5 billion for the fiscal year ended March 31, 2019 from ¥468.8 billion for the fiscal year ended March 31, 2018. The increase was mainly attributable to an increase in expenses in Krungsri primarily reflecting larger volumes of business. The increase in operating expenses was also attributable to an increase in expenses for IT system development projects in the United States.

As a result, operating profit of the Global Commercial Banking Business Group increased ¥23.0 billion to ¥207.0 billion for the fiscal year ended March 31, 2019 from ¥184.0 billion for the fiscal year ended March 31, 2018.

Asset Management & Investor Services Business Group

Net revenue of the Asset Management & Investor Services Business Group increased ¥12.6 billion to ¥203.0 billion for the fiscal year ended March 31, 2019 from ¥190.4 billion for the fiscal year ended March 31, 2018. The Asset Management & Investor Services Business Group’s net revenue mainly consists of fees from asset management and administration services for products, such as pension trusts and mutual funds. The increase in net revenue was primarily attributable to higher fees from investor services both in and outside Japan, reflecting a larger balance of assets under management as we expanded our services to global fund customers and started to offer services for new domestic investment products. The increase in net revenue was also attributable to an increase in investment products sales to domestic corporate investors.

Operating expenses of the Asset Management & Investor Services Business Group increased ¥5.2 billion to ¥124.6 billion for the fiscal year ended March 31, 2019 from ¥119.4 billion for the fiscal year ended March 31, 2018. The increase was mainly attributable to larger volumes of business.

As a result, operating profit of the Asset Management & Investor Services Business Group increased ¥7.4 billion to ¥78.4 billion for the fiscal year ended March 31, 2019 from ¥71.0 billion for the fiscal year ended March 31, 2018.

Global Markets Business Group

Net revenue of the Global Markets Business Group decreased ¥94.7 billion to ¥479.8 billion for the fiscal year ended March 31, 2019 from ¥574.5 billion for the fiscal year ended March 31, 2018. This was mainly due to lower net revenue from the asset and liability management operations, primarily reflecting tighter spreads between long-term and short-term interest rates in the United States as well as lower realized gains on sales of Japanese government bonds. In the fiscal year ended March 31, 2018, we recorded relatively higher realized gains on sales of Japanese government bonds executed in larger volumes in anticipation of greater fluctuations in interest rates in Japan. The decrease in net revenue was also attributable to a decline in customer business reflecting lower volatility in the bond and equity markets.

Operating expenses of the Global Markets Business Group decreased ¥5.2 billion to ¥223.5 billion for the fiscal year ended March 31, 2019 from ¥228.7 billion for the fiscal year ended March 31, 2018. This decrease

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primarily reflected the results of our cost reduction measures, partially offset by an increase in expenses for financial regulatory compliance purposes.

As a result, operating profit of the Global Markets Business Group decreased ¥89.5 billion to ¥256.3 billion for the fiscal year ended March 31, 2019 from ¥345.8 billion for the fiscal year ended March 31, 2018.

Geographic Segment Analysis

The table below sets forth our total revenue, income (loss) before income tax expense (benefit) and net income (loss) attributable to Mitsubishi UFJ Financial Group on a geographic basis for the fiscal years ended March 31, 2019 and 2020. Assets, income and expenses attributable to foreign operations are allocated to geographical areas based on the domicile of the debtors and customers. In general, we have allocated all direct expenses and a proportionate share of general and administrative expenses to income derived from foreign loans and other transactions by our foreign operations to the relevant foreign geographical areas. Certain charges, such as most impairment charges on goodwill, are recognized as domestic expenses. For further information, see Note 29 to our consolidated financial statements included elsewhere in this Annual Report.

	Fiscal years ended March 31,
	2019			2020
	(in billions)
Total revenue (interest income and non-interest income):
Domestic	¥	1,886.4		¥	1,596.8
Foreign:
United States of America		1,637.6			2,224.0
Europe		222.3			89.4
Asia/Oceania excluding Japan		1,157.9			1,326.4
Other areas(1)		504.4			566.2
Total foreign		3,522.2			4,206.0
Total	¥	5,408.6		¥	5,802.8
Income (loss) before income tax expense (benefit):
Domestic	¥	(317.7	)	¥	(969.1	)
Foreign:
United States of America		624.6			1,172.8
Europe		48.3			(129.2	)
Asia/Oceania excluding Japan		265.2			152.2
Other areas(1)		250.4			206.6
Total foreign		1,188.5			1,402.4
Total	¥	870.8		¥	433.3
Net income (loss) attributable to Mitsubishi UFJ Financial Group
Domestic	¥	(345.1	)	¥	(1,001.5	)
Foreign:
United States of America		573.7			1,114.0
Europe		50.9			(140.4	)
Asia/Oceania excluding Japan		214.5			142.6
Other areas(1)		224.6			191.3
Total foreign		1,063.7			1,307.5
Total	¥	718.6		¥	306.0

Note:

(1) Other areas primarily include Canada, Latin America, the Caribbean and the Middle East.

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Fiscal Year Ended March 31, 2020 Compared to Fiscal Year Ended March 31, 2019

Domestic net loss attributable to Mitsubishi UFJ Financial Group for the fiscal year ended March 31, 2020 was ¥1,001.5 billion, compared to net loss of ¥345.1 billion for the fiscal year ended March 31, 2019. This was mainly attributable to larger investment securities losses and the impairment losses on goodwill relating to Bank Danamon, MUFG Americas Holdings and Krungsri.

Foreign net income attributable to Mitsubishi UFJ Financial Group increased ¥243.8 billion to ¥1,307.5 billion for the fiscal year ended March 31, 2020 from ¥1,063.7 billion for the fiscal year ended March 31, 2019. The increase in foreign net income was mainly due to higher trading account profits, reflecting net profits from trading account securities under the fair value option in the United States.

Effect of Change in Exchange Rates on Foreign Currency Translation

Fiscal Year Ended March 31, 2020 Compared to Fiscal Year Ended March 31, 2019

The average exchange rate for the fiscal year ended March 31, 2020 was ¥108.74 per U.S.$1.00, compared to the average exchange rate of ¥110.91 per U.S.$1.00 for the previous fiscal year. The average exchange rate for the conversion of the U.S. dollar financial statements of some of our foreign subsidiaries for the fiscal year ended December 31, 2019 was ¥109.05 per U.S.$1.00, compared to the average exchange rate for the fiscal year ended December 31, 2018 of ¥110.43 per U.S.$1.00.

The change in the average exchange rate of the Japanese yen against the U.S. dollar and other foreign currencies had the effect of decreasing total revenue by ¥91.0 billion, net interest income by ¥29.0 billion and income before income tax expense by ¥31.0 billion, respectively, for the fiscal year ended March 31, 2020.

B. Liquidity and Capital Resources

Financial Condition

Total Assets

Our total assets as of March 31, 2020 were ¥331,753.3 billion, an increase of ¥26,524.4 billion from ¥305,228.9 billion as of March 31, 2019. The increase in total assets mainly reflected an increase in receivables under resale agreements of ¥13,021.2 billion and an increase in trading account assets of ¥6,927.4, which were partially offset by a decrease in equity securities of ¥1,592.3 billion.

The following table shows our total assets as of March 31, 2019 and 2020 by geographic region based principally on the domicile of the obligors:

	As of March 31,
	2019		2020
	(in billions)
Japan	¥	194,070.5		¥207,532.3
Foreign:
United States		49,987.4		60,587.9
Europe		21,535.3		19,099.4
Asia/Oceania excluding Japan		27,993.0		30,845.9
Other areas(1)		11,642.7		13,687.8
Total foreign		111,158.4		124,221.0
Total	¥	305,228.9		¥331,753.3

Note:

(1) Other areas primarily include Canada, Latin America, the Caribbean and the Middle East.

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We have allocated a substantial portion of our assets to international activities. As a result, reported amounts are affected by changes in the exchange rates of the Japanese yen against the U.S. dollar and other foreign currencies. Foreign assets are denominated primarily in the U.S. dollar. The Japanese yen amount of foreign currency-denominated assets decreases as major foreign currencies depreciates against the Japanese yen. For example, as of March 31, 2020, the exchange rate was ¥108.83 per U.S.$1.00, as compared with ¥110.99 as of March 31, 2019. This appreciation of the Japanese yen against the U.S. dollar and other foreign currencies between March 31, 2019 and March 31, 2020 resulted in a ¥2,671.5 billion decrease in the Japanese yen amount of our total assets as of March 31, 2020.

Loan Portfolio

The following table sets forth our loans outstanding, before deduction of allowance for credit losses, as of March 31, 2019 and 2020, based on the industry segment loan classifications as defined by the Bank of Japan for regulatory reporting purposes, which is not necessarily based on the use of proceeds:

	As of March 31,
	2019			2020
	(in billions)
Domestic:
Manufacturing	¥	11,154.0		¥	11,448.8
Construction		717.7			733.2
Real estate		11,706.4			12,054.7
Services		2,653.2			2,585.1
Wholesale and retail		7,643.4			7,504.6
Banks and other financial institutions(1)		5,213.0			5,161.1
Communication and information services		1,510.6			1,572.3
Other industries		8,756.5			8,673.9
Consumer		15,802.0			15,319.7
Total domestic		65,156.8			65,053.4
Foreign:
Governments and official institutions		841.7			726.3
Banks and other financial institutions(1)		11,641.4			11,788.2
Commercial and industrial		31,951.1			32,565.0
Other		7,597.5			8,404.1
Total foreign		52,031.7			53,483.6
Unearned income, unamortized premium—net and deferred loan fees—net		(304.6	)		(350.3	)
Total(2)	¥	116,883.9		¥	118,186.7

Notes:

(1) Loans to so-called “non-bank finance companies” are generally included in the “Banks and other financial institutions” category. Non-bank finance companies are primarily engaged in consumer lending, factoring and credit card businesses.

(2) The above table includes loans held for sale of ¥291.8 billion and ¥344.8 billion as of March 31, 2019 and 2020, respectively, which are carried at the lower of cost or fair value.

Loans are one of our main uses of funds. For the fiscal year ended March 31, 2020, the average balance of loans was ¥116,448.5 billion, accounting for 47.3% of the average total interest-earning assets, compared to ¥118,102.2 billion, representing 48.9% of the average total interest-earning assets, for the previous fiscal year. As of March 31, 2020, our total loans were ¥118,186.7 billion, accounting for 35.6% of total assets, compared to ¥116,883.9 billion, accounting for 38.3% of total assets as of March 31, 2019. As a percentage of total loans before unearned income, net unamortized premiums and net deferred loan fees, between March 31, 2019 and March 31, 2020, domestic loans decreased from 55.6% to 54.9%, while foreign loans increased from 44.4% to 45.1%.

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Our domestic loan balance decreased ¥103.4 billion, or 0.2%, between March 31, 2019 and March 31, 2020. This was mainly due to a decrease in residential loans, which are included in the consumer category in the above table, as repayments exceeded newly extended loans.

Our foreign loan balance increased ¥1,451.9 billion, or 2.8%, between March 31, 2019 and March 31, 2020. This was primarily due to our acquisition of Bank Danamon. In addition, larger volumes of retail, consumer and residential loans in MUFG Union Bank and automobile loans in Krungsri contributed to the increase in the foreign loan balance. Particularly, the growth in the foreign loan balance was attributable to larger volumes of retail, consumer and residential loans in MUFG Americas Holdings and automobile loans in Krungsri.

Credit quality indicator

The following table sets forth credit quality indicators of loans by class as of March 31, 2019 and 2020:

As of March 31, 2019:	Normal		Close Watch		Likely to become Bankrupt or Legally/ Virtually Bankrupt		Total(1)
	(in billions)
Commercial
Domestic	¥	49,392.0	¥	1,242.1	¥	217.7	¥	50,851.8
Manufacturing		10,819.6		279.9		47.9		11,147.4
Construction		672.1		37.2		7.9		717.2
Real estate		11,403.6		222.8		22.5		11,648.9
Services		2,436.4		174.8		20.0		2,631.2
Wholesale and retail		7,240.8		329.3		68.7		7,638.8
Banks and other financial institutions		5,199.9		7.6		0.9		5,208.4
Communication and information services		1,465.7		34.5		10.2		1,510.4
Other industries		8,610.5		119.6		24.9		8,755.0
Consumer		1,543.4		36.4		14.7		1,594.5
Foreign(2)		35,418.2		562.9		112.1		36,093.2
Loans acquired with deteriorated credit quality		11.7		10.8		3.8		26.3
Total	¥	84,821.9	¥	1,815.8	¥	333.6	¥	86,971.3

	Accrual		Nonaccrual		Total(1)
	(in billions)
Residential	¥	13,661.8	¥	66.3	¥	13,728.1
Card	¥	516.9	¥	61.6	¥	578.5

	Credit Quality Based on the Number of Delinquencies				Credit Quality Based on Internal Credit Ratings						Total(1)(3)
	Accrual		Nonaccrual		Pass		Special Mention		Classified
	(in billions)
MUFG Americas Holdings	¥	4,752.1	¥	15.5	¥	4,699.7	¥	51.9	¥	88.4	¥	9,607.6

	Normal		Special Mention		Substandard or Doubtful or Doubtful of Loss		Total(1)
	(in billions)
Krungsri	¥	5,682.2	¥	199.1	¥	129.2	¥	6,010.5

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As of March 31, 2020:	Normal		Close Watch		Likely to become Bankrupt or Legally/ Virtually Bankrupt		Total(1)
	(in billions)
Commercial
Domestic	¥	49,695.9	¥	1,186.1	¥	220.2	¥	51,102.2
Manufacturing		10,997.3		317.0		58.6		11,372.9
Construction		696.5		28.4		6.9		731.8
Real estate		11,790.4		191.0		20.1		12,001.5
Services		2,390.2		158.9		21.8		2,570.9
Wholesale and retail		7,124.1		301.9		71.8		7,497.8
Banks and other financial institutions		5,146.4		13.2		0.9		5,160.5
Communication and information services		1,530.8		32.4		8.9		1,572.1
Other industries		8,540.1		112.8		19.3		8,672.2
Consumer		1,480.1		30.5		11.9		1,522.5
Foreign(2)		34,719.1		636.5		128.1		35,483.7
Loans acquired with deteriorated credit quality		8.2		9.7		19.0		36.9
Total	¥	84,423.2	¥	1,832.3	¥	367.3	¥	86,622.8

	Accrual		Nonaccrual		Total(1)
	(in billions)
Residential	¥	13,256.8	¥	61.7	¥	13,318.5
Card	¥	504.3	¥	61.3	¥	565.6

	Credit Quality Based on the Number of Delinquencies				Credit Quality Based on Internal Credit Ratings						Total(1)(3)
	Accrual		Nonaccrual		Pass		Special Mention		Classified
	(in billions)
MUFG Americas Holdings	¥	4,590.8	¥	15.1	¥	4,877.9	¥	87.6	¥	84.0	¥	9,655.4

	Normal		Special Mention		Substandard or Doubtful or Doubtful of Loss		Total(1)
	(in billions)
Krungsri	¥	6,513.7	¥	246.3	¥	151.6	¥	6,911.6

	Accrual		Nonaccrual		Total(1)
	(in billions)
Other	¥	1,086.5	¥	31.4	¥	1,117.9

Notes:

(1) Total loans in the above table do not include loans held for sale, and represent balances without adjustments in relation to unearned income, unamortized premiums and deferred loan fees.

(2) Excludes the loans held by MUFG Americas Holdings, Krungsri and Other.

(3) Total loans of MUFG Americas Holdings do not include FDIC covered loans and small business loans which are not individually rated totaling ¥0.7 billion and ¥0.4 billion as of March 31, 2019 and 2020, respectively. We will be reimbursed for a substantial portion of any future losses on FDIC covered loans under the terms of the FDIC loss share agreements.

We classify loans into risk categories based on relevant information about the ability of borrowers to service their debt, including, but not limited to, historical and current financial information, historical and current payment experience, credit documentation, public and non-public information about borrowers and current economic trends as deemed appropriate to each segment.

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The primary credit quality indicator for loans within all classes of the Commercial segment is the internal credit rating assigned to each borrower based on our internal borrower ratings of 1 through 15 with the rating of 1 assigned to a borrower with the highest quality of credit. When assigning a credit rating to a borrower, we evaluate the borrower’s expected debt-service capability based on various information, including financial and operating information of the borrower as well as information on the industry in which the borrower operates, and the borrower’s business profile, management and compliance system. In evaluating a borrower’s debt-service capability, we also conduct an assessment of the level of earnings and an analysis of the borrower’s net worth. Based on the internal borrower rating, loans within the Commercial segment are categorized as Normal (internal borrower ratings of 1 through 9), Close Watch (internal borrower ratings of 10 through 12), and Likely to become Bankrupt or Legally/Virtually Bankrupt (internal borrower ratings of 13 through 15).

Loans to borrowers categorized as Normal represent those that are not deemed to have collectability issues. Loans to borrowers categorized as Close Watch represent those that require close monitoring as the borrower has begun to exhibit elements of potential concern with respect to its business performance and financial condition, the borrower has begun to exhibit elements of serious concern with respect to its business performance and financial condition, including business problems requiring long-term solutions, or the borrower’s loans are TDRs or loans contractually past due 90 days or more for special reasons. Loans to borrowers categorized as Likely to become Bankrupt or Legally/Virtually Bankrupt represent those that have a higher probability of default than those categorized as Close Watch due to serious debt repayment problems with poor progress in achieving restructuring plans, the borrower being considered virtually bankrupt with no prospects for an improvement in business operations, or the borrower being legally bankrupt with no prospects for continued business operations because of non-payment, suspension of business, voluntary liquidation or filing for legal liquidation.

For more information on our credit and borrower ratings, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Credit Risk Management.”

The accrual status is a primary credit quality indicator for loans within the Residential segment and the Card segment as well as consumer loans within the MUFG Americas Holdings segment. The accrual status of these loans is determined based on the number of delinquent payments.

Commercial loans within the MUFG Americas Holdings segment are categorized as either pass or criticized based on the internal credit rating assigned to each borrower. Criticized credits are those that are internally risk graded as Special Mention, Substandard or Doubtful. Special Mention credits are potentially weak, as the borrower has begun to exhibit deteriorating trends, which, if not corrected, may jeopardize repayment of the loan and result in a further downgrade. Classified credits are those that are internally risk graded as Substandard or Doubtful. Substandard credits have well-defined weaknesses, which, if not corrected, could jeopardize the full satisfaction of the debt. A credit classified as Doubtful has critical weaknesses that make full collection improbable on the basis of currently existing facts and conditions.

Loans within the Krungsri segment are categorized as Normal, Special Mention, and Substandard, which is further divided into Substandard, Doubtful and Doubtful of Loss, primarily based on their delinquency status. Loans categorized as Special Mention generally represent those that have overdue principal repayments or interest payments for a cumulative period exceeding one month commencing from the contractual due date. Loans categorized as Substandard, Doubtful or Doubtful of Loss generally represent those that have overdue principal repayments or interest payments for a cumulative period exceeding three months, commencing from the contractual due date.

For the Commercial, Residential and Card segments, credit quality indicators are based on information as of March 31. For the MUFG Americas Holdings, Krungsri and Other segments, credit quality indicators are generally based on information as of December 31.

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Allowance for credit losses

The following table shows a summary of the changes in the allowance for credit losses by portfolio segment for the fiscal years ended March 31, 2019 and 2020:

Fiscal year ended March 31, 2019:	Commercial			Residential			Card		MUFG Americas Holdings			Krungsri			Total
	(in billions)
Allowance for credit losses:
Balance at beginning of fiscal year	¥	491.1		¥	42.5		¥	32.1	¥	53.8		¥	144.6		¥	764.1
Provision for (reversal of) credit losses		(43.9	)		(4.5	)		23.9		9.3			49.5			34.3
Charge-offs		76.6			0.3			24.3		13.2			59.6			174.0
Recoveries		17.5			0.9			0.9		3.7			21.1			44.1
Net charge-offs		59.1			(0.6	)		23.4		9.5			38.5			129.9
Other(1)		1.5			—			—		(1.0	)		(10.8	)		(10.3	)
Balance at end of fiscal year	¥	389.6		¥	38.6		¥	32.6	¥	52.6		¥	144.8		¥	658.2

Fiscal year ended March 31, 2020:	Commercial			Residential			Card		MUFG Americas Holdings			Krungsri		Other		Total
	(in billions)
Allowance for credit losses:
Balance at beginning of fiscal year	¥	389.6		¥	38.6		¥	32.6	¥	52.6		¥	144.8	¥	—	¥	658.2
Provision for (reversal of) credit losses		153.8			(1.0	)		26.5		30.9			70.0		41.5		321.7
Charge-offs		85.3			3.3			25.1		27.9			77.9		23.6		243.1
Recoveries		26.4			0.4			1.2		4.1			23.2		8.5		63.8
Net charge-offs		58.9			2.9			23.9		23.8			54.7		15.1		179.3
Other(1)		(2.2	)		—			—		(0.7	)		9.5		2.3		8.9
Balance at end of fiscal year	¥	482.3		¥	34.7		¥	35.2	¥	59.0		¥	169.6	¥	28.7	¥	809.5

Note:

(1) Other is principally comprised of gains or losses from foreign exchange translation.

Allowance for credit losses and recorded investment in loans by portfolio segment as of March 31, 2019 and 2020 are shown below:

As of March 31, 2019:	Commercial		Residential		Card		MUFG Americas Holdings		Krungsri		Total
	(in billions)
Allowance for credit losses:
Individually evaluated for impairment	¥	313.0	¥	14.1	¥	21.8	¥	8.3	¥	28.3	¥	385.5
Collectively evaluated for impairment		63.3		23.4		10.8		44.3		116.5		258.3
Loans acquired with deteriorated credit quality(1)		13.3		1.1		0.0		0.0		0.0		14.4
Total	¥	389.6	¥	38.6	¥	32.6	¥	52.6	¥	144.8	¥	658.2
Loans:
Individually evaluated for impairment	¥	880.0	¥	102.9	¥	64.8	¥	69.8	¥	83.2	¥	1,200.7
Collectively evaluated for impairment		86,065.0		13,617.8		510.4		9,527.3		5,921.4		115,641.9
Loans acquired with deteriorated credit quality(1)		26.3		7.4		3.3		11.2		5.9		54.1
Total(2)	¥	86,971.3	¥	13,728.1	¥	578.5	¥	9,608.3	¥	6,010.5	¥	116,896.7

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As of March 31, 2020:	Commercial		Residential		Card		MUFG Americas Holdings		Krungsri		Other		Total
	(in billions)
Allowance for credit losses:
Individually evaluated for impairment	¥	364.1	¥	12.6	¥	19.8	¥	6.0	¥	30.2	¥	5.0	¥	437.7
Collectively evaluated for impairment		108.1		21.1		15.4		53.0		139.4		22.6		359.6
Loans acquired with deteriorated credit quality(1)		10.1		1.0		0.0		0.0		0.0		1.1		12.2
Total	¥	482.3	¥	34.7	¥	35.2	¥	59.0	¥	169.6	¥	28.7	¥	809.5
Loans:
Individually evaluated for impairment	¥	945.0	¥	92.4	¥	65.3	¥	67.7	¥	99.0	¥	17.5	¥	1,286.9
Collectively evaluated for impairment		85,640.9		13,219.7		497.4		9,581.1		6,806.5		1,092.5		116,838.1
Loans acquired with deteriorated credit quality(1)		36.9		6.4		2.9		7.0		6.1		7.9		67.2
Total(2)	¥	86,622.8	¥	13,318.5	¥	565.6	¥	9,655.8	¥	6,911.6	¥	1,117.9	¥	118,192.2

Notes:

(1) Loans acquired with deteriorated credit quality in the above table include acquired impaired loans which are individually evaluated for impairment.

(2) Total loans in the above table do not include loans held for sale, and represent balances without adjustments in relation to unearned income, unamortized premiums and deferred loan fees.

We recorded ¥321.7 billion of provision for credit losses for the fiscal year ended March 31, 2020, compared to ¥34.3 billion of provision for credit losses for the previous fiscal year. Our total allowance for credit losses as of March 31, 2020 was ¥809.5 billion, an increase of ¥151.3 billion from ¥658.2 billion as of March 31, 2019. The total allowance for credit losses represented 0.68% of the total loan balance as of March 31, 2020, compared to 0.56% as of March 31, 2019. Significant trends in each portfolio segment are discussed below. See “—Business Environment—Recent Developments and Prospects.”

Commercial segment—We recorded ¥153.8 billion of provision for credit losses for the fiscal year ended March 31, 2020, compared to ¥43.9 billion of reversal of credit losses for the previous fiscal year. The provision for credit losses for the fiscal year ended March 31, 2020 reflected the financing provided to a domestic borrower in the services sector to facilitate the borrower’s restructuring efforts and the deteriorated business and financial condition of some large domestic borrowers in the manufacturing sector. The provision for credit losses also reflected the deteriorated business and financial performance of some large foreign borrowers in the oil and gas sector and the electric power sector. The provision for credit losses also included ¥46.4 billion of qualitative reserves in light of the estimated impact that the COVID-19 pandemic had on the credit risk of our borrowers. See Note 4 to our consolidated financial statements included elsewhere in this Annual Report. In addition, our recoveries increased as a result of collection from some large domestic borrowers in the Legally/Virtually Bankrupt category during the year ended March 31, 2020. As a result, the ratio of loans classified as Close Watch to total loans increased to 2.12% as of March 31, 2020 from 2.09% as of March 31, 2019, and the ratio of loans classified as Likely to become Bankrupt and Legally/Virtually Bankrupt to total loans increased to 0.42% as of March 31, 2020 from 0.38% as of March 31, 2019. The total allowance for credit losses for this segment represented 0.56% of the segment’s total loan balance as of Mach 31, 2020, compared to 0.45% as of March 31, 2019.

Residential segment—We recorded ¥1.0 billion of reversal of credit losses for the fiscal year ended March 31, 2020, compared to ¥4.5 billion of reversal of credit losses for the previous fiscal year. The credit

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quality of the portfolio remained substantially unchanged as the stable corporate environment in recent periods continued to have a positive impact on the financial condition of residential borrowers. The ratio of loans classified as Nonaccrual to total loans in the segment decreased to 0.46% as of March 31, 2020 from 0.48% as of March 31, 2019. The ratio of total allowance for credit losses to the total loan balance in this segment decreased to 0.26% as of March 31, 2020 from 0.28% as of March 31, 2019.

Card segment—We recorded ¥26.5 billion of provision for credit losses for the fiscal year ended March 31, 2020, compared to ¥23.9 billion of provision for credit losses for the previous fiscal year. The larger provision for credit losses primarily reflected an increase in default borrowers who filed for bankruptcy as part of their debt workout efforts. The increase in default borrowers led to an increase in the amount of nonaccrual loans that were charged off during the reporting period, which amount is reflected in each of charge-offs and provision for credit losses in the above table. Although the stable corporate environment in recent periods positively affected some of our individual borrowers, the positive trends did not meaningfully affect our consumer loan borrowers and, in some cases, the corporate efficiencies negatively affected some of our consumer loan borrowers. As a result, the ratio of loans classified as Nonaccrual to the total loans in the segment increased to 10.83% as of March 31, 2020, from 10.65% as of March 31, 2019. The ratio of total allowance for credit losses to the total loan balance in this segment increased to 6.22% as of March 31, 2020 from 5.63% as of March 31, 2019.

MUFG Americas Holdings segment—We recorded ¥30.9 billion of provision for credit losses for the fiscal year ended March 31, 2020, compared to ¥9.3 billion of provision for credit losses for the previous fiscal year. The larger provision for credit losses mainly reflected the deteriorated financial condition of large borrowers in the electric power sector and the real estate rental sector. The larger provision was also attributable to the growth in the unsecured consumer loan portfolio in line with MUFG Union Bank’s expansion strategy. As a result, the ratio of loans classified as Special Mention or below and Nonaccrual to total loans in the segment increased to 1.93% as of March 31, 2020 from 1.62% as of March 31, 2019. The ratio of total allowance for credit losses to the total loan balance in this segment increased to 0.61% as of March 31, 2020 from 0.55% as of March 31, 2019.

Krungsri segment—We recorded ¥70.0 billion of provision for credit losses for the fiscal year ended March 31, 2020, compared to ¥49.5 billion of provision for credit losses for the previous fiscal year. The larger provision for credit losses mainly reflected the expansion of the retail and consumer loan portfolio, particularly automobile loans. In addition, some borrowers of mortgage and automobile loans experienced deterioration in their financial condition. As a result, the ratio of loans classified as Special Mention or below to total loans in the segment increased to 5.76% as of March 31, 2020 from 5.46% as of March 31, 2019. The ratio of total allowance for credit losses to the total loan balance in this segment increased to 2.45% as of March 31, 2020 from 2.41% as of March 31, 2019.

Other segment—We recorded ¥41.5 billion of provision for credit losses for the fiscal year ended March 31, 2020. The provision for credit losses mainly reflected newly extended loans to automobile purchasers and small and medium-sized enterprises as well as unsecured consumer loans in Bank Danamon, which became our consolidated subsidiary in April 2019. The ratio of loans classified as nonaccrual to total loans in the segment was 2.81% as of March 31, 2020. The ratio of total allowance for credit losses to the total loan balance in this segment was 2.57% as of March 31, 2020.

When there is an improvement in asset quality, reversal of credit losses is recorded in our consolidated statements of income to maintain the allowance for credit losses at a level management deems appropriate.

Although we reversed allowance for credit losses for certain loan portfolio segments in recent periods, we have historically provided for credit losses, and in future periods we may need to recognize a provision for credit losses. See “Item 3.D. Key Information—Risk Factors—Credit Risk—We may suffer additional credit-related losses in the future if our borrowers are unable to repay their loans as expected or if the measures we take in reaction to, or in anticipation of, our borrowers’ deteriorating repayment abilities prove inappropriate or insufficient.”

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Allowance policy

We maintain an allowance for credit losses to absorb probable losses inherent in the loan portfolio. We have divided our allowance for credit losses into six portfolio segments—Commercial, Residential, Card, MUFG Americas Holdings, Krungsri and Other. Our allowance policy for the major portfolio segments—Commercial, Residential, Card, MUFG Americas Holdings and Krungsri—is summarized below.

For all portfolio segments, key elements relating to the policies and discipline used in determining the allowance for credit losses are our credit classification and related borrower categorization process, which are closely linked to the risk grading standards set by the Japanese regulatory authorities for asset evaluation and assessment, and are used as a basis for establishing the allowance for credit losses and charge-offs. The categorization is based on conditions that may affect the ability of borrowers to service their debt, such as current financial condition and results of operations, historical payment experience, credit documentation, other public information and current trends.

For more information on our credit and borrower ratings, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Credit Risk Management.”

For the Commercial, MUFG Americas Holdings and Krungsri segments, our allowance for credit losses primarily consists of allocated allowances. The allocated allowances consist of (1) an allowance for loans individually evaluated for impairment, (2) an allowance for large groups of smaller-balance homogeneous loans, and (3) a formula allowance. The allocated allowance within the Commercial segment also includes an allowance for country risk exposure. The allowance for credit losses within the MUFG Americas Holdings segment also includes an unallocated allowance which captures losses that are attributable to economic events in various industry or geographic sectors whose impact on our loan portfolios in these segments have occurred but have yet to be recognized in the allocated allowance. For the Residential and Card segments, the loans are smaller-balance homogeneous loans that are pooled by the risk ratings based on the number of delinquencies.

For more information on our methodologies used to estimate the allowance for each portfolio segment, see “Summary of Significant Accounting Policies” in Note 1 to our consolidated financial statements included elsewhere in this Annual Report and “—Critical Accounting Estimates—Allowance for Credit Losses” above.

On April 1, 2020, we adopted Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments. The new guidance replaces the incurred loss impairment methodology in current U.S. GAAP with the current expected credit loss model that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. As a result, considering the COVID-19 pandemic and macroeconomic variables under the circumstances, we estimate that our allowance for credit losses and allowance for off-balance sheet credit instruments increased an aggregate of approximately ¥380 billion to ¥450 billion as of the opening balance sheet date. For more information on this guidance, see Note 1 to our audited consolidated financial statements included elsewhere in this Annual Report.

Allowance for off-balance sheet credit instruments

We maintain an allowance for credit losses on off-balance sheet credit instruments, including commitments to extend credit, guarantees, standby letters of credit and other financial instruments. The allowance is included in other liabilities. We have adopted for such instruments the same methodology as that which is used in determining the allowance for credit losses on loans.

The allowance for credit losses on off-balance sheet credit instruments was ¥57.0 billion as of March 31, 2020, a decrease of ¥62.3 billion from ¥119.3 billion as of March 31, 2019. This decrease was primarily because a large domestic borrower in the services industry, in whose favor we have provided guarantees in substantial amounts, had improved the credit capability by the restructuring efforts.

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Intervening Event

We consolidate certain foreign subsidiaries based on financial information for the fiscal year ended December 31 as this date and our fiscal year which ended on March 31 have been treated as coterminous. For the fiscal year ended March 31, 2020, the effect of recording a provision for credit losses and a provision for off-balance sheet credit instruments, including commitments to extend credit, guarantees and standby letters of credit, as an intervening event primarily due to the economic environment triggered by COVID-19 pandemic for the three-month period ended March 31 2020 would have been approximately ¥84 billion and would have resulted in a decrease of ¥58 billion to net income attributable to Mitsubishi UFJ Financial Group. This intervening event occurring during the three-month period ended March 31, 2020, if recorded, would not have had a substantial and permanent effects on consolidated total assets, net income or total equity as of March 31, 2020, and therefore, the intervening event was not recognized for the fiscal year ended March 31, 2020.

Nonaccrual loans and troubled debt restructurings

We consider a loan to be a nonaccrual loan when substantial doubt exists as to the full and timely payment of interest on, or repayment of, the principal of the loan, which is a borrower condition that generally corresponds to borrowers in categories 13 and below in our internal rating system (which corresponds to “Likely to become Bankrupt,” “Virtually Bankrupt” and “Bankrupt or de facto Bankrupt” status under Japanese banking regulations). Substantially all nonaccrual loans are also impaired loans. Loans are also placed in nonaccrual status when principal or interest is contractually past due one month or more with respect to loans within all classes of the Commercial segment, three months or more with respect to loans within the Card, MUFG Americas Holdings and Krungsri segments, and six months or more with respect to loans within the Residential segment.

We modify certain loans in conjunction with our loss-mitigation activities. Through these modifications, concessions are granted to a borrower who is experiencing financial difficulty, generally in order to minimize economic loss, to avoid foreclosure or repossession of collateral, and to ultimately maximize payments received from the borrower. The concessions granted vary by portfolio segment, by program, and by borrower-specific characteristics, and may include interest rate reductions, term extensions, payment deferrals, and partial principal forgiveness. Loan modifications that represent concessions made to borrowers who are experiencing financial difficulties are identified as troubled debt restructurings, or TDRs. TDRs are also considered impaired loans, and an allowance for credit losses is separately established for each loan.

Generally, accruing loans that are modified in a TDR remain as accruing loans subsequent to the modification, and nonaccrual loans remain as nonaccrual. However, if a nonaccrual loan has been modified as a TDR and the borrower is not delinquent under the modified terms, and demonstrates that its financial condition has improved, we may reclassify the loan to accrual status. This determination is generally performed at least once a year through a detailed internal credit rating review process. Although we have not defined any minimum period to qualify for an upgrade, it is not common for a borrower to be able to demonstrate that its business problems have been resolved or can soon be resolved within a short period of time following a restructuring. If the borrower is upgraded to category 12 or higher in our internal rating system (which corresponds to “Normal” and “Close Watch” status under the Japanese banking regulations), a TDR would be reclassified to accrual status. Once a nonaccrual loan is deemed to be a TDR, we will continue to designate the loan as a TDR even if the loan is reclassified to accrual status.

A loan that has been modified into a TDR is considered to be impaired until it matures, is repaid, or is otherwise liquidated, regardless of whether the borrower performs under the modified terms.

For more information on our credit and borrower ratings, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Credit Risk Management.”

For more information on our TDRs, see Note 4 to our consolidated financial statements included elsewhere in this Annual Report.

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Nonaccrual loans

The following table shows information about the nonaccrual status of loans by class as of March 31, 2019 and 2020:

	As of March 31,
	2019		2020
	(in billions)
Commercial
Domestic	¥	272.8	¥	313.0
Manufacturing		65.9		93.8
Construction		9.8		8.5
Real estate		23.2		21.8
Services		26.2		51.2
Wholesale and retail		94.5		94.1
Banks and other financial institutions		0.9		1.0
Communication and information services		12.0		10.5
Other industries		25.4		20.2
Consumer		14.9		11.9
Foreign(1)		111.0		127.0
Residential		68.5		64.0
Card		61.4		61.2
MUFG Americas Holdings		46.5		35.8
Krungsri		127.5		149.7
Other		—		27.8
Total(2)	¥	687.7	¥	778.5

Notes:

(1) Excludes the loans held by MUFG Americas Holdings, Krungsri and Other.

(2) The above table does not include loans held for sale of ¥12.7 billion and ¥0.3 billion as of March 31, 2019 and 2020, respectively, and loans acquired with deteriorated credit quality of ¥6.3 billion and ¥25.4 billion as of March 31, 2019 and 2020, respectively.

Total nonaccrual loans increased ¥90.8 billion between March 31, 2019 and March 31, 2020. Significant trends in each portfolio segment are discussed below.

Commercial segment—Nonaccrual loans in the domestic commercial category increased ¥40.2 billion between March 31, 2019 and March 31, 2020. This increase mainly reflected the financing provided to the domestic borrower in the services category to facilitate the borrower’s restructuring efforts and the deteriorated business and financial condition of large domestic borrowers in the manufacturing sector, as discussed in “—Allowance for credit losses” above. Nonaccrual loans in the foreign commercial category increased mainly due to our acquisition of DVB Bank’s aviation finance portfolio.

Residential segment—Nonaccrual loans in the segment decreased ¥4.5 billion between March 31, 2019 and March 31, 2020 primarily due to the transfer from nonaccrual status to accrual status of loans to borrowers who became current with their interest payments as the stable corporate environment in recent periods has contributed to higher income for borrowers in the segment. In addition, our efforts to work with borrowers on their loan obligations contributed to the reduction in nonaccrual loans.

Card segment—Nonaccrual loans in the segment decreased ¥0.2 billion between March 31, 2019 and March 31, 2020. While the amount of consumer loans transferred from accrual status to nonaccrual status increased, the amount of such increase was more than offset by the amount of charge-offs of nonaccrual consumer loans to borrowers who filed for bankruptcy.

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MUFG Americas Holdings segment—Nonaccrual loans in the segment decreased ¥10.7 billion between March 31, 2019 and March 31, 2020. This was mainly due to sale, and repayment from surplus deposits, of portions of the loans outstanding to a large borrower in the electric power industry.

Krungsri segment—Nonaccrual loans in the segment increased ¥22.2 billion between March 31, 2019 and March 31, 2020. The increase mainly reflected the continued expansion of the automobile loan portfolio. In addition, loans to some borrowers in mortgage and automobile loans became nonaccrual due to deterioration in their financial condition.

Troubled debt restructurings

The following table shows information about outstanding recorded investment balances of TDRs by class as of March 31, 2019 and 2020:

	As of March 31,
	2019		2020
	(in billions)
Commercial(1)
Domestic	¥	445.4	¥	433.8
Manufacturing		311.9		314.0
Construction		4.6		3.4
Real estate		27.7		27.9
Services		17.1		17.3
Wholesale and retail		69.4		58.2
Banks and other financial institutions		0.1		0.1
Communication and information services		3.8		3.2
Other industries		6.4		6.8
Consumer		4.4		2.9
Foreign(2)		51.7		71.9
Residential(1)		34.4		28.5
Card(3)		65.0		65.5
MUFG Americas Holdings(3)		48.1		62.2
Krungsri(3)		63.0		76.8
Other(3)		—		9.5
Total	¥	707.6	¥	748.2

Notes:

(1) TDRs for the Commercial and Residential segments include accruing loans with concessions granted, and do not include nonaccrual loans with concessions granted.

(2) Excludes the loans held by MUFG Americas Holdings, Krungsri and Other.

(3) TDRs for the Card, MUFG Americas Holdings, Krungsri and Other segments include accrual and nonaccrual loans. Included in the outstanding recorded investment balances as of March 31, 2019 and 2020 are nonaccrual TDRs as follows: ¥38.8 billion and ¥40.0 billion—Card; ¥15.0 billion and ¥19.2 billion—MUFG Americas Holdings; ¥31.1 billion and ¥34.7 billion—Krungsri; and nil and ¥1.1 billion—Other, respectively.

Total TDRs increased ¥40.6 billion between March 31, 2019 and March 31, 2020. Significant trends in each portfolio segment are discussed below.

Commercial segment—TDRs in the domestic commercial category decreased ¥11.6 billion between March 31, 2019 and March 31, 2020. This was mainly due to repayments by small and medium-sized domestic borrowers in the wholesale and retail and consumer categories of loans classified as TDRs pursuant to their respective restructured terms. The continued gradual recovery of economic conditions in Japan positively affected the financial performance and repayment ability of such borrowers during the first three quarters of the

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fiscal year ended March 31, 2020. TDRs in the foreign commercial category increased primarily as a result of the restructuring of the loans to the large foreign borrowers in the electric power sector.

Residential segment—TDRs in the segment decreased ¥5.9 billion between March 31, 2019 and March 31, 2020 primarily as a result of repayments of loans classified as TDRs pursuant to their respective restructured terms.

Card segment—TDRs in the segment increased ¥0.5 billion between March 31, 2019 and March 31, 2020. Although consumer loans newly classified as TDRs increased, the amount of such increase was substantially offset by the amount of charge-offs of nonaccrual consumer loans classified as TDRs outstanding to borrowers who filed for bankruptcy and by the amount of consumer loans classified as TDRs repaid pursuant to their respective restructured terms.

MUFG Americas Holdings segment—TDRs in the segment increased ¥14.1 billion between March 31, 2019 and March 31, 2020. The increase primarily reflected the deteriorated financial condition of a large borrower in the real estate rental sector.

Krungsri segment—TDRs in the segment increased ¥13.8 billion between March 31, 2019 and March 31, 2020. This increase primarily reflected the continued expansion of the automobile loan portfolio. In addition, loans to some borrowers of mortgage and automobile loans became nonaccrual due to deterioration in their financial condition.

In the above table, TDRs for the Commercial and Residential segments include accruing loans with concessions granted, and do not include nonaccrual loans with concessions granted, whereas TDRs for the Card, MUFG Americas Holdings, Krungsri and Other segments include accrual and nonaccrual loans. In the Commercial and Residential segments, once a loan is classified as a nonaccrual loan, a modification would have little likelihood of resulting in the recovery of the loan in view of the severity of the financial difficulty of the borrower. Therefore, even if a nonaccrual loan is modified, the loan continues to be classified as a nonaccrual loan. The vast majority of modifications to nonaccrual loans are temporary extensions of the maturity dates, typically for periods up to 90 days, and continually made as the borrower is unable to repay or refinance the loan at the extended maturity. Accordingly, the impact of such TDRs on the outstanding recorded investment is immaterial, and the vast majority of nonaccrual TDRs have subsequently defaulted.

For the fiscal year ended March 31, 2020, extensions of the stated maturity dates of loans were the primary concession type in the Commercial, Residential, MUFG Americas Holdings and Krungsri segments and reductions in the stated rates were the primary concession type in the Card and Other segments.

Impaired loans and impairment allowance

Impaired loans primarily include nonaccrual loans and TDRs. We consider a loan to be impaired when, based on current information and events, it is probable that we will be unable to collect all of the scheduled payments of interest on, and repayment of, the principal of the loan when due according to the contractual terms of the loan agreement.

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The following tables show information about impaired loans by class as of March 31, 2019 and 2020:

	As of March 31, 2019
	Recorded Loan Balance						Unpaid Principal Balance		Related Allowance for Credit Losses
	Requiring an Allowance for Credit Losses		Not Requiring an Allowance for Credit Losses(1)		Total(2)
	(in billions)
Commercial
Domestic	¥	560.5	¥	157.5	¥	718.0	¥	759.4	¥	227.0
Manufacturing		349.6		28.2		377.8		384.3		92.9
Construction		8.3		6.0		14.3		14.8		6.6
Real estate		20.8		30.0		50.8		55.9		5.7
Services		30.3		13.0		43.3		46.8		20.1
Wholesale and retail		118.3		45.6		163.9		175.7		84.5
Banks and other financial institutions		1.0		0.0		1.0		1.0		0.8
Communication and information services		8.8		6.9		15.7		16.6		6.8
Other industries		13.8		18.0		31.8		38.4		6.9
Consumer		9.6		9.8		19.4		25.9		2.7
Foreign(3)		127.5		34.5		162.0		183.1		86.0
Loans acquired with deteriorated credit quality		8.1		—		8.1		15.0		5.5
Residential(4)		97.2		6.5		103.7		120.6		14.3
Card(4)		64.6		0.4		65.0		72.2		21.8
MUFG Americas Holdings(4)		46.6		23.2		69.8		83.3		8.3
Krungsri(4)		57.1		26.1		83.2		90.4		28.3
Total(5)	¥	961.6	¥	248.2	¥	1,209.8	¥	1,324.0	¥	391.2

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	As of March 31, 2020
	Recorded Loan Balance						Unpaid Principal Balance		Related Allowance for Credit Losses
	Requiring an Allowance for Credit Losses		Not Requiring an Allowance for Credit Losses(1)		Total(2)
	(in billions)
Commercial
Domestic	¥	598.7	¥	147.9	¥	746.6	¥	784.3	¥	268.1
Manufacturing		375.7		32.1		407.8		414.1		119.1
Construction		6.6		5.3		11.9		12.0		5.0
Real estate		20.7		29.0		49.7		55.3		6.7
Services		55.3		13.1		68.4		72.7		41.0
Wholesale and retail		113.2		38.9		152.1		160.5		81.0
Banks and other financial institutions		1.1		0.0		1.1		1.3		0.9
Communication and information services		8.0		5.8		13.8		14.7		6.0
Other industries		10.6		16.4		27.0		33.2		6.4
Consumer		7.5		7.3		14.8		20.5		2.0
Foreign(3)		141.9		56.5		198.4		220.3		96.0
Loans acquired with deteriorated credit quality		12.9		—		12.9		19.9		4.7
Residential(4)		88.1		4.8		92.9		107.7		12.7
Card(4)		65.2		0.3		65.5		72.7		19.8
MUFG Americas Holdings(4)		33.9		33.8		67.7		84.7		6.0
Krungsri(4)		68.2		30.8		99.0		106.3		30.2
Other(4)		22.7		1.1		23.8		26.1		6.2
Total(5)	¥	1,031.6	¥	275.2	¥	1,306.8	¥	1,422.0	¥	443.7

Notes:

(1) These loans do not require an allowance for credit losses because the recorded loan balance equal, or do not exceed, the present value of expected future cash flows discounted at the loans’ effective interest rate, loans’ observable market price, or the fair value of the collateral if the loan is a collateral-dependent loan.

(2) Included in impaired loans as of March 31, 2019 and 2020 are accrual TDRs as follows: ¥497.1 billion and ¥505.7 billion—Commercial; ¥34.4 billion and ¥28.5 billion—Residential; ¥26.2 billion and ¥25.5 billion—Card; ¥33.1 billion and ¥43.0 billion—MUFG Americas Holdings; ¥26.9 billion and ¥35.2 billion—Krungsri; and nil and ¥8.4 billion—Other, respectively.

(3) Excludes the loans held by MUFG Americas Holdings, Krungsri and Other.

(4) Impaired Loans for the Residential, Card, MUFG Americas Holdings, Krungsri and Other segments in the above table include loans acquired with deteriorated credit quality.

(5) In addition to impaired loans presented in the above table, there were loans held for sale that were impaired of ¥12.7 billion and ¥0.3 billion as of March 31, 2019 and 2020, respectively.

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The following table shows information regarding the average recorded loan balance and recognized interest income on impaired loans for the fiscal years ended March 31, 2019 and 2020:

	Fiscal years ended March 31,
	2019				2020
	Average Recorded Loan Balance		Recognized Interest Income		Average Recorded Loan Balance		Recognized Interest Income
	(in billions)
Commercial
Domestic	¥	766.8	¥	12.4	¥	726.8	¥	8.7
Manufacturing		387.7		6.1		387.5		4.1
Construction		15.7		0.3		13.1		0.2
Real estate		57.9		1.1		48.7		0.7
Services		48.9		1.0		58.7		0.8
Wholesale and retail		171.7		2.9		157.8		2.2
Banks and other financial institutions		1.3		0.0		1.1		0.0
Communication and information services		22.5		0.5		14.8		0.3
Other industries		39.2		0.2		28.3		0.2
Consumer		21.9		0.3		16.8		0.2
Foreign(1)		160.0		3.1		174.8		3.0
Loans acquired with deteriorated credit quality		7.8		0.2		9.4		0.1
Residential		107.1		1.6		98.2		1.3
Card		66.2		1.6		65.3		1.2
MUFG Americas Holdings		71.2		2.3		82.8		2.8
Krungsri		83.2		5.0		91.6		5.3
Other		—		—		11.9		0.5
Total	¥	1,262.3	¥	26.2	¥	1,260.8	¥	22.9

Note:

(1) Excludes the loans held by MUFG Americas Holdings, Krungsri and Other.

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Past due analysis

Aging of past due loans by class as of March 31, 2019 and 2020 are shown below:

As of March 31, 2019:	1-3 months Past Due		Greater Than 3 months		Total Past Due		Current		Total Loans(1)		Recorded Investment> 90 Days and Accruing
	(in billions)
Commercial
Domestic	¥	11.6	¥	30.6	¥	42.2	¥	50,809.6	¥	50,851.8	¥	6.9
Manufacturing		1.6		3.0		4.6		11,142.8		11,147.4		—
Construction		0.2		0.1		0.3		716.9		717.2		0.0
Real estate		2.1		4.2		6.3		11,642.6		11,648.9		2.5
Services		0.7		0.6		1.3		2,629.9		2,631.2		0.0
Wholesale and retail		2.8		2.4		5.2		7,633.6		7,638.8		0.1
Banks and other financial institutions		—		0.0		0.0		5,208.4		5,208.4		—
Communication and information services		0.4		0.8		1.2		1,509.2		1,510.4		—
Other industries		0.4		13.0		13.4		8,741.6		8,755.0		—
Consumer		3.4		6.5		9.9		1,584.6		1,594.5		4.3
Foreign(2)		10.9		20.0		30.9		36,062.3		36,093.2		0.2
Residential		62.7		16.6		79.3		13,641.4		13,720.7		6.6
Card		17.2		30.6		47.8		527.4		575.2		—
MUFG Americas Holdings		28.6		10.9		39.5		9,557.6		9,597.1		2.3
Krungsri		126.3		106.8		233.1		5,771.5		6,004.6		—
Total	¥	257.3	¥	215.5	¥	472.8	¥	116,369.8	¥	116,842.6	¥	16.0

As of March 31, 2020:	1-3 months Past Due		Greater Than 3 months		Total Past Due		Current		Total Loans(1)		Recorded Investment> 90 Days and Accruing
	(in billions)
Commercial
Domestic	¥	9.2	¥	27.0	¥	36.2	¥	51,066.0	¥	51,102.2	¥	4.7
Manufacturing		0.8		2.8		3.6		11,369.3		11,372.9		0.6
Construction		0.1		0.1		0.2		731.6		731.8		—
Real estate		0.9		3.3		4.2		11,997.3		12,001.5		1.2
Services		0.8		0.9		1.7		2,569.2		2,570.9		0.0
Wholesale and retail		2.6		2.6		5.2		7,492.6		7,497.8		0.0
Banks and other financial institutions		—		0.1		0.1		5,160.4		5,160.5		—
Communication and information services		0.3		0.1		0.4		1,571.7		1,572.1		—
Other industries		0.2		12.8		13.0		8,659.2		8,672.2		0.1
Consumer		3.5		4.3		7.8		1,514.7		1,522.5		2.8
Foreign(2)		10.0		23.5		33.5		35,450.2		35,483.7		0.2
Residential		48.5		15.4		63.9		13,248.2		13,312.1		6.3
Card		14.7		30.0		44.7		518.0		562.7		—
MUFG Americas Holdings		31.1		14.4		45.5		9,603.3		9,648.8		2.1
Krungsri		160.2		129.2		289.4		6,616.1		6,905.5		—
Other		16.4		24.4		40.8		1,069.2		1,110.0		—
Total	¥	290.1	¥	263.9	¥	554.0	¥	117,571.0	¥	118,125.0	¥	13.3

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Notes:

(1) Total loans in the above table do not include loans held for sale or loans acquired with deteriorated credit quality and represent balances without adjustments in relation to unearned income, unamortized premiums and deferred loan fees.

(2) Excludes the loans held by MUFG Americas Holdings, Krungsri and Other.

Sales of nonperforming loans

The following table presents comparative data relating to the principal amount of nonperforming loans sold and reversal of allowance for credit losses:

	Principal amount of loans(1)		Allowance for credit losses(2)		Loans, net of allowance		Reversal of allowance for credit losses
	(in billions)
For the fiscal year ended March 31, 2019	¥	8.2	¥	0.5	¥	7.7	¥	(15.6	)
For the fiscal year ended March 31, 2020	¥	104.4	¥	29.9	¥	74.5	¥	(10.5	)

Notes:

(1) Represents principal amount after the deduction of charge-offs made before the sales of nonperforming loans.

(2) Represents allowance for credit losses at the latest balance-sheet date.

While we originate various types of loans to corporate and individual borrowers in Japan and overseas in the normal course of business, we dispose of nonperforming loans in order to improve our loan quality. Most of these nonperforming loans are disposed of by sales to third parties without any continuing involvement.

Through the sale of nonperforming loans to third parties, gains or losses may arise from factors such as a change in the credit quality of the borrowers or the value of the underlying collateral subsequent to the prior reporting date, and the risk appetite and investment policy of the purchasers.

The principal amount of non-performing loans sold in the fiscal year ended March 31, 2020 increased compared to the previous fiscal year mainly due to increased sales of nonperforming loans outstanding to some large domestic and foreign borrowers in the Commercial segment.

In connection with the sale of loans, including performing loans, we recorded net gains of ¥20.7 billion and ¥6.5 billion for the fiscal years ended March 31, 2019 and 2020, respectively.

Investment Portfolio

Our investment securities primarily consist of Japanese government bonds and marketable equity securities. Japanese government bonds are mostly classified as available-for-sale debt securities. Our investment in Japanese government bonds is a part of our asset and liability management policy with respect to investing the amount of Japanese yen-denominated funds exceeding our net loans. The percentage of our holding of available-for-sale Japanese government bonds to the total investment securities was 53.6% as of March 31, 2020, remaining at a similar level to March 31, 2019. We also hold Japanese government bonds that are classified as held-to-maturity debt securities, which accounted for 2.5% of the total investment securities as of March 31, 2020.

Historically, we have held equity securities of some of our customers primarily for strategic purposes, in particular to maintain long-term relationships with these customers. We continue to focus on reducing our investment in equity securities for such purposes in order to reduce the price fluctuation risk in our equity portfolio from a risk management perspective and to respond to applicable regulatory requirements as well as increasing market expectations for us to reduce our equity portfolio. As of March 31, 2019 and 2020, the aggregate book value of our marketable equity securities under Japanese GAAP satisfied the requirements of the

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legislation prohibiting banks from holding equity securities in excess of their Tier 1 capital. In November 2015, we announced that we would aim to reduce the balance of equity securities held for strategic purposes valued under Japanese GAAP to approximately 10% of our Tier 1 capital over a five-year period. During the fiscal year ended March 31, 2020, we sold down ¥139 billion of equity securities held in our strategic equity investment portfolio valued under Japanese GAAP. As of March 31, 2020, the balance of such securities valued under Japanese GAAP represented 12.8% of our Tier 1 capital. However, various factors, including market conditions and changes in our Tier 1 capital ratio, may affect the amount of equity securities we should sell and our ability to achieve the target as planned.

Investment securities decreased ¥1,186.8 billion to ¥43,751.2 billion as of March 31, 2020 from ¥44,938.0 billion as of March 31, 2019, primarily due to a decrease in equity securities, particularly domestic marketable equity securities.

The following table shows information regarding the amortized cost, net unrealized gains (losses), and fair value of our available-for-sale debt securities and held-to-maturity debt securities as of March 31, 2019 and 2020.

	As of March 31,
	2019							2020
	Amortized cost		Fair value		Net unrealized gains (losses)			Amortized cost		Fair value		Net unrealized gains (losses)
	(in billions)
Available-for-sale debt securities:
Japanese government and Japanese government agency bonds	¥	23,748.6	¥	24,077.7	¥	329.1		¥	23,308.5	¥	23,462.9	¥	154.4
Japanese prefectural and municipal bonds		2,204.0		2,226.6		22.6			2,938.7		2,952.8		14.1
Foreign government and official institution bonds		2,648.9		2,641.4		(7.5	)		2,936.1		3,037.5		101.4
Corporate bonds		1,117.3		1,130.7		13.4			1,261.6		1,272.8		11.2
Mortgage-backed securities		1,768.2		1,746.3		(21.9	)		1,840.0		1,841.6		1.6
Asset-backed securities		1,494.6		1,502.9		8.3			1,461.1		1,469.5		8.4
Other debt securities		192.9		192.9		0.0			161.8		163.1		1.3
Total available-for-sale debt securities	¥	33,174.5	¥	33,518.5	¥	344.0		¥	33,907.8	¥	34,200.2	¥	292.4
Held-to-maturity debt securities(1)	¥	4,441.9	¥	4,452.9	¥	11.0		¥	4,165.8	¥	4,177.9	¥	12.1

Note:

(1) See Note 3 to our consolidated financial statements included elsewhere in this Annual Report for more details.

Net unrealized gains on available-for-sale debt securities decreased ¥51.6 billion to ¥292.4 billion as of March 31, 2020 from ¥344.0 billion as of March 31, 2019. The decrease was primarily attributable to a ¥174.7 billion decrease in net unrealized gains on Japanese government and Japanese government agency bonds, reflecting generally rising trends in the yield on such bonds. The decrease was offset in part by an improvement in net unrealized losses on foreign government and official institutions bonds, reflecting declining trends in the yield on such bonds.

The amortized cost of available-for-sale debt securities increased ¥733.3 billion to ¥33,907.8 billion as of March 31, 2020 from ¥33,174.5 billion as of March 31, 2019. This increase was mainly attributable to a

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¥734.7 billion increase in Japanese prefectural and municipal bonds and a ¥287.2 billion increase in foreign government and official institution bonds. These increases were partially offset by a ¥440.1 billion decrease in Japanese government and Japanese government agency bonds.

The amortized cost of held-to-maturity debt securities decreased ¥276.1 billion to ¥4,165.8 billion as of March 31, 2020 from ¥4,441.9 billion as of March 31, 2019. The decrease was mainly due to a decrease in mortgage-backed securities.

Losses resulting from impairment of investment securities, which reflect the decline in the value of available-for-sale debt securities considered to be other than temporary, were ¥1.6 billion for the fiscal year ended March 31, 2020 compared to ¥0.6 billion for the previous fiscal year. These losses were reflected in net investment securities gains (losses) in our consolidated statements of income.

The following table shows information relating to our equity securities as of March 31, 2019 and 2020:

	As of March 31,
	2019		2020
	(in billions)
Equity securities:
Marketable equity securities	¥	6,358.5	¥	4,768.3
Nonmarketable equity securities:
Unlisted preferred securities(1)		393.3		350.0
Other(2)		198.0		226.9
Investment securities held by investment companies and brokers and dealers(3)		27.8		40.0
Total	¥	6,977.6	¥	5,385.2

Notes:

(1) These securities are mainly issued by public companies, including preferred stocks issued by Morgan Stanley, preferred securities issued by our non-consolidated funding vehicles, and other unlisted preferred securities issued by several public companies. Those securities are primarily carried at cost.

(2) These securities are equity securities issued by unlisted companies other than unlisted preferred securities. Those securities are primarily carried at cost.

(3) These investment securities are held by certain subsidiaries subject to specialized industry accounting principles for investment companies and brokers and dealers, and are measured at fair value.

Equity securities decreased ¥1,592.4 billion to ¥5,385.2 billion as of March 31, 2020 from ¥6,977.6 billion as of March 31, 2019. The decrease was primarily attributable to a decrease in the fair value of marketable equity securities as the stock prices in Japan declined towards March 31, 2020.

Investment securities other than available-for-sale debt securities, held-to-maturity debt securities and marketable equity securities consist of nonmarketable equity securities, which are included in equity securities on our consolidated balance sheets. Nonmarketable equity securities were primarily carried at cost of ¥619.1 billion as of March 31, 2019 and ¥616.9 billion as of March 31, 2020, respectively, because their fair values were not readily determinable. The decrease was primarily attributable to a decrease in the holdings of unlisted preferred securities, reflecting the redemption of preferred securities issued by overseas special purpose companies.

Cash and Due from Banks, and Interest-earning Deposits in Other Banks

Cash and due from banks decreased ¥641.3 billion to ¥33,283.0 billion as of March 31, 2020 from ¥33,924.3 billion as of March 31, 2019. This decrease was primarily because of a decrease in deposit with the Bank of Japan.

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Interest-earning deposits in other banks increased ¥4,619.8 billion to ¥45,266.7 billion as of March 31, 2020 from ¥40,646.9 billion as of March 31, 2019. This increase was mainly because of an increase in interest-bearing funds held at the Federal Reserve in the United States.

Receivables under Resale Agreements

Receivables under resale agreements increased ¥13,021.3 billion to ¥23,996.0 billion as of March 31, 2020 from ¥10,974.7 billion as of March 31, 2019. This was mainly in reaction to increases in payables under repurchase agreements, due to trust account and other short-term borrowings as we increased our funding capacity in anticipation of a significant increase in financing needs in the market following the outbreak of the COVID-19 pandemic.

Receivables under Securities Borrowing Transactions

Receivables under securities borrowing transactions increased ¥685.4 billion to ¥3,444.0 billion as of March 31, 2020 from ¥2,758.6 billion as of March 31, 2019. This increase was mainly due to an increase in collateral deposited for funding in domestic banking and securities subsidiaries.

Trading Account Assets

Trading account assets increased ¥6,927.5 billion to ¥47,504.1 billion as of March 31, 2020 from ¥40,576.6 billion as of March 31, 2019. Trading account assets consist of trading account securities and trading derivative assets. Trading account securities increased ¥5,174.4 billion to ¥32,546.5 billion as of March 31, 2020 from ¥27,372.1 billion as of March 31, 2019. This increase was mainly due to the higher fair value of our trading residential mortgage-backed securities portfolio. Trading derivative assets increased ¥1,753.1 billion to ¥14,957.6 billion as of March 31, 2020 from ¥13,204.5 billion as of March 31, 2019. This increase was mainly attributable to the higher fair value of interest rate contracts.

Total Liabilities

As of March 31, 2020, total liabilities were ¥316,008.8 billion, an increase of ¥26,764.6 billion from ¥289,244.2 billion as of March 31, 2019. This was primarily due to an increase of ¥9,324.4 billion in other short-term borrowings, including borrowings from the Bank of Japan, and an increase of ¥6,625.3 billion in payables under repurchase agreements.

Deposits

Deposits are our primary source of funds. The balance of deposits increased ¥4,673.7 billion to ¥203,954.5 billion as of March 31, 2020 from ¥199,280.8 billion as of March 31, 2019. The increase was mainly attributable to an increase in domestic deposits, primarily in Japan.

The total average balance of interest-bearing deposits increased ¥2,903.7 billion to ¥169,511.2 billion for the fiscal year ended March 31, 2020 from ¥166,607.5 billion for the fiscal year ended March 31, 2019, mainly due to an increase in domestic deposits.

Payables under Repurchase Agreements

Payables under repurchase agreements increased ¥6,625.3 billion to ¥31,849.9 billion as of March 31, 2020 from ¥25,224.6 billion as of March 31, 2019. This increase was mainly because we increased our funding capacity in anticipation of a significant increase in financing needs in the market following the outbreak of the COVID-19 pandemic.

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Other Short-Term Borrowings

Other short-term borrowings increased ¥9,324.4 billion to ¥16,055.5 billion as of March 31, 2020 from ¥6,731.1 billion as of March 31, 2019. This increase was mainly attributable to borrowings from the Bank of Japan in anticipation of a significant increase in financing needs in the market following the outbreak of the COVID-19 pandemic.

Long-term Debt

Long-term debt decreased ¥63.7 billion to ¥27,926.8 billion as of March 31, 2020 from ¥27,990.5 billion as of March 31, 2019. This decrease was mainly due to redemption of long-term debt by MUFG Bank. The average balance of long-term debt for the fiscal year ended March 31, 2020 was ¥28,034.0 billion, a decrease of ¥633.5 billion from ¥28,667.5 billion for the previous fiscal year.

Sources of Funding and Liquidity

Our primary source of liquidity is from a large balance of deposits, mainly ordinary deposits, certificates of deposit and time deposits. Time deposits have historically shown a high rollover rate among our corporate customers and individual depositors. The average deposit balance increased to ¥199,791.8 billion for the fiscal year ended March 31, 2020 from ¥196,393.3 billion for the fiscal year ended March 31, 2019. These deposits provide us with a sizable source of stable and low-cost funds. Our average deposits, combined with our average total equity of ¥15,417.9 billion, funded 66.1% of our average total assets of ¥325,500.4 billion during the fiscal year ended March 31, 2020. Our deposits exceeded our loans before allowance for credit losses by ¥85,767.8 billion as of March 31, 2020 compared to ¥82,396.9 billion as of March 31, 2019. As part of our asset and liability management policy, a significant portion of the amount of Japanese yen-denominated funds exceeding our loans has been deposited with the Bank of Japan or invested in Japanese government bonds in recent periods.

The remaining funding was primarily provided by short-term borrowings and long-term senior and subordinated debt. Short-term borrowings consist of call money, funds purchased, payables under repurchase agreements, payables under securities lending transactions, due to trust account, and other short-term borrowings. From time to time, we have issued long-term instruments, including various fixed and floating interest rate senior and subordinated bonds with and without maturities. The balance of our short-term borrowings as of March 31, 2020 was ¥55,968.9 billion, and the average balance of short-term borrowings for the fiscal year ended March 31, 2020 was ¥37,630.9 billion. The balance of our long-term debt as of March 31, 2020 was ¥27,926.8 billion, and the average balance of long-term debt for the fiscal year ended March 31, 2020 was ¥28,034.1 billion. Liquidity may also be provided by the sale of financial assets, including available-for-sale debt securities, marketable equity securities, trading account securities and loans. Additional liquidity may be provided by the maturity of loans.

We manage liquidity separately at certain of our domestic and foreign banking and non-bank subsidiaries because they are subject to separate regulatory requirements, pursue different business models and have distinctive liquidity risk profiles. We manage our group-wide liquidity on a consolidated basis based on the tests and analyses conducted at the subsidiary level. Liquidity risk management measures at the subsidiary level include the following:

• Domestic banking subsidiaries—Our major domestic banking subsidiaries, MUFG Bank and Mitsubishi UFJ Trust and Banking, set liquidity and funding limits designed to maintain their respective requirements for funding from market sources below pre-determined levels for certain periods (e.g., one-day, two-week and one-month). The major domestic banking subsidiaries also monitor the balance of buffer assets they respectively hold, including Japanese government bonds and U.S. Treasury bonds, which can be used for cash funding even in periods of stress. In addition, the major domestic banking subsidiaries regularly perform liquidity stress testing designed to evaluate the impact of systemic market stress conditions and institution-specific stress events, including credit rating downgrades, on their liquidity positions;

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• Foreign banking subsidiaries—Our major foreign banking subsidiaries, MUFG Americas Holdings and Krungsri, monitor various liquidity metrics, including total available liquidity, net non-core funding dependence ratio, and minimum liquidity assets, as a tool to maintain a sufficient amount of liquidity and diversity of funding sources to allow them to meet expected obligations in both stable and adverse conditions. They regularly conduct stress testing, which incorporates both bank-specific and systemic market scenarios that would adversely affect its liquidity position, to facilitate the identification of appropriate remedial measures to help ensure that it maintains adequate liquidity in adverse conditions. In addition, we are working with our other foreign banking subsidiaries to enhance their liquidity risk management measures;

• Securities subsidiaries—Our securities subsidiaries implement liquidity and funding limits designed to maintain their requirements for funding from market sources below pre-determined levels for specified periods. In addition, the securities subsidiaries regularly conduct analyses designed to assess the period for which they can continue to meet their respective liquidity requirements by selling or pledging assets they respectively hold under scenarios where they are unable to access any additional sources of financing in the market; and

• Non-bank subsidiaries—Our non-bank subsidiaries, including Mitsubishi UFJ NICOS, regularly conduct cash flow analyses designed to assess their ability to generate sufficient liquidity for specified periods, considering the cash and cash equivalents as well as deposits they respectively hold, and their respective operating income and expenses under scenarios where they are no longer able to obtain funding from markets through issuance of commercial paper, bonds or other instruments. The non-bank subsidiaries also conduct analyses to ensure sufficient liquidity and funding are available from our bank subsidiaries and other financial institutions outside of our group of companies.

We collect and evaluate the results of the stress tests individually performed by our major subsidiaries to ensure our ability to meet our liquidity requirements on a consolidated basis in stress scenarios.

We manage our funding sources by setting limits on, or targets for, our holdings of buffer assets, primarily Japanese government bonds. As of March 31, 2020, we held ¥23,462.9 billion of Japanese government bonds and government agency bonds as available-for-sale debt securities. We also regard deposits with the Bank of Japan as buffer assets. In addition, our commercial banking subsidiaries manage their funding sources through liquidity-supplying products such as commitment lines and through a liquidity gap, or the excess of cash inflows over cash outflows.

In April 2020, Fitch downgraded the long-term credit ratings of MUFG, MUFG Bank, Mitsubishi UFJ Trust and Banking by one-notch from A to A-. Any downgrade of the credit ratings assigned to us or our major subsidiaries could increase the cost, or decrease the availability, of our funding, particularly in U.S. dollars and other foreign currencies, adversely affect our liquidity position or net interest margin, trigger additional collateral or funding obligations, and result in losses of depositors, investors and counterparties willing or permitted to transact with us, thereby reducing our ability to generate income and weakening our financial position. See “Item 3.D. Key Information—Risk Factors—Funding Liquidity Risk—A downgrade of our credit ratings could adversely affect our ability to access and maintain liquidity.”

Liquidity Requirements for Banking Institutions in Japan

We are required to calculate and disclose our LCR calculated in accordance with the methodology prescribed in the FSA guidance that has been adopted to implement the relevant Basel III standard. Starting in the calendar year 2019, we are required to maintain a minimum LCR of 100%. See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Liquidity Coverage Ratio” and “—B. Liquidity and Capital Resources—Capital Adequacy—Liquidity Coverage Ratios of MUFG and Major Banking Subsidiaries in Japan.”

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Total Equity

The following table presents a summary of our total equity as of March 31, 2019 and 2020:

	March 31, 2019			March 31, 2020
	(in billions, except percentages)
Capital stock	¥	2,090.3		¥	2,090.3
Capital surplus		5,577.2			5,533.5
Retained earnings		8,333.6			8,319.1
Retained earnings appropriated for legal reserve		239.6			239.6
Unappropriated retained earnings		8,094.0			8,079.5
Accumulated other comprehensive losses, net of taxes		(284.3	)		(420.4	)
Treasury stock, at cost		(517.2	)		(506.0	)
Total Mitsubishi UFJ Financial Group shareholders’ equity	¥	15,199.6		¥	15,016.5
Noncontrolling interests		785.1			728.0
Total equity	¥	15,984.7		¥	15,744.5
Ratio of total equity to total assets		5.24	%		4.75	%

Mitsubishi UFJ Financial Group shareholders’ equity as of March 31, 2020 was ¥15,016.5 billion, a decrease of ¥183.1 billion from ¥15,199.6 billion as of March 31, 2019.

Capital surplus decreased ¥43.7 billion to ¥5,533.5 billion as of March 31, 2020 from ¥5,577.2 billion as of March 31, 2019. This decrease was mainly due to repurchases of shares of our common stock and cancellation of the repurchased shares.

Retained earnings decreased ¥14.5 billion to ¥8,319.1 billion as of March 31, 2020 from ¥8,333.6 billion as of March 31, 2019, primarily reflecting dividend payments partially offset by the net income of our banking subsidiaries for the fiscal year ended March 31, 2020. We decided to pay our year-end dividend of ¥12.5 per share of our common stock for the six months ended March 31, 2020, resulting in an annual dividend of ¥25 per share of our common stock for the fiscal year ended March 31, 2020.

As a result of our adoption on April 1, 2020 of Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments, we estimate that our retained earnings decreased approximately ¥270 billion to ¥330 billion as of the opening balance sheet date. For more information on this guidance, see Note 1 to our audited consolidated financial statements included elsewhere in this Annual Report.

Accumulated other comprehensive losses, net of taxes, as of March 31, 2020 was ¥420.4 billion, compared to ¥284.3 billion in losses as of March 31, 2019. This was mainly due to ¥129.6 billion of negative net change in the balance of pension liability adjustments because the investment returns on our pension plans decreased.

Total equity decreased ¥240.2 billion to ¥15,744.5 billion as of March 31, 2020 from ¥15,984.7 billion as of March 31, 2019. The ratio of total equity to total assets decreased 0.49 percentage points to 4.75% as of March 31, 2020 from 5.24% as of March 31, 2019.

Capital Adequacy

We are subject to various regulatory capital requirements promulgated by the regulatory authorities of the countries in which we operate. Failure to meet minimum capital requirements can result in mandatory actions being taken by regulators that could have a direct material effect on our consolidated financial statements. Moreover, if our capital ratios are perceived to be low, our counterparties may avoid entering into transactions with us, which in turn could negatively affect our business and operations. For further information, see “Item 3.D. Key Information—Risk Factors—Risks Related to Our Ability to Meet Regulatory Capital

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Requirements—We may not be able to maintain our capital ratios and other regulatory ratios above minimum required levels, which could result in various regulatory actions, including the suspension of some or all of our operations.”

We continually monitor our risk-adjusted capital ratios, leverage ratio and TLAC ratios closely, and manage our operations in consideration of the capital requirements. Factors that affect some or all of these ratios include fluctuations in the value of our assets, including our credit risk assets such as loans and equity securities, the risk weights of which depend on the borrowers’ or issuers’ internal ratings, and marketable securities, and fluctuations in the value of the Japanese yen against the U.S. dollar and other foreign currencies, as well as general price levels of Japanese equity securities.

Capital Requirements for Banking Institutions in Japan

Under Japanese regulatory capital requirements, our consolidated capital components, including Common Equity Tier 1, Tier 1, and Tier 2 capital and risk-weighted assets, are calculated based on our consolidated financial statements prepared under Japanese GAAP. Each of the consolidated and stand-alone capital components and risk-weighted assets of our banking subsidiaries in Japan is also calculated based on consolidated and non-consolidated financial statements prepared under Japanese GAAP.

As of March 31, 2020, we were required to maintain a capital conservation buffer of 2.5%, a G-SIB surcharge of 1.5% and a countercyclical buffer of 0.01% in addition to the 4.5% minimum Common Equity Tier 1 capital ratio. See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Capital adequacy.”

We have been granted approval by the FSA to exclude the majority of our investment in Morgan Stanley from being subject to double gearing adjustments. The approval was granted for a 10-year period, but the approval amount will be phased out by 20% each year starting from March 31, 2019. As of March 31, 2020, a full application of double gearing adjustments with respect to our investment in Morgan Stanley would have reduced our Common Equity Tier 1 capital ratio by approximately 0.7 percentage points.

Leverage Requirements for Banking Institutions in Japan

Our consolidated leverage ratio is calculated in accordance with the methodology prescribed in the FSA guidance that has been adopted to implement the relevant Basel III standard. The leverage ratio is designed for monitoring and preventing the build-up of excessive leverage in the banking sector and is expressed as the ratio of Tier 1 capital to total balance sheet assets adjusted in accordance with the FSA guidance. As of March 31, 2020, we were required to maintain a minimum leverage ratio of 3.00%. A G-SIB leverage ratio buffer equal to 50% of the applicable G-SIB capital surcharge is expected to be applied to us in 2023. See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Leverage Ratio.”

TLAC Requirements for Banking Institutions in Japan

Our external TLAC ratios are calculated in accordance with the methodology prescribed in the FSA guidance that has been adopted to implement the TLAC Principle published by the FSB in November 2015. External TLAC ratios are expressed as the ratio of external TLAC amount to risk-weighted assets or leverage exposure in accordance with the FSA guidance. We are required to maintain external TLAC ratios of 16% on a risk-weighted assets basis and 6% on a leverage exposure basis from March 31, 2019 and 18% on a risk-weighted assets basis and 6.75% on a leverage exposure basis from March 31, 2022. See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Total loss-absorbing capacity.” For information on the issuances of TLAC-qualified securities, see also “Recent Developments—Issuances of Senior Debt Securities for TLAC Purposes.”

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Capital Ratios, Leverage Ratio and External TLAC Ratios of MUFG

The table below presents our consolidated total capital components, risk-weighted assets, risk-adjusted capital ratios, leverage ratio and external TLAC ratios in accordance with Basel III as of March 31, 2019 and 2020. Underlying figures are calculated in accordance with Japanese banking regulations based on information derived from our consolidated financial statements prepared in accordance with Japanese GAAP, as required by the FSA. The figures in the table below are rounded down. For further information, see Note 21 to our consolidated financial statements included elsewhere in this Annual Report.

	As of March 31, 2019			Minimum ratios required(1)			As of March 31, 2020			Minimum ratios required(1)
	(in billions, except percentages)
Capital components:
Common Equity Tier 1	¥	14,322.4					¥	13,708.3
Additional Tier 1		1,953.8						1,914.9
Tier 1 capital		16,276.3						15,623.3
Tier 2 capital		2,493.4						2,656.2
Total capital	¥	18,769.7					¥	18,279.5
Risk-weighted assets	¥	117,091.1					¥	115,135.6
Capital ratios:
Common Equity Tier 1 capital		12.23	%		8.54	%		11.90	%		8.51	%
Tier 1 capital		13.90			10.04			13.56			10.01
Total capital		16.03			12.04			15.87			12.01
Leverage ratio		4.94			3.00			4.42			3.00
External TLAC ratios
Risk-weighted assets basis(2)		18.16			16.00			18.62			16.00
Leverage exposure basis		7.90			6.00			7.38			6.00

Notes:

(1) The minimum capital ratios required as of March 31, 2019 include a capital conservation buffer of 2.5%, a G-SIB surcharge of 1.5% and a countercyclical buffer of 0.04%. The minimum capital ratios required as of March 31, 2020 include a capital conservation buffer of 2.5%, a G-SIB surcharge of 1.5% and a countercyclical buffer of 0.01%.

(2) The TLAC ratio on a risk-weighted assets basis and the required minimum ratios as of March 31, 2019 do not include the regulatory capital buffers consisting of a capital conservation buffer of 2.5%, a G-SIB surcharge of 1.5% and a countercyclical buffer of 0.04%. The TLAC ratio on a risk-weighted assets basis and the required minimum ratios as of March 31, 2020 do not include the regulatory capital buffers consisting of a capital conservation buffer of 2.5%, a G-SIB surcharge of 1.5% and a countercyclical buffer of 0.01%.

Management believes that, as of March 31, 2020, we were in compliance with all capital adequacy requirements to which we were subject.

Our Common Equity Tier 1 capital ratio as of March 31, 2020 was lower compared to the ratio as of March 31, 2019 due to a decrease in Common Equity Tier 1 capital, more than offsetting the impact of the decrease in risk-weighted assets. The decrease in Common Equity Tier 1 capital was mainly due to decreases in retained earnings and unrealized gains on available-for-sale securities. The decrease in risk-weighted assets mainly reflected a decrease in credit risks resulting from updates to parameters for the calculation of credit risks and the impact of the appreciation of the Japanese yen against other major currencies, lower stock values and changes in other financial markets.

Capital Ratios and Leverage Ratios of Major Banking Subsidiaries in Japan

The table below presents the risk-adjusted capital ratios and leverage ratios of MUFG Bank and Mitsubishi UFJ Trust and Banking in accordance with Basel III as of March 31, 2019 and 2020. Underlying figures are calculated in accordance with Japanese banking regulations based on information derived from each bank’s consolidated and non-consolidated financial statements prepared in accordance with Japanese GAAP, as required by the FSA. The figures in the table below are rounded down. For further information, see Note 21 to our consolidated financial statements included elsewhere in this Annual Report.

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	As of March 31, 2019			Minimum capital ratios required			As of March 31, 2020			Minimum capital ratios required
Consolidated:
MUFG Bank
Common Equity Tier 1 capital ratio		10.83	%		4.50	%		10.70	%		4.50	%
Tier 1 capital ratio		12.46			6.00			12.29			6.00
Total capital ratio		14.42			8.00			14.43			8.00
Leverage ratio		4.63			3.00			4.21			3.00
Mitsubishi UFJ Trust and Banking
Common Equity Tier 1 capital ratio		19.57			4.50			19.46			4.50
Tier 1 capital ratio		21.26			6.00			21.90			6.00
Total capital ratio		24.40			8.00			25.46			8.00
Leverage ratio		5.09			3.00			4.51			3.00
Stand-alone:
MUFG Bank
Common Equity Tier 1 capital ratio		11.69			4.50			10.67			4.50
Tier 1 capital ratio		13.53			6.00			12.52			6.00
Total capital ratio		15.58			8.00			14.76			8.00
Leverage ratio		4.84			3.00			4.02			3.00
Mitsubishi UFJ Trust and Banking
Common Equity Tier 1 capital ratio		19.42			4.50			20.11			4.50
Tier 1 capital ratio		21.12			6.00			22.27			6.00
Total capital ratio		24.25			8.00			25.42			8.00
Leverage ratio		5.55			3.00			5.87			3.00

Management believes that, as of March 31, 2020, our banking subsidiaries were in compliance with all capital adequacy requirements to which they were subject.

Liquidity Coverage Ratios of MUFG and Major Banking Subsidiaries in Japan

The following table presents the LCRs of MUFG, MUFG Bank and Mitsubishi UFJ Trust and Banking calculated in accordance with Basel III as adopted by the FSA for the periods indicated. The figures underlying the ratios were calculated in accordance with Japanese banking regulations. The percentages in the table below are rounded down. The minimum LCR required under Basel III as adopted by the FSA is 100% during the calendar year 2019 and 2020.

	Three months ended
	March 31, 2019(1),(6)			June 30, 2019(2),(6)			September 30, 2019(3),(6)			December 31, 2019(4),(6)			March 31, 2020(5),(6)
MUFG (consolidated)		141.2	%		145.6	%		147.8	%		152.3	%		154.6	%
MUFG Bank (consolidated)		150.7			155.8			158.9			163.2			165.9
MUFG Bank (stand-alone)		159.0			166.3			172.2			177.3			179.2
Mitsubishi UFJ Trust and Banking (consolidated)		115.2			119.4			115.9			116.4			114.1
Mitsubishi UFJ Trust and Banking (stand-alone)		141.5			138.5			130.3			133.0			130.0

Notes:

(1) Each of the ratios is calculated as the average balance of High-Quality Liquid Assets on the business days between January 4, 2019 and March 29 2019 divided by the average amount of net cash outflows for the same fifty-eight business days.

(2) Each of the ratios is calculated as the average balance of High-Quality Liquid Assets on the business days between April 1, 2019 and June 28, 2019 divided by the average amount of net cash outflows for the same fifty-nine business days.

(3) Each of the ratios is calculated as the average balance of High-Quality Liquid Assets on the business days between July 1, 2019 and September 30, 2019 divided by the average amount of net cash outflows for the same sixty-two business days.

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(4) Each of the ratios is calculated as the average balance of High-Quality Liquid Assets on the business days between October 1, 2019 and December 30, 2019 divided by the average amount of net cash outflows for the same sixty-two business days.

(5) Each of the ratios is calculated as the average balance of High-Quality Liquid Assets on the business days between January 6, 2020 and March 31, 2020 divided by the average amount of net cash outflows for the same fifty-eight business days.

(6) The LCR is to be calculated as an average based on daily values in accordance with the Japanese banking regulations.

See “—B. Liquidity and Capital Resources—Sources of Funding and Liquidity.”

Capital Requirements for Banking Institutions in the United States

In the United States, MUFG Americas Holdings and MUFG Union Bank are subject to various regulatory capital requirements administered by the U.S. Federal banking agencies. Failure to meet the applicable minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a material effect on MUFG Americas Holdings’ consolidated financial statements.

For a more detailed discussion of the applicable capital requirements, see “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—United States.” See also Note 21 to our consolidated financial statements included elsewhere in this Annual Report.

In addition, as foreign banking organizations that have U.S. branches and agencies and also as entities that are controlled by MUFG, MUFG Bank and Mitsubishi UFJ Trust and Banking are subject to the FRB’s requirements.

Capital Ratios of Banking Subsidiaries in the United States

The table below presents the risk-adjusted capital ratios of MUFG Americas Holdings and MUFG Union Bank, both subsidiaries of MUFG Bank, calculated in accordance with applicable U.S. banking regulations as of December 31, 2018 and 2019:

	As of December 31, 2018			Minimum capital ratios required as of December 31, 2018(1)			As of December 31, 2019			Minimum capital ratios required as of December 31, 2019(2)			Ratio OCC requires to be “well capitalized” as of December 2019
MUFG Americas Holdings:
Tier I capital (to risk-weighted assets)		13.96	%		7.875	%		14.10	%		8.500	%		—
Tier I capital (to quarterly average assets)(3)		8.77			4.000			8.88			4.000			—
Total capital (to risk-weighted assets)		14.60			9.875			14.73			10.500			—
Common Equity Tier I Capital (to risk-weighted assets)		13.96			6.375			14.10			7.000			—
MUFG Union Bank:
Tier I capital (to risk-weighted assets)		14.45	%		7.875	%		14.47	%		8.500	%		8.0	%
Tier I capital (to quarterly average assets)(3)		10.61			4.000			10.65			4.000			5.0
Total capital (to risk-weighted assets)		15.09			9.875			15.11			10.500			10.0
Common Equity Tier I Capital (to risk-weighted assets)		14.45			6.375			14.47			7.000			6.5

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Notes:

(1) Beginning January 1, 2018, the minimum capital requirement includes a capital conservation buffer of 1.875%.

(2) Beginning January 1, 2019, the minimum capital requirement includes a capital conservation buffer of 2.500%.

(3) Excludes certain deductions.

Management believes that, as of December 31, 2019, MUFG Americas Holdings and MUFG Union Bank were in compliance with all capital adequacy requirements to which they were subject.

As of December 31, 2018 and 2019, the OCC categorized MUFG Union Bank as “well-capitalized.” To be categorized as “well-capitalized,” MUFG Union Bank must maintain minimum ratios of Total capital, Tier I capital and Common Equity Tier I capital to risk-weighted assets and of Tier I capital to quarterly average assets (leverage ratio) as set forth in the table.

For further information, see Note 21 to our consolidated financial statements included elsewhere in this Annual Report.

Capital Requirements for Securities Firms in Japan and Overseas

We have securities subsidiaries in Japan and overseas, which are also subject to regulatory capital requirements. In Japan, the Financial Instruments and Exchange Act of Japan and related ordinances require financial instruments firms to maintain a minimum capital ratio of 120% calculated as a percentage of capital accounts less certain fixed assets, as determined in accordance with Japanese GAAP, against amounts equivalent to market, counterparty credit and operational risks. Specific guidelines are issued as a ministerial ordinance which details the definition of essential components of the capital ratios, including capital, deductible fixed asset

items and risks, and related measures. Failure to maintain a minimum capital ratio will trigger mandatory regulatory actions. A capital ratio of less than 140% will call for additional regulatory reporting, a capital ratio of less than 120% may result in an order to change the method of business, and a capital ratio of less than 100% may lead to a suspension of all or part of the business for a period of time and cancellation of a registration. Overseas securities subsidiaries are subject to the relevant regulatory capital requirements of the countries or jurisdictions in which they operate.

Capital Ratio of Mitsubishi UFJ Morgan Stanley Securities

As of March 31, 2020, Mitsubishi UFJ Morgan Stanley Securities’ capital accounts less certain fixed assets of ¥440.5 billion on a stand-alone basis represented 313.0% of the total amounts equivalent to market, counterparty credit and operational risks. As of the same date, Mitsubishi UFJ Morgan Stanley Securities’ capital accounts less certain fixed assets of ¥465.3 billion on a consolidated basis represented 316.2% of the total amounts equivalent to market, counterparty credit and operational risks. As of March 31, 2019, Mitsubishi UFJ Morgan Stanley Securities’ capital accounts less certain fixed assets of ¥446.6 billion on a stand-alone basis represented 331.6% of the total amounts equivalent to market, counterparty credit and operational risks. As of the same date, Mitsubishi UFJ Morgan Stanley Securities’ capital accounts less certain fixed assets of ¥469.3 billion on a consolidated basis represented 332.2% of the total amounts equivalent to market, counterparty credit and operational risks. These figures are calculated in accordance with Japanese GAAP, pursuant to the Financial Instruments and Exchange Act of Japan.

For further information, see Note 21 to our consolidated financial statements included elsewhere in this Annual Report.

Non-exchange Traded Contracts Accounted for at Fair Value

The use of non-exchange traded or over-the-counter contracts provides us with the ability to adapt to the varied requirements of a wide customer base while mitigating market risks. Non-exchange traded contracts are

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accounted for at fair value, which is generally based on pricing models or quoted prices for instruments with similar characteristics. Gains or losses on non-exchange traded contracts are included in “Trading account profits (losses)—net” in our consolidated statements of income. The following table summarizes the changes in the fair value of non-exchange traded contracts for the fiscal years ended March 31, 2019 and 2020:

	Fiscal years ended March 31,
	2019			2020
	(in millions)
Net fair value of contracts outstanding at beginning of fiscal year	¥	1,812		¥	990
Changes attributable to contracts realized or otherwise settled during the fiscal year		(1,212	)		(706	)
Fair value of new contracts entered into during the fiscal year		356			719
Other changes in fair value, principally revaluation at end of fiscal year		34			(350	)
Net fair value of contracts outstanding at end of fiscal year	¥	990		¥	653

The following table summarizes the maturities of non-exchange traded contracts as of March 31, 2020:

	Net fair value of contracts—unrealized gains
	Prices provided by other external sources		Prices based on models and other valuation methods
	(in millions)
Maturity less than 1 year	¥	—	¥	261
Maturity less than 3 years		—		458
Maturity less than 5 years		—		—
Maturity 5 years or more		—		(66	)
Total fair value	¥	—	¥	653

C. Research and Development, Patents and Licenses, etc.

Not applicable.

D. Trend Information

See the discussions in “—Business Environment,” “—Recent Developments,” “—A. Operating Results” and “—B. Liquidity and Capital Resources.”

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E. Off-Balance Sheet Arrangements

In the normal course of business, we engage in several types of off-balance sheet arrangements to meet the financing needs of customers, including various types of guarantees, credit commitments and commercial letters of credit. The following table summarizes these commitments as of March 31, 2020:

	Amount of commitment by expiration period
	1 year or less		1-5 years		Over 5 years		Total
	(in billions)
Guarantees:
Standby letters of credit and financial guarantees	¥	3,109	¥	763	¥	226	¥	4,098
Performance guarantees		2,160		738		160		3,058
Derivative instruments		36,021		14,543		8,272		58,836
Liabilities of trust accounts		6,752		451		5,939		13,142
Other		8		73		7		88
Total guarantees		48,050		16,568		14,604		79,222
Other off-balance sheet instruments:
Commitments to extend credit		51,274		22,745		2,379		76,398
Commercial letters of credit		707		49		1		757
Commitments to make investments		9		95		143		247
Other		4		1		—		5
Total other off-balance sheet instruments	¥	51,994	¥	22,890	¥	2,523	¥	77,407

See Note 24 to our consolidated financial statements included elsewhere in this Annual Report for a description of the nature of our guarantees and other off-balance sheet instruments.

The contractual amounts of these guarantees and other off-balance sheet instruments represent the amounts at risk if the contracts were to be fully drawn upon as a result of a subsequent default by our customer and a decline in the value of the underlying collateral. Since many of these commitments expire without being drawn upon, the total contractual or notional amounts of these commitments do not necessarily represent our future cash requirements. As of March 31, 2020, approximately 64% of these commitments have an expiration date within one year, 25% have an expiration date from one year to five years, and 11% have an expiration date after five years. Risks relating to off-balance sheet instruments are monitored and managed as a part of our risk management system as set forth in “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk.” We evaluate off-balance sheet arrangements in the manner described in Note 1 to our consolidated financial statements included elsewhere in this Annual Report.

The fees generated specifically from off-balance sheet arrangements are not a dominant source of our overall fees and commissions.

Some of our off-balance sheet arrangements are related to activities of special purpose entities, most of which are VIEs. For further information, see Note 25 to our consolidated financial statements included elsewhere in this Annual Report.

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F. Tabular Disclosure of Contractual Obligations

The following table shows a summary of our contractual obligations outstanding as of March 31, 2020:

	Payments due by period
	Less than 1 year		1-3 years		3-5 years		Over 5 years		Total
	(in billions)
Contractual obligations:
Time deposit obligations	¥	55,230	¥	7,951	¥	1,332	¥	832	¥	65,345
Estimated interest expense on time deposit obligations(1)		227		22		3		1		253
Long-term debt obligations		10,117		6,426		3,490		7,884		27,917
Financing lease obligations		7		11		4		3		25
Operating lease obligations		107		137		77		196		517
Purchase obligations		102		108		111		42		363
Total(2)(3)	¥	65,790	¥	14,655	¥	5,017	¥	8,958	¥	94,420

Notes:

(1) Contractual obligations related to estimated interest expense on time deposit obligations are calculated by applying the March 31, 2020 weighted-average interest rate on outstanding time deposits.

(2) The total amount of expected future pension payments is not included in the above table or the total amount of commitments outstanding as of March 31, 2020. We expect to contribute approximately ¥26.3 billion for pension and other benefits for our employees for the fiscal year ending March 31, 2021. For further information, see Note 13 to our consolidated financial statements included elsewhere in this Annual Report.

(3) The above table does not include unrecognized tax benefits and interest and penalties related to income tax associated with the guidance on accounting for uncertainty in income taxes as we cannot estimate reasonably the timing of cash settlement of the liabilities for unrecognized tax benefits. The total amount of the liabilities for unrecognized tax benefits is ¥19.2 billion as of March 31, 2020. Among the liabilities for unrecognized tax benefits, it is reasonably possible that the unrecognized tax benefits will decrease by approximately ¥2.4 billion during the next twelve months. For further information, see Note 8 to our consolidated financial statements included elsewhere in this Annual Report.

Purchase obligations include any legally binding contractual obligations that require us to spend more than ¥100 million annually under the contract. Purchase obligations in the table primarily include commitments to make investments into corporate recovery or private equity investment funds.

G. Safe Harbor

See the discussion under “Forward-Looking Statements.”

139

Item 6. Directors, Senior Management and Employees.

A. Directors and Senior Management

Members of the Board of Directors

The following table sets forth the members of our board of directors as of June 29, 2020, together with their respective dates of birth, positions and experience:

Name (Date of Birth)	Position in MUFG	Business Experience
Mariko Fujii (March 9, 1955)	Member of the Board of Directors (Outside Director)	April 1977	Joined Ministry of Finance
		July 1997	Director, International Affairs and Research Division, Customs and Tariff Bureau
		April 1999	Associate Professor, Research Center for Advanced Science and Technology, The University of Tokyo
		March 2001	Professor, Research Center for Advanced Economic Engineering, The University of Tokyo
		April 2004	Professor, Research Center for Advanced Science and Technology, National University Corporation, The University of Tokyo
		June 2014	Outside director of Electric Power Development Co., Ltd.
		October 2015	Resigned from Professor of The University of Tokyo
			Resigned from an Outside director of Electric Power Development Co., Ltd.
			Ambassador Extraordinary and Plenipotentiary of Japan to Latvia
		June 2016	Emeritus Professor of the University of Tokyo (incumbent)
		January 2019	Retired from Ambassador Extraordinary and Plenipotentiary of Japan to Latvia
		June 2019	Outside director of NTT DATA CORPORATION (incumbent)
			Member of the Board of Directors (Outside director) of MUFG (incumbent)
Keiko Honda (September 27, 1961)	Member of the Board of Directors (Outside Director)	April 1984	Joined Bain & Company Japan, Incorporated
		May 1986	Joined Shearson Lehman Brothers Securities Co., Ltd.
		July 1989	Joined McKinsey & Company, Inc. Japan
		July 1999	Partner of McKinsey & Company, Inc. Japan
		July 2007	Director (Senior Partner) of McKinsey & Company, Inc. Japan
		July 2013	Executive Vice President & CEO of Multilateral Investment Guarantee Agency (World Bank Group)
		October 2019	Retired from Multilateral Investment Guarantee Agency (World Bank Group)

140

Name (Date of Birth)	Position in MUFG	Business Experience
		June 2020	Joined Columbia University School of International and Public Affairs as Adjunct Professor and Adjunct Senior Research Scholar (incumbent)
		March 2020	Outside Director of AGC Inc. (incumbent)
		June 2020	Member of the Board of Directors (Outside director) of MUFG (incumbent)
Kaoru Kato (May 20, 1951)	Member of the Board of Directors (Outside Director)	April 1977	Joined Nippon Telegraph and Telephone Public Corporation (NTT)
		July 1999	General Manager of Plant Department of NTT Kansai Mobile Communications Network, Inc.
		April 2000	General Manager of Plant Department of NTT DoCoMo Kansai, Inc.
		June 2002	General Manager of Corporate Strategy and Planning Department, Member of the Board of Directors of NTT DoCoMo Kansai, Inc
		July 2005	Representative Director and Senior Corporate Executive Officer of Sumitomo Mitsui Card Co., Ltd.
		July 2007	Executive Vice President, General Manager of Corporate Strategy and Planning Department, Member of the Board of Directors of NTT DoCoMo Kansai, Inc.
		June 2008	Executive Vice President, General Manager of Corporate Strategy and Planning Department, Member of the Board of Directors of NTT DOCOMO, INC.
		June 2012	President and Chief Executive Officer, Member of the Board of Directors of NTT DOCOMO, INC.
		June 2016	Corporate Advisor, Member of the Board of Directors of NTT DOCOMO, INC.
		June 2018	Corporate Advisor of NTT DOCOMO, INC. (incumbent)
		June 2019	Member of the Board of Directors (Outside director) of MUFG (incumbent)
Haruka Matsuyama (August 22, 1967)	Member of the Board of Directors (Outside Director)	April 1995	Assistant Judge, Tokyo District Court
		July 2000	Registered as an attorney at law, member of the Daini Tokyo Bar Association
			Joined Hibiya Park Law Offices
		January 2002	Partner of Hibiya Park Law Offices (incumbent)
		June 2012	Outside Corporate Auditor of Vitec Co., Ltd.
		June 2013	Outside director of T&D Holdings, Inc. (incumbent)
		June 2014	External Audit & Supervisory Board member of MITSUI & CO., LTD. (incumbent)

141

Name (Date of Birth)	Position in MUFG	Business Experience
			Member of the Board of Directors (Outside director) of MUFG (incumbent)
		June 2015	Outside director of Vitec Co., Ltd. (current Restar Holdings Corporation) (incumbent)
Toby S. Myerson (July 20, 1949)	Member of the Board of Directors (Outside Director)	September 1977	Registered as an attorney at law, admitted in States of New York and California in the United States
		October 1981	Joined Paul, Weiss, Rifkind, Wharton & Garrison LLP
		June 1983	Partner of Paul, Weiss, Rifkind, Wharton & Garrison LLP
		April 1989	Managing Director of Wesserstein Perella & Co. Inc.
		November 1990	Partner of Paul, Weiss, Rifkind, Wharton & Garrison LLP
		June 2014	Outside director of BK(US) (incumbent)
		December 2016	Retired from Paul, Weiss, Rifkind, Wharton & Garrison LLP
		January 2017	Chairman & CEO of Longsight Strategic Advisors LLC (incumbent)
		February 2017	Outside director of MUAH (incumbent)
		June 2017	Member of the Board of Directors (Outside director) of MUFG (incumbent)
Hirofumi Nomoto (September 27, 1947)	Member of the Board of Directors (Outside Director)	April 1971	Joined TOKYU CORPORATION
		April 2003	Executive General Manager of Media Business Headquarters of TOKYU CORPORATION
		April 2004	President & Representative Director of its communications Inc.
		June 2007	Director of TOKYU CORPORATION
			Executive Officer of Real Estate Development Business Unit of TOKYU CORPORATION
		January 2008	Managing Director of TOKYU CORPORATION
		June 2008	Senior Managing Director of TOKYU CORPORATION
		April 2010	Executive Officer & Senior Executive General Manager of Urban Life Produce Business Unit of TOKYU CORPORATION
		June 2010	Senior Managing Director & Representative Director of TOKYU CORPORATION
		April 2011	President & Representative Director of TOKYU CORPORATION
		April 2018	Chairman & Representative Director of TOKYU CORPORATION (incumbent)
		June 2019	Member of the Board of Directors (Outside director) of MUFG (incumbent)

142

Name (Date of Birth)	Position in MUFG	Business Experience
Yasushi Shingai (January 11, 1956)	Member of the Board of Directors (Outside Director)	April 1980	Joined Japan Tobacco and Salt Public Corporation (current Japan Tobacco Inc.)
		July 2001	Vice President of Financial Planning Division of Japan Tobacco Inc.
		June 2004	Senior Vice President, Head of Finance Group of Japan Tobacco Inc.
		July 2004	Senior Vice President, Chief Financial Officer of Japan Tobacco Inc.
		June 2005	Member of the Board, Senior Vice President, and Chief Financial Officer of Japan Tobacco Inc.
		June 2006	Member of the Board of Japan Tobacco Inc.,
			Executive Vice President and Deputy CEO of JT International S.A.
		June 2011	Representative Director and Executive Vice President of Japan Tobacco Inc.
		June 2014	External Board Director of Recruit Holdings Co., Ltd.
		January 2018	Member of the Board of Japan Tobacco Inc.
		March 2018	Outside Director of Asahi Group Holdings, Ltd. (incumbent)
		June 2018	Member of the Board of Directors (Outside director) of MUFG (incumbent)
		June 2019	Outside director of Dai-ichi Life Holdings, Inc. (incumbent)
Tarisa Watanagase (November 30, 1949)	Member of the Board of Directors (Outside Director)	June 1975	Joined the Bank of Thailand
		January 1988	Economist, International Monetary Fund (On the Secondment)
		October 2002	Deputy Governor of the Bank of Thailand
		November 2006	Governor of the Bank of Thailand
		September 2010	Retired from the Bank of Thailand
		March 2013	Outside director of the Siam Cement Public Company Limited (incumbent)
		June 2017	Member of the Board of Directors (Outside director) of MUFG (incumbent)
Akira Yamate (November 23, 1952)	Member of the Board of Directors (Outside Director)	November 1977	Joined Price, Waterhouse & Co. Japan
		March 1983	Registered as Certified Public Accountant in Japan
		July 1991	Representative Partner of Aoyama Audit Corporation
			Partner of Price Waterhouse
		April 2000	Representative Partner of Chuo Aoyama Audit Corporation
			Partner of PricewaterhouseCoopers
		September 2006	Representative Partner of PricewaterhouseCoopers Aarata
		June 2013	Resigned from PricewaterhouseCoopers Aarata

143

Name (Date of Birth)	Position in MUFG	Business Experience
			External Audit & Supervisory Board member of Nomura Real Estate Holdings, Inc.
			External Audit & Supervisory Board member of Nomura Real Estate Development, Co., Ltd.
		June 2015	Retired from External Audit & Supervisory Board member of Nomura Real Estate Development, Co., Ltd.
			Member of the Board of Directors (Outside director) of MUFG (incumbent)
			External director of Nomura Real Estate Holdings, Inc.
			External member of Board of Statutory Auditors, Prudential Holdings of Japan, Inc. (incumbent)
		June 2019	Retired from External director of Nomura Real Estate Holdings, Inc.
			External director of Nomura Real Estate Development, Co., Ltd.
		June 2020	Retired from External director of Nomura Real Estate Development, Co., Ltd.
Junichi Okamoto (November 9, 1957)	Member of the Board of Directors	April 1980	Joined The Toyo Trust and Banking Company, Limited
		June 2008	Executive Officer of TB
		June 2010	Managing Executive Officer of TB
			Executive Officer of MUFG
		June 2012	Senior Managing Executive Officer of TB
		June 2013	Director, Deputy President and Executive Officer of TB
			Member of the Board of Directors of MUFG
		June 2015	Senior Managing Corporate Executive of MUFG
		June 2017	Director of TB
			Member of the Board of Directors of MUFG (incumbent)
Ritsuo Ogura (January 21, 1964)	Member of the Board of Directors	April 1986	Joined The Sanwa Bank, Limited
		June 2012	Executive Officer of BK
			Executive Officer of MUFG
		May 2016	Managing Executive Officer of BK
		May 2017	Managing Executive Officer of MUFG
		April 2019	Managing Corporate Executive of MUFG
		April 2020	Managing Executive Officer of the MUFG
		June 2020	Member of the Board of Directors of MUFG (incumbent)

144

Name (Date of Birth)	Position in MUFG	Business Experience
Nobuyuki Hirano (October 23, 1951)	Member of the Board of Directors Chairman (Corporate  Executive)	April 1974	Joined The Mitsubishi Bank, Limited
		June 2001	Executive Officer of Bank of Tokyo-Mitsubishi, Ltd. (BTM)
		July 2004	Executive Officer of Mitsubishi Tokyo Financial Group, Inc. (MTFG)
		May 2005	Managing Executive Officer of BTM
		June 2005	Member of the Board of Directors, Managing Executive Officer of BTM
			Member of the Board of Directors of MTFG
		January 2006	Member of the Board of Directors, Managing Executive Officer of BK
		October 2008	Member of the Board of Directors, Senior Managing Executive Officer of BK
		June 2009	Member of the Board of Directors, Deputy President of BK
			Managing Executive Officer of MUFG
		June 2010	Member of the Board of Directors of MUFG
		October 2010	Member of the Board of Directors, Deputy President of MUFG
		April 2012	President & CEO of BK
			Member of the Board of Directors of MUFG
		April 2013	President & CEO of MUFG
		June 2015	Member of the Board of Directors, President & Group CEO of MUFG
		November 2015	Director of Morgan Stanley
		April 2016	Chairman of BK
		April 2019	Member of the Board of Directors of BK
			Member of the Board of Directors, Chairman of MUFG (incumbent)
Kanetsugu Mike (November 4, 1956)	Member of the Board of Directors Deputy Chairman (Representative Corporate Executive)	April 1979	Joined The Mitsubishi Bank, Limited
		June 2005	Executive Officer of BTM
			Executive Officer of MTFG
		May 2009	Managing Executive Officer of BK
		May 2011	Managing Executive Officer of MUFG
		June 2011	Member of the Board of Directors, Managing Executive Officer of BK
		May 2013	Senior Managing Executive Officer of BK
		October 2015	Executive Chairman of MUAH
			Executive Chairman of BK(US)
		May 2016	Deputy President and Executive Officer of BK
			Senior Managing Corporate Executive of MUFG
		June 2016	Member of the Board of Directors, Deputy President of BK
		June 2017	President & CEO of BK (incumbent)
			Member of the Board of Directors, Deputy Chairman of MUFG
		April 2019	Member of the Board of Directors, President & Group CEO of MUFG

145

Name (Date of Birth)	Position in MUFG	Business Experience
		April 2020	Member of the Board of Directors, Deputy Chairman of MUFG (incumbent)
Saburo Araki (August 6, 1957)	Member of the Board of Directors Deputy Chairman (Representative Corporate Executive)	April 1981	Joined The Mitsubishi Bank, Limited
		June 2007	Executive Officer of BK
		May 2009	Executive Officer of MUFG
		May 2011	Managing Executive Officer of BK
			Managing Executive Officer of MUFG
		June 2012	Member of the Board of Directors, Managing Executive Officer of BK
			Member of the Board of Directors of MUFG
		June 2014	Managing Executive Officer of MUFG
		May 2015	Member of the Board of Directors, Senior Managing Executive Officer of BK
		June 2015	Senior Managing Corporate Executive of MUFG
		May 2016	Member of the Board of Directors, Deputy President of BK
		April 2018	President & CEO of SCHD (incumbent)
			President & CEO of MUMSS (incumbent)
			Deputy Chairman of MUFG
		June 2018	Member of the Board of Directors, Deputy Chairman of MUFG (incumbent)
		June 2020	President & CEO of Mitsubishi UFJ Morgan Stanley PB Securities Co., Ltd. (incumbent)
Iwao Nagashima (March 15, 1963)	Member of the Board of Directors Deputy Chairman (Representative Corporate Executive)	April 1985	Joined The Mitsubishi Trust and Banking Corporation
		June 2011	Executive Officer of TB
		June 2013	Managing Executive Officer of TB
			Executive Officer of MUFG
		June 2015	Director and Managing Executive Officer of TB
			Managing Executive Officer of TB
		June 2016	Director and Senior Managing Executive Officer of TB
		April 2019	Director, Deputy President, and Executive Officer of TB
			Senior Managing Corporate Executive of MUFG
			President & CEO of MU Trust Apple Planning Company, Ltd.
		April 2020	President & CEO of TB (incumbent)
			Deputy Chairman of MUFG
		June 2020	Member of the Board of Directors, Deputy Chairman of MUFG (incumbent)

146

Name (Date of Birth)	Position in MUFG	Business Experience
Hironori Kamezawa (November 18, 1961)	Member of the Board of Directors President & Group CEO (Representative Corporate Executive)	April 1986	Joined The Mitsubishi Bank, Limited
		June 2010	Executive Officer of BK
			Executive Officer of MUFG
		May 2014	Managing Executive Officer of BK
			Managing Executive Officer of MUFG
		July 2014	Deputy CEO of Americas at BK(US)
		May 2017	Managing Corporate Executive of MUFG
		June 2017	Member of the Board of Directors, Managing Executive Officer of BK
		May 2018	Member of the Board of Directors, Senior Managing Executive Officer of BK
			Senior Managing Corporate Executive of MUFG
		December 2018	CEO and Representative of the Board of Directors of Global Open Network, Inc.
		April 2019	Deputy President of MUFG
			Member of the Board of Directors, Deputy President of BK
			CEO and Representative of the Board of Directors of Global Open Network Japan, Inc.
		June 2019	Member of the Board of Directors, Deputy President of MUFG
		April 2020	Member of the Board of Directors of BK (incumbent)
			Member of the Board of Directors, President & Group CEO of MUFG (incumbent)

Note:	Thefollowing abbreviations are used in the table above:
	“BK”refers to MUFG Bank, Ltd. or its former name The Bank of Tokyo-Mitsubishi UFJ, Ltd.
	“TB”refers to Mitsubishi UFJ Trust and Banking Corporation.
	“SCHD”refers to Mitsubishi UFJ Securities Holdings Co., Ltd.
	“BK(US)”refers to MUFG Union Bank, N.A.
	“MUAH”refers to MUFG Americas Holdings Corporation.

Corporate Executives

The following table sets forth our corporate executives as of June 29, 2020, together with their respective dates of birth, positions and experience:

Name (Date of Birth)	Position in MUFG	Business Experience
Nobuyuki Hirano (October 23, 1951)	See “Members of the Board of Directors” under this Item 6.A.	See “Members of the Board of Directors” under this Item 6.A.
Kanetsugu Mike (November 4, 1956)	See “Members of the Board of Directors” under this Item 6.A.	See “Members of the Board of Directors” under this Item 6.A.
Saburo Araki (August 6, 1957)	See “Members of the Board of Directors” under this Item 6.A.	See “Members of the Board of Directors” under this Item 6.A.

147

Name (Date of Birth)	Position in MUFG	Business Experience
Iwao Nagashima (March 15, 1963)	See “Members of the Board of Directors” under this Item 6.A.	See “Members of the Board of Directors” under this Item 6.A.
Hironori Kamezawa (November 18, 1961)	See “Members of the Board of Directors” under this Item 6.A.	See “Members of the Board of Directors” under this Item 6.A.
Masamichi Yasuda (August 22, 1960)	Senior Managing Corporate Executive (Group Head, Global Markets Business Group)	April 1983	Joined The Bank of Tokyo, Ltd
		June 2009	Executive Officer of BK, seconded to Union Bank
		May 2011	Executive Officer of MUFG
		May 2014	Managing Executive Officer of BK
		May 2015	Managing Executive Officer of MUFG
		June 2015	Member of the Board of Directors, Managing Executive Officer of BK
			Member of the Board of Directors of SCHD
			Member of the Board of Directors, Managing Corporate Executive of MUFG
		May 2017	Member of the Board of Directors, Senior Managing Executive Officer of BK
			Member of the Board of Directors, Senior Managing Corporate Executive of MUFG
		June 2018	Senior Managing Corporate Executive of MUFG (incumbent)
		April 2019	Senior Managing Executive Officer of SCHD (incumbent)
			Member of the Board of Directors, Deputy President of MUMSS (incumbent)
Kenji Yabuta (April 27, 1960)	Senior Managing Corporate Executive (Group Head, Japanese Corporate & Investment Banking Business Group Head of Research & Advisory Unit)	April 1983	Joined The Mitsubishi Bank, Limited
		June 2009	Executive Officer of BK
			Executive Officer of MUFG
		May 2013	Managing Executive Officer of BK
		May 2017	Senior Managing Executive Officer of BK
		April 2018	Senior Managing Corporate Executive of MUFG (incumbent)
		May 2018	Deputy President of BK
		June 2018	Member of the Board of Directors, Deputy President of BK (incumbent)
Naoki Hori (January 27, 1961)	Senior Managing Corporate Executive (Group Head, Retail & Commercial Banking Business Group)	April 1983	Joined The Sanwa Bank, Limited
		June 2010	Executive Officer of BK
			Executive Officer of MUFG
		May 2013	Managing Executive Officer of BK
		May 2016	Managing Executive Officer of MUFG
		June 2016	Member of the Board of Directors, Managing Executive Officer of BK

148

Name (Date of Birth)	Position in MUFG	Business Experience
		June 2017	Member of the Board of Directors, Senior Managing Executive Officer of BK
		May 2018	Senior Managing Corporate Executive of MUFG (incumbent)
		April 2019	Member of the Board of Directors, Deputy President of BK (incumbent)
Masato Miyachi (June 14, 1960)	Senior Managing Corporate Executive (Group Head, Global Corporate & Investment Banking Business Group)	April 1984	Joined The Bank of Tokyo, Ltd.
		June 2010	Executive Officer of BK
		May 2014	Managing Executive Officer of BK
		October 2014	Managing Executive Officer of MUFG
		May 2017	Chairman of MUAH
			Chairman of BK(US)
		May 2018	Senior Managing Executive Officer of BK
		June 2018	Member of the Board of Directors, Senior Managing Executive Officer of BK
		July 2018	Senior Managing Corporate Executive of MUFG (incumbent)
		April 2019	Member of the Board of Directors, Deputy President of BK (incumbent)
Sunao Yokokawa (December 10, 1963)	Senior Managing Corporate Executive (Group Head, Asset Management & Investor Services Business)	April 1986	Joined MTB
		June 2012	Executive Officer of TB
		May 2014	Executive Officer of MUFG
		June 2015	Managing Executive Officer of TB
		June 2017	Director and Managing Executive Officer of TB
			Managing Corporate Executive of MUFG
		April 2019	Director and Senior Managing Executive Officer of TB
			Senior Managing Corporate Executive of MUFG (incumbent)
		April 2020	Director, Deputy President, and Executive Officer of TB (incumbent)
Takayoshi Futae (January 16, 1961)	Senior Managing Corporate Executive (Group Head, Global Commercial Banking Business Group Group Chief Operational Officer, or Group COO-I)	April 1983	Joined The Sanwa Bank, Limited
		June 2010	Executive Officer of BK
		May 2014	Managing Executive Officer of BK
		May 2016	Managing Executive Officer of MUFG
		May 2017	Senior Managing Executive Officer of BK
		April 2019	Senior Managing Corporate Executive of MUFG
			Senior Managing Executive Officer of SCHD (incumbent)
		June 2019	Member of the Board of Directors, Senior Managing Executive Officer of BK (incumbent)
Masahiro Kuwahara (November 11, 1962)	Senior Managing Corporate Executive (Group Chief Risk Officer, or CRO)	April 1986	Joined The Mitsubishi Bank, Limited
		June 2012	Executive Officer of BK
			Executive Officer of MUFG
		May 2016	Managing Executive Officer of BK

149

Name (Date of Birth)	Position in MUFG	Business Experience
			Managing Executive Officer of MUFG
		May 2019	Managing Corporate Executive of MUFG
		June 2019	Member of the Board of Directors, Managing Executive Officer of BK
		April 2020	Member of the Board of Directors, Senior Managing Executive Officer of BK (incumbent)
			Senior Managing Corporate Executive of MUFG (incumbent)
Yoshitaka Shiba (July 25, 1961)	Senior Managing Corporate Executive (Group Chief Audit Officer, or CAO) Managing Director, Head of Internal Audit Division	April 1986	Joined The Tokai Bank, Ltd.
		June 2012	Executive Officer of BK
		July 2015	Executive Officer of MUFG
		May 2016	Managing Executive Officer of BK
		April 2020	Senior Managing Corporate Executive of MUFG (incumbent)
Tetsuya Yonehana (February 10, 1964)	Senior Managing Corporate Executive (Group CFO)	April 1986	Joined The Mitsubishi Trust and Banking Corporation
		June 2012	Executive Officer of TB
			Executive Officer of MUFG
		June 2015	Managing Executive Officer of TB
		June 2016	Director and Managing Executive Officer of TB
			Managing Executive Officer of MUFG
		April 2019	Director and Senior Managing Executive Officer of TB
		April 2020	Senior Managing Executive Officer of BK
			Senior Managing Corporate Executive of MUFG (incumbent)
		June 2020	Member of the Board of Directors, Senior Managing Executive Officer of BK (incumbent)
Naomi Hayashi (March 16, 1965)	Managing Corporate Executive (Group CSO in charge of Corporate Planning Division (excluding Budget & Resources Management and Global Business), Corporate Administration Division)	April 1987	Joined The Mitsubishi Bank, Limited
		June 2013	Executive Officer of BK
			Executive Officer of MUFG
		January 2017	Managing Executive Officer of BK
		May 2018	Managing Corporate Executive of MUFG (incumbent)
		June 2018	Member of the Board of Directors, Managing Executive Officer of BK (incumbent)
			Member of the Board of Directors of SCHD (incumbent)

150

Name (Date of Birth)	Position in MUFG	Business Experience
Junichi Hanzawa (January 19, 1965)	Managing Corporate Executive (Group Chief Compliance Officer, or Group CCO)	April 1988	Joined The Mitsubishi Bank, Limited
		June 2014	Executive Officer of BK
			Executive Officer of MUFG
		May 2018	Managing Executive Officer of BK
		April 2019	Managing Corporate Executive of MUFG (incumbent)
		June 2019	Member of the Board of Directors, Managing Executive Officer of BK (incumbent)
Hiroki Kameda (May 17, 1965)	Managing Corporate Executive (Group Chief Information Officer, or CIO)	April 1988	Joined The Mitsubishi Bank, Limited
		June 2014	Executive Officer of BK
			Executive Officer of MUFG
		June 2018	President & CEO of Mitsubishi UFJ Information Technology, Ltd. (incumbent)
		April 2019	Managing Executive Officer of BK
			Managing Corporate Executive of MUFG (incumbent)
		June 2019	Member of the Board of Directors, Managing Executive Officer of BK (incumbent)
Hiroshi Mori (February 21,1965)	Managing Corporate Executive (Group Chief Legal Officer, or CLO)	April 1993	Seconded to Finance Bureau of Ministry of Home Affairs
		June 2003	Seconded to Tesac Corporation, a Company under reorganization Trustee representative, Manager of Corporate Planning Department
		October 2006	Registered as attorney at law Joined Nishimura & Asahi
		November 2010	Outside Director, USEN Corporation
		January 2012	Partner at Nishimura & Asahi
		June 2013	Substitute Auditor of KAGOME CO., LTD.
		March 2016	Outside Director, Audit & Supervisory Committee Member of KAGOME CO., LTD.
		June 2016	Outside Director, Audit & Supervisory Committee Member of SCHD
		June 2019	Member of the Board of Directors, Managing Executive Officer of BK(incumbent)
			Managing Corporate Executive of MUFG (incumbent)

151

Name (Date of Birth)	Position in MUFG	Business Experience
Tomohiro Kimura (June 7, 1967)	Managing Corporate Executive (Group Chief Human Resource Officer, or Group CHRO Group Deputy Chief Digital Transformation Officer, or Group Deputy CDTO in sub-charge of Corporate Administration Division)	April 1990	Joined The Mitsubishi Trust and Banking Corporation
		June 2017	Executive Officer of TB
			Executive Officer of MUFG
		April 2020	Director and Managing Executive Officer of TB (incumbent)
			Managing Corporate Executive of MUFG (incumbent)
			President & CEO of MU Trust Apple Planning Company, Ltd. (incumbent)
			President & CEO of M.U.Trust Sougou Kanri Co., Ltd. (incumbent)
Masakazu Osawa (June 20, 1968)	Managing Corporate Executive (Group Chief Digital Transformation Officer, or Group CDTO Managing Director, Head of Digital Transformation Division)	April 1991	Joined The Mitsubishi Bank, Limited
		June 2017	Executive Officer of The Bank of BK
			Executive Officer of MUFG
		April 2020	Managing Executive Officer of BK
			Managing Corporate Executive of MUFG (incumbent)
			CEO and Representative of the Board of Directors of Global Open Network, Inc. (incumbent)
			Chairman and Representative of the Board of Directors of Global Open Network Japan, Inc. (incumbent)
		June 2020	Member of the Board of Directors, Managing Executive Officer of BK (incumbent)

Note:	Thefollowing abbreviations are used in the table above:
	“BK”refers to MUFG Bank, Ltd. or its former name The Bank of Tokyo-Mitsubishi UFJ, Ltd.
	“TB”refers to Mitsubishi UFJ Trust and Banking Corporation.
	“SCHD”refers to Mitsubishi UFJ Securities Holdings Co., Ltd.
	“BK(US)”refers to MUFG Union Bank, N.A.
	“MUAH”refers to MUFG Americas Holdings Corporation.

The board of directors and corporate executives may be contacted through our headquarters at Mitsubishi UFJ Financial Group, Inc., 7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8330, Japan.

No family relationship exists among any of our directors or corporate executives.

B. Compensation

The aggregate amount of compensation paid, including benefits in kind granted and any contingent and deferred compensation, by MUFG and its subsidiaries during the fiscal year ended March 31, 2020 to our directors (excluding outside directors), to corporate executives and to outside directors, was ¥133 million, ¥2,266 million and ¥224 million, respectively.

The compensation paid by MUFG and its subsidiaries during the fiscal year ended March 31, 2020 to our directors and corporate executives consisted of annual base salaries, performance-based stock compensation, cash bonuses and other benefits. MUFG’s compensation committee determines the compensation paid to our directors and corporate executives.

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The following table sets forth details of the aggregate compensation paid by MUFG and its subsidiaries during the fiscal year ended March 31, 2020 to our directors (excluding outside directors) and corporate executives:

			Non-Adjustable Compensation				Adjustable Compensation
Number of  Directors and Corporate Executives(1)	Aggregate Compensation		Annual Base Salary		Performance- based Stock Compensation		Cash Bonuses		Performance- based Stock Compensation		Retirement Allowances(2)		Other
	(in millions)
22	¥	2,399	¥	1,357	¥	326	¥	508	¥	208		—	¥	0

Notes:

(1) Includes the current directors and corporate executives as well as those who retired during the fiscal year ended March 31, 2020 but excludes the outside directors.

(2) Represents the aggregate amount of retirement allowances paid in cash during the fiscal year ended March 31, 2020, pursuant to a one-time shareholders’ approval in June 2007 for the retirement allowances to be paid to the directors and corporate auditors who were elected prior to that date at the time of their retirement. A reserve in the total amount of such retirement allowances was set aside as of September 30, 2007. For more information, see “—Retirement Allowances” below.

The following table sets forth the details of individual compensation paid, including benefits in kind granted but excluding retirement allowances paid, by MUFG and its subsidiaries in an amount equal to or exceeding ¥100 million during the fiscal year ended March 31, 2020:

Directors	Aggregate amount		Paid by		Compensation paid
					Annual Base Salary		Performance- based Stock Compensation		Cash Bonuses
	(in millions)
Nobuyuki Hirano	¥	181		MUFG	¥	58	¥	39	¥	47
				BK		17		14		6
Mikio Ikegaya	¥	178		MUFG	¥	34	¥	21	¥	29
				TB		34		27		33
Saburo Araki	¥	137		MUFG	¥	25	¥	20	¥	24
				SCHD		13		9		12
				MUMSS		13		9		12
Kanetsugu Mike	¥	215		MUFG	¥	50	¥	30	¥	44
				BK		33		28		30
Hironori Kamezawa	¥	128		MUFG	¥	43	¥	15	¥	14
				BK		26		20		10
Kenji Yabuta	¥	127		MUFG	¥	43	¥	14	¥	16
				BK		26		17		11
Naoki Hori	¥	129		MUFG	¥	40	¥	14	¥	14
				BK		23		22		10
				ACOM		6		—		—
Masato Miyachi	¥	190		MUFG	¥	92	¥	—	¥	18
				BK		69		—		11
Takayoshi Futae	¥	101		MUFG	¥	28	¥	7	¥	7
				BK		26		10		8
				SCHD		9		3		3
Iwao Nagashima	¥	113		MUFG	¥	36	¥	11	¥	13
				TB		21		23		9

Note:	Thefollowing abbreviations are used in the table above:
	“BK”refers to MUFG Bank, Ltd. (or its former name The Bank of Tokyo-Mitsubishi UFJ, Ltd.)
	“TB”refers to Mitsubishi UFJ Trust and Banking Corporation. .
	“SCHD”refers to Mitsubishi UFJ Securities Holdings Co., Ltd.
	“MUMSS”refers to Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
	“ACOM”refers to ACOM Co., Ltd.

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Annual Base Salary

Annual base salaries were paid to our directors (including outside directors) and corporate executives in the form of monthly cash installment payments. The aggregate annual base salary paid to our directors (excluding outside directors) and corporate executives for the fiscal year ended March 31, 2020 was ¥1,357 million. The aggregate annual base salary paid to our outside directors for the same period was ¥224 million.

Performance-based Stock Compensation Plans

Under our performance-based stock compensation plans, qualified directors (excluding outside directors and directors serving as audit committee members), corporate executives and others of MUFG and its major domestic subsidiaries are assigned, on a monthly basis, (1) points based on their job responsibilities, or non-adjustable points, and (2) additional points based on their job responsibilities which are adjusted at the end of each fiscal year and at the end of each plan period to reflect the extent to which a financial performance target determined by the compensation committee is attained, or adjustable points. Each plan period corresponds to the period covered by the three-year medium-term business plan of MUFG. Each accumulated point represents a right to receive one share of MUFG common stock from a trust established in Japan to administer the plan grants as determined by the compensation committee.

The right to receive shares of MUFG common stock in exchange for non-adjustable points becomes vested and nonforfeitable, and the shares are delivered, upon the grantee’s departure from his or her job responsibilities based on which the right was granted. The right to receive shares of MUFG common stock in exchange for adjustable points becomes vested and nonforfeitable, and the shares are delivered, at the end of each plan period. The vesting in either case is subject to conditions imposed by the compensation committee, including non-engagement in misconduct. A portion of the shares subject to a grantee’s vested right may be delivered in cash.

The grantees are entitled to “dividend equivalent credits” on their granted but unvested rights under the plan when MUFG pays dividends to its shareholders. The credit is equal to the dividends that the grantees would have received on the shares had the shares been issued to the grantees in exchange for their granted but unvested rights under the plan, less expenses relating to the administration of the plan. Accumulated dividend equivalents are paid to grantees at the time of the delivery of the shares.

The shares to be delivered to grantees are purchased on the open market by the trustee of the trust pursuant to a trust agreement among MUFG, the trustee and the independent caretaker of the trust. Each plan is funded in cash up to a maximum aggregate amount determined by our compensation committee.

The initial performance-based stock compensation plan commenced on July 1, 2016. The grants under the plan were tied to MUFG’s previous medium-term business plan for the three-year period ended March 31, 2018. The trust for the plan was funded with ¥9.8 billion in cash, and 18,785,400 shares of MUFG common stock were purchased by the trustee of the plan trust in May 2016. The plan was adopted after our compensation committee decided in May 2016 to cease to provide any additional stock acquisition rights under our previous stock-based compensation structure and to introduce the performance-based stock compensation plan.

The second performance-based stock compensation plan commenced on December 1, 2016. The trust for the plan was funded with 8.8 billion in cash, and an aggregate of 13,004,300 shares of MUFG common stock were purchased by the trustee of the plan trust in November 2016 and May 2017. The plan was adopted to replace the outstanding stock acquisition rights under our previous stock-based compensation structure. Upon the adoption of the plan, the stock acquisition rights that had been allotted to grantees but remained unexercised under the then-outstanding stock-based compensation plans were exchanged for points under the performance-based stock compensation plan, and the rights to receive shares of MUFG common stock represented by these points were vested. The outstanding stock acquisition rights of grantees who were on overseas assignments at the time of the adoption of the plan were exchanged for points under the performance-based stock compensation plan upon their return to Japan.

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On May 15, 2018, the compensation committee approved new grants under the initial performance-based stock compensation plan, which was amended in connection with the launch of MUFG’s current medium-term business plan for the three-year period ending March 31, 2021. The trust period of the plan trust was extended until August 31, 2021, and the maximum amount of funds to be contributed to the plan trust was reset at ¥26.3 billion. The formula for determining adjustable points under the plan was also revised. In May 2018, the plan trust was funded with ¥9.6 billion in cash, and 13,049,600 shares of MUFG common stock were purchased by the trustee of the plan trust.

For more information on the Performance-based Stock Compensation Plans, see “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.”

Cash Bonuses

We from time to time pay cash bonuses to our directors and corporate executives to further motivate them to contribute to the improvement of our stock prices and profits if such bonuses are deemed appropriate based on a balanced scorecard approach taking into account the results of operations of the MUFG Group and each director’s or corporate executive’s individual performance of his or her duties as a director or corporate executive in light of both quantitative and qualitative criteria, including our medium-term strategy for improving our corporate value. None of the outside directors is eligible to receive a cash bonus. The compensation committee determines the cash bonus for each director and corporate executive based on our financial results and his or her job performance for the preceding fiscal year as well as his or her seniority and experience. The aggregate cash bonus paid to our directors and corporate executives for the fiscal year ended March 31, 2020 was ¥508 million.

Retirement Allowances

Prior to June 28, 2007, in accordance with customary Japanese practice, when a director or corporate auditor retired, a proposal to pay a retirement allowance was submitted at the annual ordinary general meeting of shareholders for approval. The retirement allowance consisted of a one-time payment of a portion of the allowance paid at the time of retirement and periodic payments of the remaining amount for a prescribed number of years. After the shareholders’ approval was obtained, the retirement allowance for a director or corporate auditor was fixed by the board of directors or by consultation among the corporate auditors in accordance with our internal regulations and practice and generally reflected the position of the director or corporate auditor at the time of retirement, the length of his service as a director or corporate auditor and his contribution to our performance. Historically, MUFG did not set aside reserves for any retirement payments for directors and corporate auditors made under this practice.

Pursuant to a one-time shareholders’ approval in June 2007, retirement allowances are paid in cash to the directors and corporate auditors who were elected prior to that date at the time of their retirement. A reserve in the total amount of such retirement allowances was set aside as of September 30, 2007. No retirement allowance was paid by MUFG and its subsidiaries pursuant to the one-time shareholder approval during the fiscal year ended March 31, 2020 to our directors (excluding outside directors), to corporate auditors (excluding outside corporate auditors) and to outside directors and corporate auditors, who have retired from their respective positions held at MUFG or, if such directors and corporate auditors concurrently held positions at MUFG’s subsidiaries, who have retired from such positions.

Stock-based Compensation Plans

Prior to 2016, as part of our compensation structure, we issued stock acquisition rights to further motivate our directors (excluding outside directors) and certain of our corporate auditors and officers to contribute to the improvement of our stock prices and profits. As of March 31, 2020, an aggregate of 1,669 stock acquisition rights, each representing a right to purchase 100 shares of MUFG common stock at ¥1 per share of common stock, under these previous stock-based compensation plans remained unexercised. All of them were waived as

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of April 1, 2020, and exchanged for points under the second performance-based stock compensation plan as of April 2, 2020.

MUFG Americas Holdings Corporation Stock Bonus Plan

Under the MUFG Americas Holdings Corporation Stock Bonus Plan, qualified key employees of MUFG Americas Holdings are granted Restricted Share Units, or RSUs, representing a right to receive American Depositary Receipts, or ADRs, evidencing ADSs, each exchangeable for one share of MUFG common stock, from an independent trust established to administer the plan grants, upon the satisfaction of vesting conditions, to be determined pursuant to the plan as well as a Restricted Share Unit Agreement between MUFG Americas Holdings and the grantees.

Unless otherwise provided in the relevant Restricted Share Unit Agreement, RSUs become vested and nonforfeitable as follows: one-third (33 1/3%) of a grantee’s RSUs vests on each one year anniversary of the date of the grant such that all of the RSUs become fully vested after three years from the grant date so long as the grantee satisfies the specified continuous service requirements and any other conditions under the applicable plan documents, subject to certain clawback and notice period provisions.

Under the plan, the grantees are entitled to “dividend equivalent credits” on their granted but unvested RSUs when MUFG pays dividends to its shareholders. The credit is equal to the dividends that the grantees would have received on the shares had the shares been issued to the grantees in exchange for their granted but unvested RSUs. Accumulated dividend equivalents are paid to grantees in whole shares on an annual basis. Any fractional share will be paid to the participants in cash.

Grants made under the plan are not entitled to any dividend rights, voting rights, or other stockholder rights unless and until RSUs are vested and ADSs are delivered to grantees.

The ADSs to be delivered to grantees will be purchased on the open market by the trustee of the independent trust pursuant to a trust agreement between MUFG Americas Holdings and the trustee. As of June 30, 2020, 108,220,888 RSUs have been granted under the plan, of which 43,554,160 RSUs were outstanding as of June 30, 2020.

For more information on the plan, see “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.”

Share Ownership

As of July 1, 2020, our directors and corporate executives held the following numbers of shares of our common stock:

Directors	Number of Shares Registered
Mariko Fujii		—
Keiko Honda		—
Kaoru Kato		—
Haruka Matsuyama		4,040
Toby S. Myerson		368	*
Hirofumi Nomoto		25,000
Yasushi Shingai		—
Tarisa Watanagase		—
Akira Yamate		—
Junichi Okamoto		182,892
Ritsuo Ogura		88,534

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Corporate Executives	Number of Shares Registered
Nobuyuki Hirano		82,141
Kanetsugu Mike		49,362
Saburo Araki		210,980
Iwao Nagashima		90,581
Hironori Kamezawa		25,539
Masamichi Yasuda		127,419
Kenji Yabuta		38,304
Naoki Hori		41,988
Masato Miyachi		7,259
Sunao Yokokawa		22,546
Takayoshi Futae		9,184
Masahiro Kuwahara		18,700
Yoshitaka Shiba		18,003
Tetsuya Yonehana		22,522
Naomi Hayashi		1,210
Junichi Hanzawa		39,900
Hiroki Kameda		45,283
Hiroshi Mori		1,485
Tomohiro Kimura		9,000
Masakazu Osawa		4,800

* Held in the form of ADRs.

None of the shares of our common stock held by our directors and corporate executives have voting rights that are different from shares of our common stock held by any other shareholder.

For information on the performance-based stock compensation for our directors and corporate executives, see “—Performance-based Stock Compensation Plans.”

C. Board Practices

Our articles of incorporation provide for a board of directors with statutorily mandated nominating and governance committee, audit committee and compensation committee, each consisting of members of the board of directors. We have also elected, though not statutorily mandated under the Companies Act of Japan, to establish a risk committee consisting of directors and external experts. In May 2016, we established a U.S. risk committee pursuant to the U.S. Enhanced Prudential Standards for foreign banking organizations. Our corporate executives are responsible for executing and managing our business operations based on a delegation of authority by the board of directors, and our directors set our key management policies and oversee the execution of duties by these corporate executives.

In June 2015, our shareholders approved an amendment to our articles of incorporation to adopt our current governance framework with a board of directors and board committees. We previously had a governance framework with a board of directors and a board of corporate auditors. The Companies Act permits three types of governance system for large companies such as MUFG: (1) a company with a nominating committee, an audit committee and a compensation committee, (2) a company with a board of corporate auditors, and (3) a company with an audit and supervisory committee. Our previous governance framework was based on the second system, and our newly adopted governance system is based on the first system.

With respect to companies adopting the first system, including MUFG, each of the nominating, audit and compensation committees must consist of members of the board of directors, and the majority of each committee must be outside directors as defined by the Companies Act. In addition, the board of directors must appoint corporate executives (shikkoyaku) to execute and manage the business operations of the company under the

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authority delegated by the board of directors. Based on this system, our current governance framework is designed to facilitate more flexible and swifter decision-making and increase transparency in our management processes.

An “outside director” is defined by the Companies Act as a person who meets all of the following conditions:

• the person is not currently, and has not been in the ten years prior to his or her assumption of office as outside director, an executive director, who is a director concurrently performing an executive role (gyomu shikko torishimariyaku), a corporate executive, a manager (shihainin), or any other type of employee of the company or any of its subsidiaries;

• if the person has been a non-executive director, a corporate auditor, or an accounting adviser (kaikei sanyo) of the company or any of its subsidiaries within the ten years prior to his or her assumption of office as outside director, the person was not an executive director, a corporate executive, a manager or any other type of employee of the company or any of its subsidiary in the ten years prior to his or her assumption of office as such;

• the person is not a director, a corporate executive officer, a manager or any other type of employee of the company’s parent company, or a person who controls the company;

• the person is not an executive director, a corporate executive officer, a manager or any other type of employee of another subsidiary of the company’s parent company; and

• the person is not the spouse or a family member within the second degree of kinship of a director, a corporate executive, a manager, or any other type of important employee of the company or a person who controls the company.

Board of Directors

Our board of directors consists of directors who are elected at a general meeting of shareholders. Under our articles of incorporation, the number of directors may not exceed 20. We currently have 16 directors, nine of whom are outside directors and two of whom are internal non-executive directors.

The regular term of office of a director is one year from the date of election, and directors may serve their terms until the close of the annual general meeting of shareholders held for the following year after their election. Directors may serve any number of consecutive terms.

Under the Companies Act, the board of directors has the authority to determine our basic management policy, make decisions on the execution and management of our business operations, and oversee the execution by the corporate executives of their duties. The board of directors may delegate, to the extent permitted by the Companies Act, the authority to make decisions on the execution and management of our business operations. Our board of directors has delegated most of this authority to the corporate executives.

The board of directors elects the Chairman and the Deputy Chairman from among its members and appoints key management members based on recommendations submitted to it by the nominating committee.

Under the Companies Act, a resolution of the board of directors is required if any director wishes to engage in any business that is in competition with us or any transaction with us. Additionally, no director may vote on a proposal, arrangement or contract in which that director is deemed to be particularly interested.

Neither the Companies Act nor our articles of incorporation contain special provisions as to the borrowing power exercisable by a director, the retirement age of our directors, or a requirement of our directors to hold any shares of our capital stock.

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Under the Companies Act and our articles of incorporation, we may exempt, by resolution of the board of directors, our directors from liabilities to MUFG arising in connection with their failure to execute their duties in good faith and without gross negligence within the limits stipulated by applicable laws and regulations. In addition, we have entered into a liability limitation agreement with each outside director and non-executive director which limits the maximum amount of their liability to MUFG arising in connection with a failure to execute their duties in good faith and without gross negligence to the greater of either ¥10 million or the aggregate sum of the amounts prescribed in Paragraph 1 of Article 425 of the Companies Act and Articles 113 and 114 of the Companies Act Enforcement Regulations.

None of our directors is party to a service contract with MUFG or any of its subsidiaries that provides for benefits upon end of their director term.

Nominating Committee

Our nominating committee, which we call the nominating and governance committee, determines the contents of proposals regarding the election and removal of director candidates to be submitted to general meetings of shareholders. The committee also considers and makes recommendations to the board of directors regarding the appointment and removal of the Chairman and the Deputy Chairman of the board of directors and the President & Group CEO of MUFG as well as the chairman and the deputy chairman of the board of directors, the president and others of each of our major subsidiaries. In addition, the committee discusses and makes recommendations to the board of directors on matters pertaining to our governance policy and framework.

Under the Companies Act, the nominating committee must consist of at least three directors, and the majority of its members must be outside directors. Our nominating and governance committee currently consists of five directors. The chairman of the committee is Hirofumi Nomoto, an outside director. The other members of this committee are Mariko Fujii, Kaoru Kato and Haruka Matsuyama, who are outside directors, and Hironori Kamezawa, Director, President & Group CEO. Between April 2019 and March 2020, the nominating and governance committee met 14 times.

Audit Committee

The audit committee determines the contents of proposals pertaining to the election, termination and non-appointment of our independent auditor to be submitted to general meetings of shareholders. The committee also monitors and audits the execution by the directors and the corporate executives of their duties and prepares audit reports to the board of directors. In order to effectively perform its duties, the committee reviews, inspects and investigates, as necessary, the management of the operations of MUFG and its subsidiaries, including financial reporting and internal controls. In addition, the committee has the power to consent to decisions on the compensation to be paid to our independent auditor.

Under the Companies Act, the audit committee must consist of at least three non-executive directors, and the majority of its members must be outside directors. Our committee currently has five members. The chairman of the committee is Akira Yamate, an outside director. The other members of the committee are Kaoru Kato and Yasushi Shingai, who are outside directors, and Junichi Okamoto and Ritsuo Ogura, who are non-executive directors. Between April 2019 and March 2020, the audit committee met 16 times.

Compensation Committee

The compensation committee establishes our policy regarding the determination of the compensation of MUFG’s directors, corporate executives, executive officers (shikko yakuin) and others and also determines the details of individual compensation based on the policy. The committee discusses and makes recommendations to the board of directors regarding the establishment, revision and abolition of compensation systems for the chairman, the deputy chairman, the president and others of each of our major subsidiaries.

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Under the Companies Act, the compensation committee must consist of at least three directors, and the majority of its members must be outside directors. Our compensation committee currently consist of five directors. The chairman of the committee is Haruka Matsuyama, an outside director. The other members of this committee are Mariko Fujii, Kaoru Kato and Hirofumi Nomoto, who are outside directors, and Hironori Kamezawa, Director, President & Group CEO. Between April 2019 and March 2020, the compensation committee met 8 times.

Risk Committee

In addition to the foregoing three committees, which are mandated by the Companies Act, we have a risk committee, which was initially established under our previous governance framework and which we continue to have under our current governance framework on a voluntary basis. The risk committee deliberates and makes recommendations to the board of directors on matters regarding group-wide risk management as well as top risk matters.

MUFG Corporate Governance Policies provide that the committee shall consist of directors and external experts. External experts are professionals with no prior employment relationship with any of the MUFG group companies. The committee currently has eight members. The chairperson of the committee is Mariko Fujii, an outside director. The other members of this committee are Toby S. Myerson, Yasushi Shingai and Tarisa Watanagase, who are outside directors, Naomi Hayashi, Managing Corporate Executive and Group CSO, and Shinichi Koide, Atsushi Miyanoya and Kazuhiko Ohashi, who are external experts. Between April 2019 and March 2020, the risk committee met four times.

U.S. Risk Committee

The U.S. risk committee oversees the risk management function for our combined U.S. operations. Its oversight role includes, but is not limited to, all roles and responsibilities required under the FRB’s final rules for Enhanced Prudential Standards for foreign banking organizations. The committee monitors liquidity and all other types of risk exposures, reviews the risk management policies and procedures, and oversees compliance with such policies and procedures for our combined U.S. operations. The committee is a subcommittee of the board of directors of MUFG, and reports and makes recommendations to MUFG’s board of directors and MUFG’s risk committee.

The members of the U.S. risk committee are appointed by MUFG’s board of directors after consideration of member candidates reviewed and recommended by MUFG’s risk committee and nominating and governance committee. The committee shall consist of members of the MUFG Americas Holdings Risk Committee, delegates from MUFG, the Chairman of the MUFG Americas Holdings Board and MUFG Americas Holdings’ CEO, with the chairperson of the committee being an outside director of MUFG Americas Holdings. The committee currently has eight members. The chairperson of the committee is Ann F. Jaedicke, an outside director of MUFG Americas Holdings. The other members of this committee are Dean A. Yoost, Suneel Kamlani, Toby Myerson and Roberta Bienfait, who are outside directors of MUFG Americas Holdings, Kazuo Koshi, the Chairman of the MUFG Americas Holdings Board, Masahiro Kuwahara, Senior Managing Corporate Executive and Group CRO of MUFG and Stephen Cummings, MUFG Americas Holdings’ CEO.

Corporate Executives

Our corporate executives are responsible for executing and managing our business operations within the scope of the authority delegated to them by the board of directors.

Under the Companies Act, at least one corporate executive must be appointed by a resolution of the board of directors. We currently have 20 corporate executives. Under our articles of incorporation, the board of directors shall appoint a president and a deputy president, who, as representative corporate executives, may represent us

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severally. The term of office of each corporate executive expires at the conclusion of the first meeting of the board of directors convened after the ordinary general meeting of shareholders for the last fiscal year that ends within one year following the corporate executive’s assumption of office.

Under the Companies Act, a resolution of the board of directors is required if any corporate executive wishes to engage in any business that is in competition with us or any transaction with us.

Under the Companies Act and our articles of incorporation, we may exempt, by resolution of the board of directors, our corporate executives from liabilities to MUFG arising in connection with their failure to execute their duties in good faith and without gross negligence within the limits stipulated by applicable laws and regulations. We, however, currently have no such arrangements with any of our corporate executives.

D. Employees

As of March 31, 2020, we had approximately 133,200 employees, an increase of approximately 20,500 employees compared with the number of employees as of March 31, 2019 primarily due to Bank Danamon becoming a consolidated subsidiary in April 2019. As of March 31, 2020, we had approximately 35,200 part-time and temporary employees. The following tables show the percentages of our employees across our different business units and in different locations as of March 31, 2020:

Business unit
MUFG Bank:
Retail & Commercial Banking Business Unit	17	%
Japanese Corporate & Investment Banking Business Unit	3
Global Corporate & Investment Banking Business Unit	2
Global Commercial Banking Business Unit	41
Global Markets Business Unit	1
Corporate Center/Corporate Staff	16
Mitsubishi UFJ Trust and Banking:
Trust-Banking	3
Trust Assets	4
Real Estate	1
Global Markets	0
Administration and subsidiaries	2
Mitsubishi UFJ Securities Holdings:
Retail & Commercial Banking Business Unit	3
Japanese Corporate & Investment Banking Business Unit	1
Global Corporate & Investment Banking Business Unit	0
Global Markets Business Unit	1
Corporate Center/Corporate Staff	1
Mitsubishi UFJ NICOS:
Business Marketing Division	1
Credit Risk Management & Risk Assets Administration Division	1
Operations Division	0
Systems & Systems Integration Division	0
Corporate Division	0
Others	0
Others	2
	100	%

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Location
MUFG Bank:
Japan	25	%
United States	10
Europe	1
Asia/Oceania excluding Japan	43
Other areas	1
Mitsubishi UFJ Trust and Banking:
Japan	8
United States	1
Europe	1
Asia/Oceania excluding Japan	0
Mitsubishi UFJ Securities Holdings:
Japan	5
United States	0
Europe	0
Asia/Oceania excluding Japan	0
Mitsubishi UFJ NICOS:
Japan	3
United States	0
Europe	0
Asia/Oceania excluding Japan	0
Others	2
	100	%

Most of our employees are members of an employees’ union, which negotiates on behalf of employees in relation to remuneration and working conditions. We believe our labor relations to be good.

E. Share Ownership

The information required by this item is set forth in “—B. Compensation.”

Item 7. Major Shareholders and Related Party Transactions.

A. Major Shareholders

Common Stock

As of March 31, 2020, we had 754,778 registered shareholders of our common stock. The ten largest holders of our common stock appearing on the register of shareholders as of March 31, 2020, and the number and the percentage of such shares held by each of them, were as follows:

Name	Number of shares held		Percentage of total shares in issue(2)
The Master Trust Bank of Japan, Ltd. (Trust account)(1)		882,084,400		6.49	%
Japan Trustee Services Bank, Ltd. (Trust account)(1)		681,642,700		5.01	%
SSBTC CLIENT OMNIBUS ACCOUNT		323,134,697		2.37	%
Japan Trustee Services Bank, Ltd. (Trust account 5)(1)		274,801,900		2.02	%
BNYM RE NORWEST/WELLS FARGO OMNIBUS		271,085,100		1.99	%
Japan Trustee Services Bank, Ltd. (Trust account 9)(1)		253,343,500		1.86	%
JP Morgan Chase Bank 385151		218,028,972		1.60	%
Government of Norway		199,031,525		1.46	%
Japan Trustee Services Bank, Ltd. (Trust account 7)(1)		187,972,500		1.38	%
State Street Bank West Client-Treaty 505234		182,289,491		1.34	%
Total		3,473,414,785		25.57	%

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Notes:

(1) Includes the shares held in trust accounts, which do not disclose the names of beneficiaries.

(2) Numbers are truncated after two decimal points.

(3) According to a beneficial ownership report on Schedule 13G filed with the SEC by BlackRock Inc. on February 5, 2020, BlackRock and its consolidated subsidiaries beneficially owned an aggregate of 5.7% of the outstanding shares of our common stock as of December 31, 2019. Other than as described in the table above, we have not independently confirmed this beneficial ownership information.

As of March 31, 2020, 1,600,189 shares, representing approximately 0.01% of our outstanding common stock, were held by our directors and corporate executives.

As of March 31, 2020, 1,950,974,214 shares, representing 14.36% of our outstanding common stock, were owned by 388 U.S. shareholders of record who are resident in the United States, one of whom is the ADR depository’s nominee holding 180,818,006 shares, or 1.33%, of our total issued shares of common stock.

Our major shareholders do not have different voting rights.

B. Related Party Transactions

As of March 31, 2020, we held approximately 23.9% of the voting rights in Morgan Stanley and Series C Preferred Stock with a face value of approximately $521.4 million and 10% dividend. We also have two representatives appointed to Morgan Stanley’s board of directors. We adopted the equity method of accounting for our investment in Morgan Stanley beginning with the fiscal year ended March 31, 2012. In April 2018, we entered into a sales plan with Morgan Stanley and Morgan Stanley & Co. LLC, pursuant to which we will sell portions of the shares of Morgan Stanley common stock that we hold to Morgan Stanley through Morgan Stanley & Co. LLC acting as agent for Morgan Stanley to the extent necessary to ensure that our beneficial ownership will remain below 24. 9%.

We and Morgan Stanley have two securities joint venture companies, namely, Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities, in Japan. We hold a 60% economic interest in Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities, and Morgan Stanley holds a 40% economic interest in Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities. We hold a 60% voting interest and Morgan Stanley holds a 40% voting interest in Mitsubishi UFJ Morgan Stanley Securities, and we hold a 49% voting interest and Morgan Stanley holds a 51% voting interest in Morgan Stanley MUFG Securities.

We and Morgan Stanley continue to pursue a variety of business opportunities in Japan and abroad in accordance with the global strategic alliance. For a detailed discussion of our global alliance with Morgan Stanley, see “Item 4.B. Information on the Company—Business Overview—Global Strategic Alliance with Morgan Stanley.”

We and our banking subsidiaries had, and expect to have in the future, banking transactions and other transactions in the ordinary course of business with our related parties. Although for the fiscal year ended March 31, 2020, such transactions included, but were not limited to, call money, loans, electronic data processing, leases and management of properties, those transactions were immaterial and were made at prevailing market rates, terms and conditions and do not involve more than the normal risk of collectability or present other unfavorable features.

None of our directors or corporate executives, nor any of the close members of their respective families, has had any transactions or has any presently proposed transactions that are material or any transactions that are unusual in their nature or conditions, involving goods, services or tangible or intangible assets, to which we were, are or will be a party.

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No loans have been made to our directors or corporate executives other than in the normal course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, involving no more than the normal risk of collectability and presenting no other unfavorable features. In addition, no loans have been made to our directors or corporate executives other than as permitted under Section 13(k) of the U.S. Securities Exchange Act and Rule 13k-1 promulgated thereunder.

No family relationship exists among any of our directors or corporate executives. No arrangement or understanding exists between any of our directors or corporate executives and any other person pursuant to which any director or corporate executive was elected to their position at MUFG.

As part of our compensation structure, we have granted performance-based stock compensation rights to our directors and corporate executives. For a detailed discussion of the stock acquisition rights, see “Item 6.B. Directors, Senior Management and Employees—Compensation.”

C. Interests of Experts and Counsel

Not applicable.

Item 8. Financial Information.

A. Consolidated Statements and Other Financial Information

The information required by this item is set forth in our consolidated financial statements starting on page F-1 of this Annual Report and in “Selected Statistical Data” starting on page A-1 of this Annual Report.

Pursuant to Rule 3-09 of Regulation S-X, the financial statements and supplementary data of Morgan Stanley, our equity method investee, as of December 31, 2018 and 2019 and for the fiscal years ended December 31, 2017, 2018 and 2019, are incorporated in this Annual Report as Exhibit 99(c) by reference to Morgan Stanley’s annual report on Form 10-K filed on February 27, 2020.

Legal Proceedings

From time to time, we are involved in various litigation matters and other legal proceedings, including regulatory actions. Although the final resolution of any such matters and proceedings could have a material effect on our consolidated operating results for a particular reporting period, based on our current knowledge and consultation with legal counsel, we believe the current litigation matters and other legal proceedings, when ultimately determined, will not materially affect our results of operations or financial position. For more information, see “Item 3.D. Key Information—Risk Factors—Operational Risk—We may become subject to regulatory actions or other legal proceedings relating to our transactions or other aspects of our operations, which could result in significant financial losses, restrictions on our operations and damage to our reputation.” and Note 26 to our consolidated financial statements included elsewhere in this Annual Report.

Distributions

Our board of directors submits a recommendation for a year-end dividend for our shareholders’ approval at the ordinary general meeting of shareholders customarily held in June of each year. The year-end dividend is usually distributed immediately following shareholders’ approval to holders of record at the end of the preceding fiscal year. In addition to year-end dividends, we may make cash distributions by way of interim dividends to shareholders of record as of September 30 of each year as distribution of surplus by resolution of our board of directors. Year-end dividends in the amount of ¥12.5 per share of our common stock (in addition to interim dividends of ¥12.5 per share of our common stock) for the fiscal year ended March 31, 2020 were approved by shareholders at the ordinary general meeting of shareholders held on June 29, 2020.

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See Exhibit 2(c) to this Annual Report for additional information on our dividends policy.

Under the Japanese foreign exchange regulations currently in effect, dividends paid on shares held by non-residents of Japan may be converted into any foreign currency and repatriated abroad. Under the terms of the deposit agreement pursuant to which ADSs are issued, the depositary is required, to the extent that in its judgment it can convert Japanese yen on a reasonable basis into U.S. dollars and transfer the resulting U.S. dollars to the United States, to convert all cash dividends that it receives in respect of deposited shares into U.S. dollars and to distribute the amount received, after deduction of any applicable withholding taxes, to the holders of ADSs. See “Item 10.D. Additional Information—Exchange Controls” and Exhibit 2(c) to this Annual Report.

B. Significant Changes

Other than as described in this Annual Report, no significant changes have occurred since the date of our consolidated financial statements included in this Annual Report.

Item 9. The Offer and Listing.

A. Offer and Listing Details

The principal market for our common stock is the Tokyo Stock Exchange in Japan. Our common stock is also listed on the Nagoya Stock Exchange in Japan. The listing code assigned to our common stock in Japan is 8306.

In the United States, ADSs, each representing one share of common stock, are quoted on the New York Stock Exchange under the symbol, “MUFG.”

B. Plan of Distribution

Not applicable.

C. Markets

The information required by this item is set forth in “—A. Offer and Listing Details.”

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

Item 10. Additional Information.

A. Share Capital

Not applicable.

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B. Memorandum and Articles of Association

Our Corporate Purpose

Article 2 of our Articles of Incorporation provides that our corporate purpose is to carry on the following businesses:

• administration of management of banks, trust banks, specialized securities companies, insurance companies or other companies which we may own as our subsidiaries under the Banking Law;

• any businesses incidental to the foregoing businesses mentioned in the preceding item; and

• any other businesses in which bank holding companies are permitted to engage under the Banking Law in addition to the foregoing businesses mentioned in the preceding two items.

Board of Directors

For discussion of the provisions of our Articles of Incorporation as they apply to our directors, see “Item 6.C. Directors, Senior Management and Employees—Board Practices.”

Common Stock

As of March 31, 2020, a total of 13,581,995,120 shares of common stock (including 741,772,308 shares of common stock held by us and our consolidated subsidiaries as treasury stock) had been issued. Each of the shares issued and outstanding was fully paid and non-assessable.

For a description of our common stock, see Exhibit 2(c) to this Annual Report.

Preferred Stock

We currently have no shares of preferred stock issued.

For a description of preferred stock we are authorized to issue under our Articles of Incorporation, see Exhibit 2(c) to this Annual Report.

C. Material Contracts

Except as described elsewhere in this Annual Report, all material contracts entered into by us in the past two years preceding the filing of this Annual Report were entered into in the ordinary course of business.

D. Exchange Controls

Foreign Exchange and Foreign Trade Law

The Foreign Exchange and Foreign Trade Law of Japan and the cabinet orders and ministerial ordinances incidental thereto, collectively known as the Foreign Exchange Law, set forth, among other matters, regulations relating to the receipt by non-residents of Japan of payment with respect to shares to be issued by us and the acquisition and holding of shares by non-residents of Japan and foreign investors, both as defined below. It also applies in some cases to the acquisition and holding of ADSs representing such shares acquired and held by non-residents of Japan and foreign investors.

“Non-residents of Japan” are defined as individuals who are not resident in Japan and corporations whose principal offices are located outside Japan. Generally, the branches and offices of non-resident corporations which are located in Japan are regarded as residents of Japan while the branches and offices of Japanese corporations located outside Japan are regarded as non-residents of Japan.

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“Foreign investors” are defined as:

• natural persons who are non-resident of Japan;

• corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan;

• corporations of which 50% or more of the shares are directly or indirectly held by individuals not resident of Japan and corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan;

• (A) partnerships 50% or more of whose contributions are made by (1) natural persons who are non-residents of Japan, (2) corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan, (3) corporations of which 50% or more of the shares are directly or indirectly held by individuals not resident of Japan and corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan, (4) corporations, a majority of the officers (or a majority of the officers having the power to represent the corporation) of which are non-resident individuals, or (5) other partnerships a majority of whose operating partners fall under any of (1) through (4), or (B) partnerships a majority of whose operating partners are (i) any of (1) through (5) above, (ii) other partnerships 50% or more of whose contributions are made by non-residents of Japan or partnerships that are any of (1) through (5) above, or (iii) certain limited liability partnerships under the Limited Liability Partnership Act; and

• corporations, a majority of officers (or a majority of officers having the power of representation) of which are non-resident individuals.

Dividends and Proceeds of Sales

Under the Foreign Exchange Law, dividends paid on, and the proceeds of sales in Japan of, shares held by non-residents of Japan may in general be converted into any foreign currency and repatriated abroad. The acquisition of our shares by non-residents of Japan by way of a stock split is not subject to any notification or reporting requirements.

Acquisition of Shares

In general, a non-resident of Japan who acquires shares from a resident of Japan is not subject to any prior filing requirement, although the Foreign Exchange Law empowers the Minister of Finance of Japan to require a prior approval for any such acquisition in certain limited circumstances.

If a foreign investor acquires our shares, and, together with parties who have a special relationship with that foreign investor, holds ten percent or more of our issued shares as a result of such acquisition, the foreign investor must file a report of such acquisition with the Minister of Finance and any other competent Minister within 45 days from such acquisition. Further, an amendment to the Foreign Exchange Law which took effect on May 8, 2020, introduced a similar reporting requirement where a foreign investor acquires the right to instruct voting on shares through acquisition of ADSs or otherwise and holds, together with parties who have a special relationship with that foreign investor, the right to instruct voting on shares representing ten percent or more of the voting rights in us. In certain limited circumstances, however, a prior notification of such acquisition must be filed with the Minister of Finance and any other competent Minister, who may modify or prohibit the proposed acquisition.

Deposit and Withdrawal under American Depositary Facility

The deposit of shares with us, in our capacity as custodian and agent for the depositary, in Tokyo, the issuance of ADSs by the depositary to a non-resident of Japan in respect of the deposit and the withdrawal of the

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underlying shares upon the surrender of the ADSs are not subject to any of the formalities or restrictions referred to above. However, where as a result of a deposit or withdrawal the aggregate number of shares held by the depositary, including shares deposited with us as custodian for the depositary, or the holder surrendering ADSs, as the case may be, would be 10% or more of the total outstanding shares, a report will be required, and in specified circumstances, a prior notification may be required, as noted above.

Reporting of Substantial Shareholdings

The Financial Instruments and Exchange Act of Japan requires any person who has become, beneficially and solely or jointly, a holder of more than 5% of the total issued shares of capital stock of a company listed on any Japanese financial instruments exchange or whose shares are traded on the over-the-counter market in Japan to file with the director of a competent finance bureau within five business days a report concerning such shareholdings.

A similar report must also be filed in respect of any subsequent change of 1% or more in any such holding ratio or any change in material matters set out in reports previously filed, with certain exceptions. For this purpose, shares issuable to such person upon exchange of exchangeable securities, conversion of convertible securities or exercise of share subscription warrants or stock acquisition rights (including those incorporated in bonds with stock acquisition rights) are taken into account in determining both the number of shares held by such holder and the issuer’s total issued shares of capital stock.

E. Taxation

Japanese Taxation

The following sets forth the material Japanese tax consequences to owners of shares of our common stock or ADSs who are non-resident individuals or non-Japanese corporations without a permanent establishment in Japan to which the relevant income is attributable, which we refer to as “non-resident holders” in this section. The statements regarding Japanese tax laws below are based on the laws in force and as interpreted by the Japanese taxation authorities as at the date of this Annual Report and are subject to changes in the applicable Japanese laws, double taxation treaties, conventions or agreements or interpretations thereof occurring after that date. This summary is not exhaustive of all possible tax considerations that may apply to a particular investor, and potential investors are advised to satisfy themselves as to the overall tax consequences of the acquisition, ownership and disposition of shares of our common stock or ADSs, including specifically the tax consequences under Japanese law, the laws of the jurisdiction of which they are resident and any tax treaty between Japan and their country of residence, by consulting their own tax advisers.

For the purpose of Japanese tax law and the Convention between the Government of the United States of America and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, or the Tax Convention, a U.S. holder of ADSs will be treated as the owner of the shares of our common stock underlying the ADSs evidenced by the ADRs.

Generally, a non-resident holder of shares of our common stock or ADSs is subject to Japanese withholding tax on dividends paid by us. In the absence of any applicable tax treaty, convention or agreement reducing the rate of withholding tax, the rate of Japanese withholding tax applicable to dividends paid by us to non-resident holders is (i) 15.315% for dividends to be paid on or before December 31, 2037 and (ii) 15% for dividends to be paid thereafter, except for dividends paid to any individual non-resident holder who holds 3% or more of our issued shares for which the applicable rate is (a) 20.42% for dividends to be paid on or before December 31, 2037 and (b) 20% for dividends to be paid thereafter, pursuant to Japanese tax law.

The Tax Convention establishes the maximum rate of Japanese withholding tax which may be imposed on dividends paid to a U.S. resident not having a permanent establishment in Japan. Under the Tax Convention, the

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maximum withholding rate for U.S. holders (as defined below) is generally set at 10% of the gross amount distributed. However, the maximum rate is 5% of the gross amount distributed if the recipient is a corporation and owns directly or indirectly, on the date on which entitlement to the dividends is determined, at least 10% of the voting shares of the paying corporation. Furthermore, the amount distributed shall not be taxed if the recipient is (i) a pension fund which is a U.S. resident, provided that such dividends are not derived from the carrying on of a business, directly or indirectly, by such pension fund or (ii) a company with a 50% or more interest in the paying company and satisfies certain other requirements. U.S. holders (as defined below) are urged to consult their own tax advisors with respect to their eligibility for benefits under the Tax Convention.

Japanese tax law provides in general that if the Japanese statutory rate is lower than the maximum rate applicable under tax treaties, conventions or agreements, the Japanese statutory rate as stated above shall be applicable.

Non-resident holders of shares who are entitled to a reduced rate of Japanese withholding tax on payments of dividends on the shares of our common stock or ADSs by us are required to submit an Application Form for the Income Tax Convention regarding Relief from Japanese Income Tax on Dividends, or an Application Form for the Income Tax Convention, in advance through a paying handling agent to the relevant tax authority before the payment of dividends. A standing proxy for non-resident holders may provide this application service for the non-resident holders. In this regard, a certain simplified special filing procedure is available for non-resident holders to claim treaty benefits of exemption from or reduction of Japanese withholding tax with respect to dividends to be paid on or after January 1, 2014, by submitting a Special Application Form for Income Tax Convention regarding Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Dividends of Listed Stocks (together with any other required forms and documents). With respect to ADSs, this reduced rate or exemption will be applicable to non-resident holders of ADSs if the depositary or its agent submits two Application Forms (one before payment of dividends and the other within eight months after the record date concerning such payment of dividends), together with certain other documents. To claim this reduced rate or exemption, non-resident holders of ADSs will be required to file a proof of taxpayer status, residence and beneficial ownership, as applicable, and to provide other information or documents as may be required by the depositary. Non-resident holders who are entitled, under any applicable tax treaty, to a reduced rate of Japanese withholding tax below the rate otherwise applicable under Japanese tax law, or exemption therefrom, as the case may be, but fail to submit the required application in advance may nevertheless be entitled to claim a refund from the relevant Japanese tax authority of withholding taxes withheld in excess of the rate under an applicable tax treaty (if such non-resident holders are entitled to a reduced treaty rate under the applicable tax treaty) or the full amount of tax withheld (if such non-resident holders are entitled to an exemption under the applicable tax treaty), as the case may be, by complying with a certain subsequent filing procedure. We do not assume any responsibility to ensure withholding at the reduced rate, or an exemption therefrom, for non-resident holders who would be so eligible under an applicable tax treaty but where the required procedures as stated above are not followed.

Gains derived from the sale or other disposition of shares of our common stock or ADSs by a non-resident holder are not, in general, subject to Japanese income or corporation taxes or other Japanese taxes.

Any deposits or withdrawals of shares of our common stock by a non-resident holder in exchange for ADSs are not subject to Japanese income or corporation tax.

Japanese inheritance and gift taxes, at progressive rates, may be payable by an individual who has acquired shares of our common stock or ADSs as legatee, heir or donee, even if none of the individual, the decedent or the donor is a Japanese resident.

U.S. Taxation

The following sets forth the material U.S. federal income tax consequences of the ownership of shares and ADSs by a U.S. holder, as defined below. This summary is based on U.S. federal income tax laws, including the

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U.S. Internal Revenue Code of 1986, or the Code, its legislative history, existing and proposed Treasury regulations thereunder, published rulings and court decisions, and the Tax Convention (as defined above), all of which are subject to change, possibly with retroactive effect.

The following summary is not a complete analysis or description of all potential U.S. federal income tax consequences to a particular U.S. holder. It does not address all U.S. federal income tax considerations that may be relevant to all categories of potential purchasers, certain of which (such as banks or other financial institutions, insurance companies, dealers in securities, tax-exempt entities, non-U.S. persons, persons holding a share or an ADS as part of a “straddle,” “hedge,” conversion or integrated transaction, holders whose “functional currency” is not the U.S. dollar, holders liable for alternative minimum tax, holders required to report income no later than when such income is reported on an “applicable financial statement,” and holders of 10% or more of our shares by vote or value) are subject to special tax treatment. This summary does not address any foreign, state, local or other tax consequences of investments in our shares or ADSs.

This summary addresses only shares or ADSs that are held as capital assets within the meaning of Section 1221 of the Code.

As used herein, a “U.S. holder” is a beneficial owner of shares or ADSs, as the case may be, that is:

• a citizen or resident of the United States as determined for U.S. federal income tax purposes;

• a corporation or other entity taxable as a corporation created or organized under the laws of the United States, any state thereof or the District of Columbia;

• an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

• a trust

• the administration of which is subject to (1) the supervision of a court within the United States and (2) the control of one or more U.S. persons as described in Section 7701(a)(30) of the Code; or

• that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

If a partnership holds shares or ADSs, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding shares or ADSs, you should consult your tax advisor.

We urge U.S. holders to consult their own tax advisors concerning the U.S. federal, state and local and other tax consequences to them of the purchase, ownership and disposition of shares or ADSs.

This summary is based in part on the assumption that each obligation under the deposit agreement and any related agreement will be performed in accordance with its respective terms. Subject to the discussion in the next paragraph, for U.S. federal income tax purposes, holders of ADSs will be treated as the owners of the shares represented by the ADSs. Accordingly, withdrawals or deposits of shares in exchange for ADSs generally will not be subject to U.S. federal income tax.

The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying shares (for example, pre-releasing ADSs to persons who do not have beneficial ownership of the securities underlying the ADSs). Accordingly, the discussion on the creditability of Japanese taxes and the availability of the reduced rate of tax for dividends received by certain non-corporate U.S. holders, each as described below, could be affected by actions taken by intermediaries in the chain of ownership between the holder of ADSs and us if, as a result of such actions, the holders of ADSs are not properly treated as beneficial owners of the underlying shares. We are not aware of any intention to take any such actions, and accordingly, the remainder of this discussion assumes that holders of ADSs will be properly treated as beneficial owners of the underlying shares.

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Special adverse U.S. federal income tax rules apply if a U.S. holder holds shares or ADSs of a company that is treated as a “passive foreign investment company” (a “PFIC”) for any taxable year during which the U.S. holder held shares or ADSs, as discussed in more detail below. U.S. holders should consult their own tax advisors as to the potential application of the PFIC rules to their ownership and disposition of shares or ADSs.

Taxation of Dividends

Subject to the application of the PFIC rules discussed below, U.S. holders will include the gross amount of any distribution received with respect to shares or ADSs (before reduction for Japanese withholding taxes), to the extent paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes), as ordinary income in their gross income. As discussed below, for certain U.S. holders, dividends may be eligible for a reduced rate of taxation. The amount of distribution of property other than cash will be the fair market value of such property on the date of the distribution. Dividends received by a U.S. holder will not be eligible for the “dividends-received deduction” allowed to U.S. corporations in respect of dividends received from other U.S. corporations. To the extent that an amount received by a U.S. holder exceeds such holder’s allocable share of our current earnings and profits, such excess will be applied first to reduce such holder’s tax basis in its shares or ADSs, thereby increasing the amount of gain or decreasing the amount of loss recognized on a subsequent disposition of the shares or ADSs. Then, to the extent such distribution exceeds such U.S. holder’s tax basis, such excess will be treated as capital gain. However, we do not maintain calculations of our earnings and profits in accordance with U.S. federal income tax principles, and U.S. holders should therefore assume that any distribution by us with respect to shares or ADSs will constitute ordinary dividend income. The amount of the dividend will be the U.S. dollar value of the Japanese yen payments received. This value will be determined at the spot Japanese yen/U.S. dollar rate on the date the dividend is received by the depositary in the case of U.S. holders of ADSs, or by the shareholder in the case of U.S. holders of shares, regardless of whether the dividend payment is in fact converted into U.S. dollars at that time. If the Japanese yen received as a dividend are not converted into U.S. dollars on the date of receipt, a U.S. holder will have basis in such Japanese yen equal to their U.S. dollar value on the date of receipt, and any foreign currency gains or losses resulting from the conversion of the Japanese yen will generally be treated as U.S. source ordinary income or loss. If the Japanese yen received as a dividend are converted into U.S. dollars on the date of receipt, a U.S. holder will generally not be required to recognize foreign currency gain or loss in respect of the dividend income.

If a U.S. holder is eligible for benefits under the Tax Convention, the holder may be able to claim a reduced rate of Japanese withholding tax. All U.S. holders should consult their tax advisors about their eligibility for reduction of Japanese withholding tax. A U.S. holder may claim a deduction or a foreign tax credit, subject to other applicable limitations, only for tax withheld at the appropriate rate. A U.S. holder would be allowed a foreign tax credit for withholding tax for any portion of the tax that could have been avoided by claiming benefits under the Tax Convention. For foreign tax credit limitation purposes, the dividend will be income from sources outside the United States. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends we pay will constitute “passive income” or, in the case of certain U.S. holders, “financial services income.” The rules governing U.S. foreign tax credits are very complex and U.S. holders should consult their tax advisors regarding the availability of foreign tax credits under their particular circumstances.

Subject to applicable exceptions with respect to short-term and hedged positions, qualified dividends received by non-corporate U.S. holders from a qualified corporation may be eligible for reduced rates of taxation. Qualified corporations include those foreign corporations eligible for the benefits of a comprehensive income tax treaty with the United States that the U.S. Treasury Department determines to be satisfactory for these purposes and that includes an exchange of information provision. The Tax Convention meets these requirements. Subject to the PFIC discussion below, we believe that we are a qualified foreign corporation and that dividends received by U.S. investors with respect to our shares or ADSs will be qualified dividends. Dividends received by U.S. investors from a foreign corporation that was a PFIC in either the taxable year of the distribution or the preceding taxable year are not qualified dividends.

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Passive Foreign Investment Company Considerations

Special adverse U.S. federal income tax rules apply if a U.S. holder holds shares or ADSs of a company that is treated as a PFIC, for any taxable year during which the U.S. holder held shares or ADSs. A foreign corporation will be considered a PFIC for any taxable year in which (i) 75% or more of its gross income is passive income (the “income test”), or (ii) 50% or more of the average fair market value of its assets (determined quarterly) is attributable to assets that produce or are held for the production of passive income (the “asset test”). For this purpose, passive income generally includes dividends, interest, royalties, rents and certain gains from the sale of stock and securities. If a foreign corporation owns at least 25% (by value) of the stock of another corporation, the corporation will be treated, for purposes of the PFIC tests, as owning a proportionate share of the other corporation’s assets and receiving its proportionate share of the other corporation’s income. The determination of whether a foreign corporation is a PFIC is made annually.

Proposed Treasury regulations and an earlier IRS notice would convert what would otherwise be passive income into non-passive income when such income is banking income earned by an active bank. The proposed Treasury regulations and IRS notice have different requirements for qualifying as an active bank, and for determining the banking income that may be excluded from passive income under this special rule for active banks. Moreover, the proposed Treasury regulations have been outstanding since 1994 and will not be effective unless finalized. Because final regulations have not been issued, the definition of banking income for purposes of the active bank exception is unclear under both the proposed Treasury regulations and the notice. Based upon certain management estimates and assumptions, we do not believe that we were a PFIC for the year ended March 31, 2020. The determination of whether we are a PFIC must be made annually and involves a fact-intensive analysis based upon, among other things, the composition of our income and assets and the value of our assets from time to time. It is possible that we may become a PFIC in the fiscal year ending March 31, 2021 or any future taxable year due to changes in our income or asset composition and the expiration of the temporary IRS guidance described above. In addition, a decrease in the price of our shares may also result in our becoming a PFIC. Furthermore, there can be no assurance that the above-described proposed Treasury regulations will be finalized in their current form. Moreover, the application of the proposed Treasury regulations is not clear. If we were classified as a PFIC in any year during which a U.S. holder owns shares or ADSs and the U.S. holder does not make a “mark-to-market” election, as discussed below, we generally would continue to be treated as a PFIC as to such U.S. holder in all succeeding years, regardless of whether we continue to meet the income or asset test discussed above. U.S. Holders are urged to consult their own tax advisors with respect to the tax consequences to them if we were to become a PFIC for any taxable year in which they own our shares or ADSs.

If we were classified as a PFIC for any taxable year during which a U.S. holder holds our shares or ADSs, the U.S. holder would generally not receive capital gains treatment upon the sale of the shares or ADSs and would be subject to increased tax liability (generally including an interest charge) upon the sale or other disposition of the shares or ADSs or upon the receipt of certain distributions treated as “excess distributions,” unless the U.S. holder makes the mark-to-market election described below. An excess distribution generally would be any distribution to a U.S. holder with respect to shares or ADSs during a single taxable year that is greater than 125% of the average annual distributions received by a U.S. holder with respect to shares or ADSs during the three preceding taxable years or, if shorter, during the U.S. holder’s holding period for the shares or ADSs.

Mark-to-Market Election.    If the shares or ADSs are regularly traded on a registered national securities exchange or certain other exchanges or markets, then such shares or ADSs would constitute “marketable stock” for purposes of the PFIC rules, and a U.S. holder would not be subject to the foregoing PFIC rules if such holder made a mark-to-market election. After making such an election, the U.S. holder generally would include as ordinary income each year during which the election is in effect and during which we are a PFIC the excess, if any, of the fair market value of our shares or ADSs at the end of the taxable year over such holder’s adjusted basis in such shares or ADSs. These amounts of ordinary income would not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. A U.S. holder also would be allowed to take

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an ordinary loss in respect of the excess, if any, of the holder’s adjusted basis in our shares or ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of income that was previously included as a result of the mark-to-market election). A U.S. holder’s tax basis in our shares or ADSs would be adjusted to reflect any income or loss amounts resulting from a mark-to-market election. If made, a mark-to-market election would be effective for the taxable year for which the election was made and for all subsequent taxable years unless the shares or ADSs cease to qualify as “marketable stock” for purposes of the PFIC rules or the IRS consented to the revocation of the election. In the event that we are classified as a PFIC, U.S. holders are urged to consult their tax advisors regarding the availability of the mark-to-market election, and whether the election would be advisable in the holder’s particular circumstances.

QEF Election.    The PFIC rules outlined above also would not apply to a U.S. holder if such holder alternatively elected to treat us as a “qualified electing fund” or “QEF.” An election to treat us as a QEF will not be available, however, if we do not provide the information necessary to make such an election. We will not provide U.S. holders with the information necessary to make a QEF election, and thus, the QEF election will not be available with respect to our shares.

Notwithstanding any election made with respect to our shares, dividends received with respect to our shares will not constitute “qualified dividend income” if we are a PFIC in either the year of the distribution or the preceding taxable year. Dividends that do not constitute qualified dividend income are not eligible for taxation at the reduced tax rate described above in “—Taxation of Dividends.” Instead, such dividends would be subject to tax at ordinary income rates.

If a U.S. holder owns shares or ADSs during any year in which we are a PFIC, the U.S. holder must also file IRS Form 8621 regarding distributions received on the shares or ADSs, any gain realized on the shares or ADSs, and any “reportable election” in accordance with the instructions to such form. In addition, each U.S. holder is required to file a separate IRS Form 8621 if such U.S. holder owns shares or ADSs during any year in which we are a PFIC whether or not such U.S. holder received distributions on the shares or ADSs, realized a gain on the shares or ADSs or made a “reportable election” during such year. U.S. holders are urged to consult their own tax advisors concerning the U.S. federal income tax consequences of holding shares or ADSs if the Company were considered a PFIC in any taxable year.

Taxation of Capital Gains

Subject to the application of the PFIC rules discussed above, upon a sale or other disposition of shares or ADSs, a U.S. holder will recognize a gain or loss in an amount equal to the difference between the U.S. dollar value of the amount realized and the U.S. holder’s tax basis, determined in U.S. dollars, in such shares or ADSs. Such gains or losses will be capital gains or losses and will be long-term capital gains or losses if the U.S. holder’s holding period for such shares or ADSs exceeds one year. Long-term capital gains of non-corporate U.S. holders (including individuals) are generally eligible for reduced rates of taxation. A U.S. holder’s adjusted tax basis in its shares or ADSs will generally be the cost to the holder of such shares or ADSs. Any such gains or losses realized by a U.S. holder upon disposal of the shares or ADSs will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. The deductibility of capital losses is subject to limitations under the Code.

Information Reporting and Backup Withholding

Dividends paid on shares or ADSs to a U.S. holder, or proceeds from a U.S. holder’s sale or other disposition of shares or ADSs, may be subject to information reporting requirements. Those dividends or proceeds from sale or disposition may also be subject to backup withholding unless the U.S. holder:

• is a corporation or other exempt recipient, and, when required, demonstrates this fact; or

• provides a correct taxpayer identification number on a properly completed U.S. IRS Form W-9 or other appropriate form which certifies that the U.S. holder is not subject to backup withholding and otherwise complies with applicable requirements of the backup withholding rules.

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Backup withholding is not an additional tax. Any amount withheld under these rules will be creditable against the U.S. holder’s U.S. federal income tax liability or refundable to the extent that it exceeds such liability if the U.S. holder provides the required information to the IRS. If a U.S. holder is required to and does not provide a correct taxpayer identification number, the U.S. holder may be subject to penalties imposed by the IRS. All holders should consult their tax advisors as to their qualification for the exemption from backup withholding and the procedure for obtaining an exemption.

In addition, certain U.S. holders who are individuals that hold certain foreign financial assets (which may include our shares or ADSs) are required to report information relating to such assets, subject to certain exceptions. U.S. holders should consult their tax advisors regarding the effect, if any, of this requirement on their ownership and disposition of our shares and ADSs.

Additional Tax on Investment Income

U.S. holders that are individuals, estates or trusts and whose income exceeds certain thresholds will be subject to an additional 3.8% tax on unearned income, including, among other things, dividends on, and capital gains from the sale or other taxable disposition of, shares or ADSs, subject to certain limitations and exceptions.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We file periodic reports and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. The SEC maintains a web site (http://www.sec.gov) that contains periodic reports and other information regarding registrants, including us, electronically filed with the SEC. Except otherwise specified in this Annual Report, no information is incorporated by reference in this Annual Report (including, without limitation, information on our website at https://www.mufg.jp/).

I. Subsidiary Information

Please refer to the discussion under “Item 4.C. Information on the Company—Organizational Structure.”

Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk.

In the current market and regulatory environment, financial groups such as us are expected to ensure increasingly more sophisticated and comprehensive risk management. Risk management plays an increasingly important role in our operations as a financial group operating globally through various subsidiaries.

We identify various risks arising from businesses based on group-wide uniform criteria and implement integrated risk management to ensure a stronger financial condition and to maximize shareholder value. Based on this approach, we identify, measure, control and monitor a wide variety of risks so as to achieve a stable balance between earnings and risks. We undertake risk management to create an appropriate capital structure and to achieve optimal allocation of resources. However, our risk management measures may not be fully effective in identifying all risks or mitigating the impact of any materialized risk on us.

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Risk Classification

At the holding company level, we broadly classify and define risk categories faced by the Group, including those that are summarized below. Group companies perform more detailed risk management based on their respective operations.

Type of Risk	Definition
Credit Risk	The risk of financial loss in credit assets (including off-balance sheet instruments) caused by deterioration in the credit conditions of counterparties. This category includes country risk.
Market Risk	The risk of financial loss where the value of our assets and liabilities could be adversely affected by changes in market variables such as interest rates, securities prices and foreign exchange rates. Market liquidity risk is the risk of financial loss caused by the inability to secure market transactions at the required volume or price levels as a result of market turbulence or lack of trading liquidity.
Funding Liquidity Risk	The risk of incurring loss if a poor financial position at a group company hampers the ability to meet funding requirements or necessitates fund procurement at interest rates markedly higher than normal.
Operational Risk	The risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events.
•Operations Risk	The risk of incurring losses arising from negligence of correct operational processing, incidents or misconduct involving officers or staff, as well as risks similar to this risk.
•Information Risk	The risk of loss caused by loss, alteration, falsification or leakage of personal or other confidential information, as well as risks similar to these risks.
•IT Risk	The risk of loss arising from destruction, suspension, malfunction or misuse of IT, or unauthorized alteration and leakage of electronic data caused by insufficient IT systems planning, development or operations or by vulnerabilities of or external threats to IT system security, including cybersecurity, as well as risks similar to these risks.
•Tangible Asset Risk	The risk of loss due to damage to tangible assets or deterioration in the operational environment caused by disasters or inadequate asset maintenance, as well as risks similar to this risk. Tangible assets include movable and immovable property, including owned or leased land and buildings, facilities incidental to buildings, and fixtures and fittings.
•Personnel Risk	The risk of loss due to an outflow or loss of human resources or deterioration in employee morale, as well as risks similar to this risk.
•Incompliance with Laws and Regulations Risk	The risk of loss due to failure to comply with laws and regulations, as well as risks similar to these risks.
•Legal Risk	The risk of a loss due to failure to identify or address legal issues relating to contracts and other business operations or insufficient handling of lawsuits, as well as risks similar to these risks.
Reputation Risk	The risk of harm to our corporate value arising from perceptions of our customers, shareholders, investors or other stakeholders and in the market or society that we deviate from their expectations or confidence.
Model Risk	The risk of loss due to decision-making based on information provided by an inaccurate model or the misuse of a model.

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Risk Management System

We have adopted an integrated risk management system to promote close cooperation among the holding company and group companies. The holding company and the major subsidiaries (which are MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities Holdings) each appoint a chief risk officer and establish an independent risk management division. The board of directors of the holding company determines risk management policies for various types of risks based on the discussions at, and reports and recommendations from, committees established specially for risk management purposes. The holding company has established committees to oversee management in managing risks relevant to the Group. Following the fundamental risk management policies determined by the board of directors, each group company establishes its own systems and procedures for identifying, analyzing and managing various types of risks from both quantitative and qualitative perspectives. The holding company seeks to enhance group-wide risk identification, to integrate and improve the Group’s risk management system and related methods, to maintain asset quality, and to eliminate concentrations of specific risks.

The following diagram summarizes our integrated risk management framework:

Risk Management System

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Crisis Management Framework

In order to have a clear critical response rationale and associated decision-making criteria, we have developed systems designed to ensure that our operations are not interrupted or can be restored to normal quickly in the event of a crisis such as a natural disaster, a pandemic of an infectious diseases or system failure so as to minimize any disruption to customers and markets. A crisis management team within the holding company is the central coordinating body in the event of any emergency. Based on information collected from crisis management personnel at the major subsidiaries, this central body would assess the overall impact of a crisis on the Group’s business and establish task forces that could implement all countermeasures to restore full operations. We have business continuity plans to maintain continuous operational viability in the event of natural disasters, system failures and other types of emergencies. Regular training drills are conducted to upgrade the practical effectiveness of these systems. In addition, in an effort to effectively deal with the COVID-19 pandemic, we have established a Group Crisis Event Control Headquarter to deliberate, formulate and implement basic policies and countermeasures designed to ensure that our business operations are properly maintained and we remain well positioned to respond to the needs of our customers.

Recognizing that our operations, particularly in Japan, are subject to the risk of earthquakes and other natural disasters as well as accidents resulting from such disasters, including a sudden massive blackout in major metropolitan areas in Japan, and that our contingency plans may not address all eventualities that may occur in the event of a material disruption to our operations, we conduct a comprehensive review of our existing business continuity plan to more effectively respond to such extreme scenarios, and contemplate and implement measures to augment our current business continuity management framework, including enhancing our off-site back-up data storage and other information technology systems.

Implementation of Basel Standards

In determining capital ratios under the FSA guidelines implementing Basel III, we and our major banking subsidiaries used the Advanced Internal Ratings-Based approach, or the AIRB approach, to calculate capital requirements for credit risk as of March 31, 2020. The Standardized Approach is used for some subsidiaries that are considered to be immaterial to the overall MUFG capital requirements, and MUFG Americas Holdings has adopted a phased rollout of the Internal Ratings-Based Approach. We reflect market risk in our risk-weighted assets by applying the Internal Models Approach to calculate general market risk and the Standardized Measurement Method to calculate specific risk. Under the Internal Models Approach, we principally use a historical simulation model to calculate value-at-risk, or VaR, amounts by estimating the profit and loss on our portfolio by applying actual fluctuations in historical market rates and prices over a fixed period. Under the FSA guidelines implementing Basel III, we reflect operational risk in our risk-weighted assets by using the Standardized Approach and the Advanced Measurement Approach.

Based on the Basel III framework, the Japanese capital ratio framework has been revised to implement the more stringent requirements, which are being implemented in phases beginning on March 31, 2013. Likewise, local banking regulators outside of Japan, such as those in the United States, have begun, or are expected, to revise the capital and liquidity requirements imposed on our subsidiaries and operations in those countries to implement the more stringent requirements of Basel III as adopted in those countries. We intend to carefully monitor further developments with an aim to enhance our corporate value and maximize shareholder value by integrating the various strengths within the Group. For more information on the Basel regulatory framework and requirements, see “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation.”

Credit Risk Management

Credit risk is the risk of losses due to deterioration in the financial condition of a borrower. We have established risk management systems to maintain asset quality, manage credit risk exposure and achieve earnings commensurate with risk.

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MUFG and its major banking subsidiaries apply a uniform credit rating system for asset evaluation and assessment, loan pricing, and quantitative measurement of credit risk. This system also underpins the calculation of capital requirements and the management of credit portfolios. We continually seek to upgrade our credit portfolio management, or CPM, expertise to achieve an improved risk-adjusted return based on the Group’s credit portfolio status and flexible response capability to economic and other external changes.

Credit Risk Management System

The credit portfolios of our major banking subsidiaries (which are MUFG Bank and Mitsubishi UFJ Trust and Banking) are monitored and assessed on a regular basis by the holding company to maintain and improve asset quality. A uniform credit rating and asset evaluation and assessment system is used to ensure timely and proper evaluation of all credit risks. Under our credit risk management system, each of our subsidiaries in the banking, securities, consumer finance, and leasing businesses, manages its respective credit risk on a consolidated basis based on the attributes of the risk, while the holding company oversees and manages credit risk on an overall group-wide basis. The holding company also convenes regular committee meetings to monitor credit risk management at banking subsidiaries and to issue guidance where necessary.

Each major banking subsidiary has in place a system of checks and balances in which a credit administration section that is independent of the business promotion sections screens individual transactions and manages the extension of credit. At the management level, regular meetings of the Credit & Investment Management Committee and related deliberative bodies ensure full discussion of important matters related to credit risk management. Besides such checks and balances and internal oversight systems, credit examination sections also undertake credit testing and evaluation to ensure appropriate credit risk management.

The following diagram summarizes the credit risk management framework for our major banking subsidiaries:

Credit Rating System

MUFG and its major banking subsidiaries use an integrated credit rating system to evaluate credit risk. The credit rating system consists primarily of borrower rating, facility risk rating, structured finance rating and asset securitization rating.

Country risk is also rated on a uniform group-wide basis. Our country risk rating is reviewed periodically to take into account relevant political and economic factors, including foreign currency availability.

Risk exposure for small retail loans, such as residential mortgage loans, is managed by grouping loans into various pools and assigning ratings at the pool level.

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Borrower rating

Our borrower rating classifies borrowers into 15 grades based on evaluations of their expected debt-service capability over the next three to five years.

The following table sets forth our borrower grades:

Definition of MUFG Borrower Rating

MUFG Borrower  Rating		MUFG Borrower Rating Definition
1		The capacity to meet financial commitments is extremely certain, and the borrower has the highest level of creditworthiness.
2		The capacity to meet financial commitments is highly certain, but there are some elements that may result in lower creditworthiness in the future.
3		The capacity to meet financial commitments is sufficiently certain, but there is the possibility that creditworthiness may fall in the long run.
4		There are no problems concerning the capacity to meet financial commitments, but there is the possibility that creditworthiness may fall in the long run.
5		There are no problems concerning the capacity to meet financial commitments, and creditworthiness is in the middle range.
6		There are no problems concerning the capacity to meet financial commitments presently, but there are elements that require attention if the situation changes.
7		There are no problems concerning the capacity to meet financial commitments presently, but long-term stability is poor.
8		There are no problems concerning the capacity to meet financial commitments presently, but long-term stability is poor, and creditworthiness is relatively low.
9		The capacity to meet financial commitments is somewhat poor, and creditworthiness is the lowest among “Normal” customers.
		Borrowers who must be closely monitored because of the following business performance and financial conditions:
10 through 12		(1) Borrowers who have problematic business performance, such as virtually delinquent principal repayment or interest payment;
		(2) Borrowers whose business performance is unsteady, or who have unfavorable financial conditions;
		(3) Borrowers who have problems with loan conditions and for whom interest rates have been reduced or shelved.
	10	Although business problems are not serious or their improvement is seen to be remarkable, there are elements of potential concern with respect to the borrower’s management, and close monitoring is required.
	11	Business problems are serious, or require long-term solutions. Serious elements concerning business administration of the borrower have emerged, and subsequent debt repayment needs to be monitored closely.
	12	Borrowers who fall under the criteria of Rating 10 or 11 and have a loan concession granted. Borrowers who have “Loans contractually past due 90 days or more.” (As a rule, delinquent borrowers are categorized as “Likely to Become Bankrupt,” but the definition here applies to borrowers delinquent for 90 days or more because of inheritance and other special reasons.)
13		Borrowers who pose a serious risk with respect to debt repayment and with whom loss is likely to occur in the course of transactions. While still not bankrupt, these borrowers are in financial difficulty, with poor progress in achieving restructuring plans, and are likely to become bankrupt in the future.
14		While not legally bankrupt, borrowers who are considered to be virtually bankrupt because they are in serious financial difficulty and have no prospects for an improvement in their business operations.
15		Borrowers who are legally bankrupt (i.e., who have no prospects for continued business operations because of non-payment, suspension of business, voluntary liquidation, or filing for legal liquidation).

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Japanese banks were historically required to use the following categories of borrowers under the then applicable FSA inspection manual, which was abolished in December 2019, and are currently expected to use them as a basis for their borrower categorization with appropriate adjustments under the FSA’s discussion paper:

• Normal borrowers (generally corresponding to borrowers in categories 1 through 9 in our ratings), which are borrowers that are performing well, with no significant financial concerns,

• Borrowers requiring close watch (generally corresponding to borrowers in categories 10 through 12 in our ratings), which include loans that have been amended to allow for delays or forgiveness of interest payments, borrowers experiencing difficulty in complying with loan terms and conditions and borrowers that are recording losses or performing badly,

• Borrowers likely to become bankrupt (generally corresponding to borrowers in category 13 in our ratings), which relate to borrowers who pose a serious risk with respect to debt repayment and with whom loss is likely to occur in the course of transactions. While still not bankrupt, these borrowers are in financial difficulty, with poor progress in achieving restructuring plans, and are likely to become bankrupt in the future,

• Virtually bankrupt borrowers (generally corresponding to borrowers in category 14 in our ratings), which are not legally bankrupt, but borrowers who are considered to be virtually bankrupt because they are in serious financial difficulty and have no prospects for an improvement in their business operations, and

• Bankrupt borrowers or de facto bankrupt borrowers (generally corresponding to borrowers in category 15 in our ratings), which are borrowers who are legally bankrupt (i.e., who have no prospects for continued business operations because of non-payment, suspension of business, voluntary liquidation, or filing for legal liquidation proceedings).

The primary data utilized in our assessment of borrowers include the borrower’s financial statements and notes thereto as well as other public disclosure made by the borrower. In addition, when appropriate and possible, we obtain non-public financial and operating information from borrowers, such as the borrower’s business plan, borrower’s self-evaluation of its operating assets and other borrower information about its business and products.

Based on the borrower and industry information, we assign borrower ratings mainly by applying financial scoring models—either developed internally or by third-party vendors, depending on the borrower’s attributes, whether the borrower is domestic or foreign, whether the borrower is a large corporation or a small and medium-sized corporation, and whether the borrower is a corporate entity or another type of legal entity (such as a school, hospital or fund).

For example, for domestic small and medium-sized corporations, which constitute the largest borrower attribute in our current loan portfolio in terms of number of borrowers, we have adopted an internally developed financial scoring model, exclusively designed and developed for such attribute. We have selected various financial ratios that we believe to be useful and meaningful to quantitatively measure and assess the borrowers’ financial standing and repayment capability. Such financial ratios represent, among other things, borrowers’ growth, profitability, stability, cash flow, company size and capital efficiency. The model is periodically tested against historical results. The following is an illustration of some of the financial ratios we utilize as part of our financial scoring model:

• To measure growth: Sales growth, and growth in total assets,

• To measure profitability: Current profit to sales, and profit before tax to sales, and

• To measure stability: Equity ratio and current ratio.

The financial score obtained through the models is reviewed and, when necessary, adjusted downward to reflect our qualitative assessment of the borrower’s financial strength and other factors that could affect the

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borrower’s ability to service the debt. For example, we take into account: capability of turning around the business (in case of borrowers with losses) or recovering positive net worth (in case of borrowers with negative net worth), industry risk, management risk, legal risk, as well as our assessment of the probability of receiving support from parent companies (if the borrower is a subsidiary of a large listed company).

When adjusting the results of primary financial scoring assigned to borrowers with losses, we consider the severity of losses and the possibility of improving operating results. We analyze and assess whether the loss is temporary, the trend in operating results is improving, or the loss is expected to continue for an extended period. When adjusting the results of primary financial scoring assigned to borrowers with losses or borrowers with negative net worth, we also analyze whether the borrower can return to a positive net worth, and the time period needed to achieve such recovery (one to two years, three to five years, or five years or more).

In addition, adjustments based on industry risk are based on future prospects, applicable laws and regulations, and other factors surrounding the industry. Adjustments for management risk reflect our assessment of management’s track record, the composition of the management team including the board of directors, any management succession plan as well as the risk management and compliance framework of the borrower. Adjustments for legal risk are made when the borrower is facing a lawsuit and when there is a possibility of a significant claim payment related to product liability, intellectual property, environmental problems, building standard law, and other legal issues.

When assessing the probability of receiving support from parent companies, various factors are examined, such as the parent company’s credit standings, whether key management personnel are sent by the parent, whether the borrower is consolidated by the parent, and the proportion of the borrower in consolidated sales and profits of the parent.

In addition, we consider outside ratings, and our internal borrower ratings may be adjusted when deemed appropriate.

Facility risk rating

Facility risk rating is used to evaluate and classify the quality of individual credit facilities, including guarantees and collateral. Ratings are assigned by quantitatively measuring the estimated loss rate of a facility in the event of a default.

Structured finance rating and asset securitization rating

Structured finance rating and asset securitization rating are used to evaluate and classify the quality of individual credit facilities, including guarantees and collateral, and focus on the structure, including the applicable credit period, of each credit facility. In evaluating the debt service potential of a credit facility, we scrutinize its underlying structure to determine the likelihood of the planned future cash flows being achieved.

Pool assignment

Each major banking subsidiary has its own system for pooling and rating small retail loans designed to reflect the risk profile of its loan portfolios.

Asset evaluation and assessment system

The asset evaluation and assessment system is used to classify assets held by us according to the probability of collection and the risk of any impairment in value based on borrower classifications consistent with the borrower ratings and the status of collateral, guarantees, and other factors.

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The system is used to conduct write-offs and allocate allowances against credit risk in a timely and adequate manner.

Quantitative Analysis of Credit Risk

MUFG and its major banking subsidiaries manage credit risk by monitoring credit amount and expected losses, and run simulations based on internal models to estimate the maximum amount of credit risk. These models are used for internal management purposes, including loan pricing and measuring economic capital.

When quantifying credit risk amounts using the internal models, MUFG and its major banking subsidiaries consider various parameters, including the probability of default, loss given default, and exposure at default used in their borrower ratings, facility risk ratings and pool assignments as well as any credit concentration risk in particular borrower groups or industry sectors. MUFG and its major banking subsidiaries also share credit portfolio data in appropriate cases.

Loan Portfolio Management

We aim to achieve and maintain levels of earnings commensurate with credit risk exposure. Products are priced to take into account expected losses, based on the internal credit ratings.

We assess and monitor loan amounts and credit exposure by credit rating, industry and region. Portfolios are managed to limit concentrations of risk in specific categories in accordance with our Large Credit Guidelines.

To manage country risk, we have established specific credit ceilings by country. These ceilings are reviewed when there is a material change in a country’s credit standing, in addition to being subject to a regular periodic review.

Continuous CPM Improvement

With the prevalence of securitized products and credit derivatives in global markets, we seek to supplement conventional CPM techniques with advanced methods based on the use of such market-based instruments.

Through credit risk quantification and portfolio management, we aim to improve the risk return profile of the Group’s credit portfolio, using financial markets to rebalance credit portfolios in a dynamic and active manner based on an accurate assessment of credit risk.

Risk Management of Strategic Equity Portfolio

Strategic equity investment risk is the risk of loss caused by a decline in the prices of our equity investments.

We hold shares of various corporate clients for strategic purposes, in particular to maintain long-term relationships with these clients. These investments have the potential to increase business revenue and appreciate in value. At the same time, we are exposed to the risk of price fluctuation in the Japanese stock market. For that reason, in recent years, it has been a high priority for us to reduce our equity portfolio to limit the risks associated with holding a large equity portfolio, but also to respond to applicable regulatory requirements as well as increasing market expectations and demands for us to reduce our equity portfolio. We are required to comply with a regulatory framework that prohibits Japanese banks from holding an amount of shares in excess of their adjusted Tier 1 capital. See “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Financial Condition—Investment Portfolio.”

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We use quantitative analysis to manage the risks associated with the portfolio of equities held for strategic purposes. According to internal calculations, the market value of our strategically held (Tokyo Stock Exchange-listed) stocks (excluding foreign stock exchange-listed stocks) as of March 31, 2020 was subject to a variation of approximately ¥3.0billion when TOPIX index moves one point in either direction.

We seek to manage and reduce strategic equity portfolio risk based on quantitative analysis such as the sensitivity analysis described above. The aim is to keep this risk at appropriate levels compared with Tier 1 capital while generating returns commensurate with the degree of risk exposure.

Market Risk Management

Market risk is the risk that the value of our assets and liabilities could be adversely affected by changes in market variables such as interest rates, securities prices, or foreign exchange rates.

Management of market risk at MUFG aims to control related risk exposure across the Group while ensuring that earnings are commensurate with levels of risk.

Market Risk Management System

We have adopted an integrated system to manage market risk from our trading and non-trading activities. The holding company monitors group-wide market risk, while each of the major subsidiaries manages its market risks on a consolidated and global basis.

At each of the major subsidiaries, checks and balances are maintained through a system in which back and middle offices operate independently from front offices. In addition, separate Asset-Liability Management, or ALM, Committee and Risk Management Meetings are held at each of the major subsidiaries every month to deliberate important matters related to market risk and control.

The holding company and the major subsidiaries allocate economic capital commensurate with levels of market risk and determined within the scope of their capital bases. The major subsidiaries have established quantitative limits relating to market risk based on their allocated economic capital. In addition, in order to keep losses within predetermined limits, the major subsidiaries have also set limits for the maximum amount of losses arising from market activities. The following diagram summarizes the market risk management system of each major subsidiary:

Market Risk Management System of Our Major Subsidiaries

Market Risk Management and Control

At the holding company and the major subsidiaries, market risk exposure is reported to the Chief Risk Officers on a daily basis. At the holding company, the Chief Risk Officer monitors market risk exposure across

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the Group as well as the major subsidiaries’ control over their quantitative limits for market risk and losses. Meanwhile, the Chief Risk Officers at the major subsidiaries monitor their own market risk exposure and their control over their quantitative limits for market risk and losses. In addition, various analyses on risk profiles, including stress testing, are conducted and reported to the Executive Committees and the Corporate Risk Management Committees on a regular basis. At the business unit levels in the major subsidiaries, the market risks on their marketable assets and liabilities, such as interest rate risk and foreign exchange rate risk, are controlled by entering into various hedging transactions using marketable securities and derivatives.

As part of our market risk management activities, we use certain derivative financial instruments to manage our interest rate and currency exposures. We maintain an overall interest rate risk management strategy that incorporates the use of interest rate contracts to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. We enter into interest rate swaps and other contracts as part of our interest rate risk management strategy primarily to alter the interest rate sensitivity of our loans, investment securities and deposit liabilities. Our principal objectives in risk management include asset and liability management. Asset and liability management is viewed as one of the methods for us to manage our interest rate exposures on interest-earning assets and interest-bearing liabilities. Interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options and futures, allow us to effectively manage our interest rate risk position. Option contracts primarily consist of caps, floors, swaptions and options on index futures. Futures contracts used for asset and liability management activities are primarily index futures providing for cash payments based upon the movement of an underlying rate index. We enter into forward exchange contracts, currency swaps and other contracts in response to currency exposures resulting from on-balance sheet assets and liabilities denominated in foreign currencies in order to limit the net foreign exchange position by currency to an appropriate level.

These market risk management activities are performed in accordance with the predetermined rules and procedures. The internal auditors regularly verify the appropriateness of the management controls over these activities and the risk evaluation models adopted.

Market Risk Measurement Model

Market risks consist of general risks and specific risks. General market risks result from changes in entire markets, while specific risks relate to changes in the prices of individual stocks and bonds which are independent of the overall direction of the market.

To measure market risks, MUFG uses the VaR method which estimates changes in the market value of portfolios within a certain period by statistically analyzing past market data. Since the daily variation in market risk is significantly greater than that in other types of risk, MUFG measures and manages market risk using VaR on a daily basis.

Market risk for trading and non-trading activities is measured using a uniform market risk measurement model. The principal model used for these activities is a historical simulation, or HS, model (holding period, 10 business days; confidence interval, 99%; and observation period, 701 business days). The HS model calculates VaR amounts by estimating the profit and loss on the current portfolio by applying actual fluctuations in market rates and prices over a fixed period in the past. This method is designed to capture certain statistically infrequent movements, such as a fat tail, and accounts for the characteristics of financial instruments with non-linear behavior. The holding company and the major banking subsidiaries also use the HS model as part of the calculation of their Basel III regulatory capital adequacy ratios.

In calculating VaR using the HS method, we have implemented an integrated market risk measurement system throughout the Group. Our major subsidiaries calculate their VaR based on the risk and market data prepared by the information systems of their front offices and other departments. The major subsidiaries provide this risk data to the holding company, which calculates overall VaR, taking into account the diversification effect among all portfolios of the major subsidiaries.

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For the purpose of internally evaluating capital adequacy on an economic capital basis in terms of market risk, we use this market risk measurement model to calculate risk amounts based on a holding period of one year and a confidence interval of 99.9%.

Monitoring and managing our sensitivity to interest rate fluctuations is the key to managing market risk in MUFG’s non-trading activities. The major banking subsidiaries take the following approach to measuring risks concerning core deposits, loan prepayments and early deposit withdrawals.

To measure interest rate risk relating to deposits without contract-based fixed maturities, the amount of “core deposits” is calculated through a statistical analysis based on deposit balance trend data and the outlook for interest rates on deposits, business decisions, and other factors. The amount of “core deposit” is categorized into various groups of maturity terms of up to ten years to recognize interest rate risk. The calculation assumptions and methods to determine the amount of core deposits and maturity term categorization are regularly reviewed.

Meanwhile, deposits and loans with contract-based maturities are sometimes cancelled or repaid before their maturity dates. To measure interest rate risk for these deposits and loans, we reflect these early termination events mainly by applying early termination rates calculated based on a statistical analysis of historical repayment and cancellation data together with historical market interest rate data.

Summaries of Market Risks (Fiscal Year Ended March 31, 2020)

Trading activities

The aggregate VaR for our total trading activities as of March 31, 2020 was ¥24.81 billion, comprising interest rate risk exposure of ¥24.31 billion, foreign exchange risk exposure of ¥5.34 billion, and equity-related risk exposure of ¥2.15 billion. Compared with the VaR as of March 31, 2019, we experienced an increase in market risk during the fiscal year ended March 31, 2020, primarily due to an increase in interest rate risk.

Our average daily VaR for the fiscal year ended March 31, 2020 was ¥19.11 billion. Based on a simple sum of figures across market risk categories, interest rate risk accounted for approximately 75%, foreign exchange risk for approximately 18% and equity-related risk for approximately 7%, of our total trading activity market risks.

Due to the nature of trading operations which involves frequent changes in trading positions, market risk varied substantially during the fiscal year, depending on our trading positions.

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The following tables set forth the VaR related to our trading activities by risk category for the periods indicated:

April 1, 2018—March 31, 2019	Average			Maximum(1)		Minimum(1)		March 31, 2019
	(in billions)
MUFG	¥	14.25		¥	35.71	¥	11.42	¥	20.84
Interest rate		13.32			20.94		10.78		20.58
Yen		5.52			9.45		3.44		4.40
U.S. Dollars		5.28			11.23		3.27		11.03
Foreign exchange		4.52			7.26		3.10		4.44
Equities		2.06			26.66		0.98		1.55
Commodities		0.00			0.05		0.00		0.00
Less diversification effect		(5.65	)		—		—		(5.73	)
April 1, 2019—March 31, 2020	Average			Maximum(1)		Minimum(1)		March 31, 2020
	(in billions)
MUFG	¥	19.11		¥	35.78	¥	15.64	¥	24.81
Interest rate		18.56			35.03		14.21		24.31
Yen		6.07			11.67		4.10		9.35
U.S. Dollars		7.23			11.06		4.78		7.20
Foreign exchange		4.58			7.23		2.28		5.34
Equities		1.73			7.21		0.60		2.15
Commodities		0.00			0.07		0.00		0.00
Less diversification effect		(5.76	)		—		—		(6.99	)

Assumptions for VaR calculations:

Historical simulation method

Holding period: 10 business days

Confidence interval: 99%

Observation period: 701 business days

Note:

(1) The maximum and minimum VaR overall and for various risk categories were taken from different days. A simple summation of VaR by risk category is not equal to total VaR due to the effect of diversification.

The average daily VaR by quarter in the fiscal year ended March 31, 2020 was as follows:

Quarter	Daily average VaR
	(in billions)
April—June 2019	¥	18.29
July—September 2019		18.73
October—December 2019		18.85
January—March 2020		20.63

The quantitative market risk figures from trading activities tend to fluctuate widely due to the market sensitive nature of the trading business. During the fiscal year ended March 31, 2020, the revenue from our trading activities has been relatively stable, keeping positive numbers in 245 days out of 261 trading days in the period. During the same period, there were 97 days with positive revenue exceeding ¥1 billion and four days with negative revenue exceeding minus ¥1 billion.

Non-trading Activities

The aggregate VaR for our total non-trading activities as of March 31, 2020, excluding market risks related to our strategic equity portfolio and measured using the same standards as trading activities, was ¥672.7 billion.

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Market risk related to interest rates equaled ¥613.4 billion and equities-related risk equaled ¥156.9 billion. Compared with the VaR as of March 31, 2019, we experienced an increase in market risk during the fiscal year ended March 31, 2020, primarily due to an increase in interest rate risk. The main cause for the increase in interest rate risk was the greater U.S interest rate volatility particularly during the three months ended March 31, 2020.

Based on a simple sum of figures across market risk categories, interest rate risks accounted for approximately 79% of our total non-trading activity market risks as of March 31, 2020. Looking at a breakdown of interest rate related risk by currency, as of March 31, 2020, the yen accounted for approximately 29% while the U.S. dollar accounted for approximately 58%, and the euro approximately 13%.

For a description of our strategic equity investment risk management, see “—Risk Management of Strategic Equity Portfolio.”

The following tables set forth the VaR related to our non-trading activities by risk category for the periods indicated:

April 1, 2018—March 31, 2019	Average			Maximum(1)		Minimum(1)		March 31, 2019
	(in billions)
Interest rate	¥	290.3		¥	309.8	¥	265.2	¥	283.1
Yen		219.2			240.3		169.6		169.6
U.S. Dollars		114.0			140.8		85.9		122.2
Foreign exchange		9.5			11.2		2.8		4.0
Equities(2)		215.6			245.1		147.4		202.5
Less diversification effect		(170.1	)		—		—		(174.1	)
Total		345.3			399.2		308.0		315.5

April 1, 2019—March 31, 2020	Average			Maximum(1)		Minimum(1)		March 31, 2020
	(in billions)
Interest rate	¥	328.9		¥	711.5	¥	252.9	¥	613.4
Yen		157.0			216.1		128.0		207.5
U.S. Dollars		187.5			502.8		109.6		412.3
Foreign exchange		4.5			6.4		3.5		6.4
Equities(2)		174.8			214.2		112.0		156.9
Less diversification effect		(157.1	)		—		—		(104.0	)
Total		351.1			765.2		284.9		672.7

Assumptions for VaR calculations:

Historical simulation method

Holding period: 10 business days

Confidence interval: 99%

Observation period: 701 business days

Notes:

(1) The maximum and minimum VaR overall for each category and in total were taken from different days. A simple summation of VaR by risk category is not equal to total VaR due to the effect of diversification.

(2) The equities-related risk figures do not include market risk exposure from our strategic equity portfolio.

The average daily interest rate VaR by quarter in the fiscal year ended March 31, 2020 was as follows.

Quarter	Daily average VaR
	(in billions)
April—June 2019	¥	301.6
July—September 2019		310.5
October—December 2019		338.1
January—March 2020		457.2

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Comparing the proportion of each currency’s interest rate VaR to the total interest rate VaR as of March 31, 2020 against that as of March 31, 2019, there was a 15 percentage point decrease in the Japanese yen from 44% to 29%, a 26 percentage point increase in the U.S. dollar from 32% to 58%, and a 11 percentage point decrease in the euro from 24% to 13%.

Backtesting

We conduct backtesting in which a VaR is compared with hypothetical profits and losses on a daily basis to verify the accuracy of our VaR measurement model. We also conduct additional backtesting using other methods, including testing VaR against actual realized and unrealized losses and testing VaR by various changing parameters such as confidence intervals and observation periods used in the model.

Hypothetical losses exceeded the VaR amount four times in the fiscal year ended March 31, 2020. This means that our VaR model provided reasonably accurate measurements of market risk during the fiscal year.

The following graph shows daily VaR of trading activities and the distribution of corresponding hypothetical profits and losses for the fiscal year ended March 31, 2020:

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The following graph shows VaR of trading activities and hypothetical profits and losses on a daily basis for the fiscal year ended March 31, 2020:

Stress Testing

We use an HS-VaR model, which calculates potential changes in the market value of our portfolio as a statistically possible amount of losses that could be incurred due to market fluctuations within a certain period (or holding period, of 10 business days) based on historical market volatility for a certain period (or observation period, of 701 business days, or approximately three years). Actual losses may exceed the value at risk obtained by the application of the model in the event, for example, that the market fluctuates to a degree not accounted for

in the observation period, or that the correlations among various risk factors, including interest rates and foreign currency exchange rates, deviate from those assumed in the model.

In order to complement these weaknesses of the HS-VaR model and measure potential losses that the model is not designed to capture, we conduct stress testing. Through the daily stress testing, we estimate maximum potential losses in each market on the current trading portfolio based on the worst ten-day historical volatility recorded during the VaR observation period of 701 days. As of March 31, 2020, we held a total trading activity position subject to estimated maximum potential losses of ¥16.4 billion as compared to ¥15.4 billion as of March 31, 2019. In addition, the holding company and major subsidiaries conduct stress testing, as appropriate, by applying various stress scenarios, including those which take into account estimates regarding future market volatility, in order to better identify risks and manage our portfolio in a more stable and appropriate manner. The holding company and major subsidiaries also measure stressed VaR relating to their trading activities based on a one-year observation period with the highest VaR at least in the immediately preceding ten years.

Funding Liquidity Risk Management

Liquidity risk is the risk of incurring losses if a poor financial position hampers the ability to meet funding requirements, or necessitates fund procurement at interest rates markedly higher than normal.

Our major subsidiaries seek to maintain appropriate liquidity in both Japanese yen and foreign currencies by managing their funding sources and mechanisms, such as deposits, short-term borrowings and long-term debt, liquidity gap, liquidity-supplying products such as commitment lines, and buffer assets, primarily government bonds.

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We have established a group-wide system for managing liquidity risk by categorizing the risk in the following three stages: normal, concern and crisis. The front offices and risk management offices of the major subsidiaries and the holding company exchange information and data on liquidity risk even at the normal stage. At higher alert stages, we centralize information about liquidity risk and discuss issues relating to group-wide liquidity control actions, including formulating contingency plans, among Group companies, if necessary. We have also established a system for liaison and consultation on funding in preparation for contingency, such as natural disasters, wars and terrorist attacks. The holding company and the major subsidiaries conduct group-wide contingency preparedness drills on a regular basis to ensure smooth implementation in the event of an emergency.

In addition, we have established a group-wide system for ensuring compliance with the minimum regulatory liquidity coverage ratio requirements by categorizing the risk in the following three stages: sufficient, concern and insufficient. The holding company and the major subsidiaries exchange information and data on LCR even at the sufficient stage. At higher alert stages, we hold group-wide LCR liaison meetings to discuss issues relating to LCR and, based on the discussion as well as the information and data that have been shared, take countermeasures to improve LCR as necessary.

For more information, see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Financial Condition—Sources of Funding and Liquidity.”

Operational Risk Management

Operational risk refers to the risk of loss caused by either internal control issues such as inadequate operational processes or misconduct, system failures, or external factors such as serious political instability, major terrorist activity, health epidemics or natural disasters. The term includes a broad range of risks that could lead to losses, including operations risk, information risk, IT risk, tangible asset risk, personnel risk, incompliance with laws and regulations risk, and legal risk. These risks that comprise operational risk are referred to as sub-category risks.

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The holding company has established, based on its Executive Committee’s determination, the MUFG Operational Risk Management Policy as a group-wide policy for managing operational risk. This policy sets forth the core principles regarding operational risk management, including the definition of operational risk, and the risk management system and processes. Under the policy, the board of directors and the Executive Committee formulate fundamental principles of operational risk management and establish and maintain an appropriate risk management system. The Chief Risk Officer is responsible for recognizing, evaluating, and appropriately managing operational risk in accordance with the fundamental principles formulated by the board of directors and the Executive Committee. A division in charge of operational risk management has been established that is independent of business promotion sections to manage overall operational risk in a comprehensive manner. These fundamental principles have also been approved by the boards of directors of the major subsidiaries, providing a consistent framework for operational risk management of the Group. The diagram below sets forth the operational risk management system of each major banking subsidiary:

Operational Risk Management System of Our Major Banking Subsidiaries

As set forth in the following diagram, we have established a risk management framework for loss data collection, control self-assessment, and measurement of operational risk in order to appropriately identify, recognize, evaluate, measure, control, monitor and report operational risk.

We have also established group-wide reporting guidelines with respect to loss data collection and its monitoring. We focus our efforts on ensuring accurate assessment of the status of operational risk losses and the implementation of appropriate countermeasures, while maintaining databases of internal and external loss events.

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The following diagram summarizes our operational risk management framework:

Operational Risk Management Framework

Operations Risk Management

Operations risk refers to the risk of incurring losses arising from negligence of correct operational processing, incidents or misconduct involving officers or staff, as well as risks similar to this risk. The Group companies offer a wide range of financial services, ranging from commercial banking products such as deposits, exchange services and loans to trust and related services covering pensions, securities, real estate and securitization, as well as transfer agent services. Cognizant of the potentially significant impact that operations risk-related events could have in terms of both economic losses and damage to our reputation, our major subsidiaries continue to work on improving their management systems to create and apply appropriate operations risk-related controls.

Specific ongoing measures to reduce operations risk include the development of databases to manage, analyze and prevent the recurrence of related loss events; efforts to tighten controls over administrative procedures and related operating authority, while striving to improve human resources management, investments in systems to improve the efficiency of administrative operations, and programs to expand and upgrade internal auditing and operational guidance systems.

Senior management receives regular reports on the status of our businesses from an operations risk management perspective. We work to promote the sharing within the Group of information and expertise concerning any operational incidents and the measures implemented to prevent any recurrence.

Efforts to upgrade the management of operations risk continue with the aim of providing our customers with a variety of high-quality services.

Information Risk Management

Information risk refers to the risk of loss caused by loss, alteration, falsification or leakage of personal or other confidential information, as well as risks similar to these risks. We recognize our grave social and legal

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responsibility to handle customer information properly, and we continue to work on enhancing our framework to manage such risk.

Complying with laws and regulations requiring proper handling of customer information, we implement information security management measures, including the establishment of an information risk management framework, enhancement of our internal operational procedures, and training courses mandatory for all officers and staff.

We have also formulated our Personal Information Protection Policy as the basis for our ongoing programs designed to protect the confidentiality of personal information.

With the aim of preventing any recurrence and minimizing risk or loss, we also work to promote sharing on a group-wide basis of experience, knowledge and expertise related to information risk incidents.

IT Risk Management

IT risk refers to the risk of loss arising from destruction, suspension, malfunction or misuse of IT, or unauthorized alteration and leakage of electronic data caused by insufficient IT systems planning, development or operations or by vulnerabilities of or external threats to IT system security, including cybersecurity, as well as risks similar to these risks.

Systems planning, development and operations include appropriate design and extensive testing phases to ensure that systems are designed to help prevent failures while providing sufficient safeguards for the security of electronic data including personal information.

System development projects are managed and overseen by a team dedicated to perform such management and oversight functions, and the development status of any mission-critical IT systems is reported regularly to senior management.

We have developed disaster countermeasures systems and have also been investing in duplication of the Group’s IT infrastructure to minimize damage in the event of any system failure. Emergency drills are conducted to help increase staff preparedness.

With the aim of preventing any recurrence and minimizing risk or loss, we also work to promote sharing on a group-wide basis of experience, knowledge and expertise related to system failures.

In addition, the risk of increasingly sophisticated cyber-attacks is a significant focus of the Board of Directors, and the Board regularly receives reports on our cybersecurity program. We continue to work to strengthen measures designed to address and mitigate the risk, including the establishment of MUFG-CERT, our Computer Security Incident Response Team, implementation of multi-layered defense and detection measures, enhancement of monitoring systems through our Security Operation Centers, and cooperation with global organizations with relevant expertise. MUFG-CERT is charged with the responsibility of taking, coordinating and managing prompt action in response to cyber security incidents to mitigate their impact.

We aim to flexibly adapt our IT risk management measures to changes in the business environment, including the rapidly growing need for remote work solutions. We also continue to develop our risk management capabilities for emerging technologies, such as artificial intelligence (AI), robotic process automation (RPA) and blockchain, considering, among other things, the maturity and usage of such technologies.

Tangible Asset Risk Management

Tangible asset risk refers to the risk of loss due to damage to tangible assets or deterioration in the operational environment caused by disasters or inadequate asset maintenance, as well as risks similar to this risk.

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Tangible assets include movable physical properties and immovable properties, owned or leased, such as land, buildings, equipment attached to buildings, fixtures and furniture. We recognize the potentially significant impact tangible asset risk-related events can have on the management and execution of the Group’s businesses, which in turn can result in economic losses to, or diminished market confidence in, the Group. Accordingly, we continue to improve our risk control framework designed to appropriately manage such risk.

Personnel Risk Management

Personnel risk refers to the risk of loss due to an outflow or loss of human resources or deterioration in employee morale, as well as risks similar to this risk. We recognize the potentially significant impact personnel risk-related events can have on the management and execution of the Group’s businesses, which in turn can result in economic losses to, or diminished market confidence in, the Group. Accordingly, we continue to work on improving our risk control framework designed to appropriately manage such risk.

Incompliance with Laws and Regulations Risk Management

Incompliance with laws and regulations risk refers to the risk of loss due to failure to compliance with laws and regulations, as well as risks similar to these risks. We recognize the potentially significant impact compliance risk-related events can have on the management and execution of the Group’s businesses, which in turn can result in economic, reputation and other losses to, or diminished market confidence in, the Group. Accordingly, we continue to work on improving our compliance risk control framework designed to appropriately manage such risk.

Specifically, we have established our MUFG Group Code of Conduct as the basic guideline for the Group’s directors and employees. In addition, a compliance management division has been established at each of the holding company and the major subsidiaries. See “—Compliance” below.

Legal Risk Management

Legal risk refers to the risk of loss due to failure to identify or address legal issues relating to contracts and other business operations or insufficient handling of lawsuits, as well as risks similar to these risks.

The legal division at each of the holding company and the major subsidiaries centrally and uniformly evaluates legal issues prior to entering into contracts or commencing new business operations, deals with legal disputes and manages other legal matters. With the aim of effectively managing our legal risk arising from our globally expanding business operations, we have established a global and group-wide legal risk management framework and promote sharing of experience, knowledge and practices relating to legal risk issues on a global and group-wide basis.

Regulatory Capital Requirements for Operational Risk

(1) Adoption of the Advanced Measurement Approach (AMA)

We have employed the AMA since March 31, 2012, in place of the Standardized Approach that we had been using previously, for calculation of the operational risk equivalent amount in connection with measuring capital adequacy ratios based on the Basel Standards. On the other hand, we use the Basic Indicator Approach, or BIA, for entities that are deemed to be less important in the calculation of the operational risk equivalent amount and for entities that are still preparing to implement the AMA.

(2) Outline of AMA

We have established a measurement model designed to account for four data elements—internal loss data, external loss data, scenario analysis, and business environment and internal control factors, or BEICFs—and calculate the operational risk equivalent amount by estimating the maximum loss using a 99.9th percentile one-tailed confidence interval and a one-year holding period.

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In calculating the operational risk equivalent amount, we exclude expected losses relating to the amount of allowance for repayment of excess interest associated with the consumer finance business of a subsidiary. We do not exclude any other expected losses and do not reflect the risk mitigating impact of insurance. In addition, we take into account credit risk-related events that are not reflected in the measurement of the credit risk equivalent amount.

(3) Outline of Measurement Model

Our operational risk equivalent amount measured under the AMA is a simple sum of the amounts calculated separately for (1) MUFG Bank on a consolidated basis, (2) Mitsubishi UFJ Trust and Banking on a consolidated basis, and (3) the holding company and other principal consolidated subsidiaries, in accordance with applicable FSA rules. For each of MUFG Bank and Mitsubishi UFJ Trust and Banking on a consolidated basis, the operational risk equivalent amount is a simple sum of the amounts calculated based on the seven loss event types defined by the Basel Standards. For other Group companies, the operational risk equivalent amount is a simple sum of the amounts calculated based on eight loss event types consisting of the seven loss event types defined by the Basel Standards and an additional loss event type representing losses relating to repayment of excess interest associated with the consumer finance business of a subsidiary. We do not reflect the correlation effects among the loss event types in the calculation of our operational risk equivalent amount.

Outline of Measurement Model

The risk equivalent amount for each loss event type represents the amount of maximum loss estimated with a 99.9th percentile one-tailed confidence interval and a one-year holding period based on the distribution of losses arising from all relevant risk events for a one-year period (Loss Distribution). A Loss Distribution combines a Frequency Distribution (through which the frequency of occurrence of risk events is expressed) and a Loss Severity Distribution (through which the amounts of losses resulting from risk events are expressed) through Monte Carlo simulations. The data used for this purpose include internal loss data and scenario data. Scenario data are generated through a scenario analysis. External data and BEICFs are taken into account in the scenario analysis and reflected in scenario data. The Frequency Distribution is derived from the occurrence frequency information in internal loss data and scenario data expressed through a Poisson Distribution. The Loss Severity Distribution is derived from the amount information in internal loss data and scenario data expressed in a non-parametric manner (where no underlying distribution is assumed).

With respect to the risk of losses relating to repayment of excess interest associated with the consumer finance business of a subsidiary, the risk equivalent amount represents the amount of maximum loss estimated with a 99.9th percentile one-tailed confidence interval and a one-year holding period based on a normal

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distribution assumed by applying data on losses that arose in a given period, excluding any related expected losses.

We confirm the appropriateness of the measurement models by periodic verification and back testing.

(4) Outline of Scenario Analysis

As an initial step of our scenario analysis, we identify potential severe loss events that we have not experienced but may potentially experience in the future. In this identification process, we seek to ensure exhaustive coverage of potential severe loss events by comprehensively examining our experience relating to loss events and legal proceedings, external loss data, the control self-assessment results and other relevant information.

In the next step, we prepare scenario data for each identified severe loss event by quantifying the values depending on its occurrence frequency and loss severity, taking into account relevant transaction amounts and restructuring costs as well as BEICFs. In preparing scenario data, we apply an analysis method we deem appropriate for the type and nature of the operational risk involved.

In order to obtain an operational risk equivalent amount that is commensurate with, and appropriate for, our risk profile, we assess the need for an additional scenario or modification to our existing scenarios semi-annually.

We then reflect, as necessary, new risks arising as a result of changes in the business environment and the results of the implementation of measures to enhance our internal controls in response to newly identified risks in our scenario data.

Reputation Risk Management

Reputation risk refers to the risk of harm to our corporate value arising from perceptions of our customers, shareholders, investors or other stakeholders and in the market or society that we deviate from their expectations or confidence. We recognize that such risk, if materialized, can have a material negative impact on our business and continue to work on enhancing our framework designed to appropriately manage the risk based on our Corporate Vision, MUFG Group Code of Conduct, and other rules and codes of the Group.

Specifically, in order to manage our reputation risk effectively on a group-wide basis, we have established a risk management system designed to ensure mutual consultation and reporting if a reputation risk-related event occurs or is anticipated and, through this system, share relevant information within the Group.

Through the risk control framework and risk management system, we seek to prevent reputation risk-related events and minimize damage to the corporate value of the Group by promptly obtaining an accurate understanding of relevant facts relating to risk events and disclosing information concerning such events and the measures we take in response to such events in an appropriate and timely manner.

Model Risk Management

Model risk refers to the risk of loss due to decision-making based on information provided by an inaccurate model or the misuse of a model. We recognize the potentially significant impact model risk-related events can have on the management and execution of the Group’s businesses, which in turn can result in economic losses to, or diminished market confidence in, the Group. Models are used for increasingly wider and more important purposes, including valuing exposures, instruments and positions, measuring risks, and determining capital adequacy. Accordingly, we continue to work on improving our risk control framework.

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Compliance

Basic Policy

We have clarified our mission, our vision and our values in the Corporate Vision and have expressed our commitment to meeting the expectations of customers and society as a whole. Furthermore, we have established MUFG Group Code of Conduct as the guidelines for how the Group’s directors and employees act to realize the Corporate Vision, in which we have expressed our commitment to complying with laws and regulations, to acting with honesty and integrity, and to behaving in a manner that supports and strengthens the trust and confidence of society.

In addition, as we expand the geographic scope of our business globally, we are committed to keeping abreast of developments in laws and regulations of the jurisdictions in which we operate including anti-money laundering and anti-bribery, as well as paying attention to trends in financial crimes.

See “Item 3.D. Key Information—Risk Factors—Operational Risk—Legal and regulatory changes could have a negative impact on our business, financial condition and results of operations.” and “Item 3.D. Key Information—Risk Factors—Operational Risk—We may become subject to regulatory actions or other legal proceedings relating to our transactions or other aspects of our operations, which could result in significant financial losses, restrictions on our operations and damage to our reputation.” See also “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation.”

MUFG Group Code of Conduct

The Code of Conduct encapsulates the standards that guide staff conduct and decision-making in our day-to-day business activities under the MUFG Corporate Vision. It is designed to provide guidance in times of doubt, or when we find it difficult to know if we are making the right choice.

Chapter 1 deals with the attitude we should adopt with our customers.

Acting with honesty and integrity and pursuing the best interests of our customers is a core component of our business practices.

Chapter 2 presents a set of standards designed to help us fulfill our responsibilities as a good corporate citizen.

MUFG’s reputation depends upon the trust and confidence of our customers and other stakeholders, including local communities, and we are responsible to society on a global level.

Chapter 3 describes the actions and mindset that will create a stimulating and supportive working environment as MUFG continues to grow.

Our success depends on building and maintaining a dynamic workplace where all staff can reach their full potential in ways that support our customers and make a valuable contribution to society as a whole.

Chapter 1.Customer Focus

Our customers are at the center of everything we do, and should always be the focus of our thoughts. Our aim should be to win the trust and confidence of our customers at all times. MUFG exists today because of the trust and confidence that customers have placed in us over many years. Our role is to increase and strengthen this bedrock of trust and confidence. Our activities are not driven by the prospect of short-term gains. Instead, we look to build ongoing relationships with our customers to support their long-term growth.

1-1 Honesty and Integrity

Our customers are at the center of everything we do. We carry out fair and transparent corporate activities with honesty and integrity. We treat customer assets with care and respect and strive always to ensure that our actions do not unjustly damage our customers’ interests.

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1-2 Ensuring Quality

To build lasting relationships of trust and confidence with our customers, we listen carefully to what our customers are telling us, and maintain thoroughgoing quality control of all our products and services, from planning and development to provision and subsequent revisions, with a view to further enhancing quality.

1-3 Exceeding Customer Expectations

We aim to meet the diverse needs of our customers worldwide, and to provide services exceeding their expectations through the highest standards of professionalism, by leveraging our global network and the consolidated strengths of the entire Group.

Chapter 2 Responsibility as a Corporate Citizen

As we develop our business globally, we comply with all the domestic and international laws and rules that may apply. We do all we can to maintain stability and confidence in the global financial system, and contribute to the sound and healthy growth of society. Aware of the responsibility each of us has as a member of MUFG, we carry out fair and transparent corporate activities with honesty and integrity, in a manner that supports and strengthens the trust and confidence MUFG has earned from society over many years.

2-1 Adherence to Laws and Rules

In addition to adhering strictly to all domestic and international laws and rules, we strive to do the right thing based on our strict code of ethics.

Violations of laws or rules damage the vital social infrastructure of the financial system and lead to a loss of trust in MUFG. We strictly abide by all laws and rules relating to our business, including the prohibition of insider trading, ban on unfair trading practices, anti-bribery and corruption and appropriate disclosure.

2-2 Prevention of Financial Crime

We have zero tolerance for financial crime or any attempt to circumvent the rules and procedures aimed at preventing financial crime. We take all reasonable steps possible to prevent our products and services being used by individuals or entities involved in illegal or improper activities such as money laundering and terrorist financing.

2-3 Contributing to Society

We respect the history, cultures, and customs of different countries and regions around the world, and work to contribute to the development of local and global communities and the protection of the environment throughout our corporate activities and the social volunteer efforts of our staff.

Chapter 3 Attitudes and Behaviors in the Workplace

We strive to respond and adapt promptly to the diversifying and evolving needs of our customers and the rapidly changing environment in which we work. The working environment at MUFG fosters mutual respect, enables individuals to make the most of their abilities as professionals, and maximizes the power of teamwork across regions and different areas of business, encouraging all staff to embrace new challenges. We work always to protect and maintain the tangible and intangible assets and property that MUFG has accumulated.

3-1 Challenge Ourselves to Grow

We strive to enhance our knowledge, expertise, and potential and maximize the power of teamwork. We believe that the changing business environment represents opportunity and are always ready to embrace new challenges in new fields.

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3-2 Collaborative and Professional Working Environment

We respect the human rights and diversity of all MUFG staff. We do not engage in or tolerate any form of discrimination or harassment or any other behavior that infringes these beliefs.

3-3 Protecting MUFG’s Assets and Property

We protect the tangible and intangible assets and property of MUFG and individual Group entities, and do not tolerate any behavior that might damage these assets.

3-4 Reporting Problem Situations and Seeking Advice

If you become aware of conduct that contravenes the law, company regulations, or the provisions of this Code of Conduct, or any other problem situations, you should promptly report the matter and seek advice from a supervisor or issue a report via MUFG’s whistleblowing system.

Compliance Framework

Management and coordination of compliance-related matters are the responsibility of separate compliance management divisions established at the holding company and the major subsidiaries. Each compliance management division formulates compliance programs and organizes training courses to promote compliance, and regularly reports to each company’s board of directors and Executive Committee on the status of compliance activities.

The holding company has established a Group Compliance Committee and each major subsidiary has established a Compliance Committee for deliberating key issues related to compliance. Additionally, the holding company has a Group Chief Compliance Officer, or CCO, Committee, which consists of the CCO of the holding company acting as committee chairman and the CCOs of the major subsidiaries. The Group CCO Committee deliberates important matters related to compliance and compliance-related issues for which the Group should share a common understanding.

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The following diagram summarizes our compliance framework:

Compliance Framework

Internal Reporting System and Accounting Auditing Hotline

The major subsidiaries have established internal reporting systems that aim to identify compliance issues early so that any problems can be quickly rectified. This system includes an independent external compliance hotline. Furthermore, the holding company has set up an MUFG Group Compliance Helpline that acts in parallel with group-company internal reporting systems and provides a reporting channel for directors and employees of Group companies. In the holding company, the contents of the reported cases as well as the result of surveys is reported to the audit committee on a regular basis or whenever necessary.

In addition to these internal reporting systems, the holding company has also established an accounting auditing hotline that provides a means to report any problems related to MUFG accounting.

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MUFG Accounting Auditing Hotline

MUFG has set up an accounting auditing hotline to be used to make reports related to instances of improper practices (violations of laws and regulations) and inappropriate practices, or of practices raising questions about such impropriety or inappropriateness, regarding accounting and internal control or audits related to accounting in Group companies. The audit committee oversees the reporting process to ensure the appropriateness and effectiveness of the reporting process and monitors the reports received through the hotline. The reporting process works as follows, and may be carried out via letter or e-mail:

Hokusei Law Office, P.C.

Address: Kojimachi 4-3-4, Chiyoda-ku, Tokyo

e-mail: MUFG-accounting-audit-hotline@hokusei-law.com

When reporting information please pay attention to the following:

• Matters subject to reporting are limited to instances regarding the Group companies.

• Please provide detailed information with respect to the matter. Without detailed factual information there is a limit to how much our investigations can achieve.

• Anonymous information will be accepted.

• No information regarding the identity of the informant will be passed on to third parties without the approval of the informant him- or herself. However, this excludes instances where disclosure is legally mandated, or to the extent that the information is necessary for surveys or reports, when data may be passed on following the removal of the informant’s name.

• Please submit reports in either Japanese or English.

• If the informant wishes, we will endeavor to report back to the informant on the response taken within a reasonable period of time following the receipt of specific information, but cannot promise to do so in all instances.

Internal Audit

Role of Internal Audit

Internal Audit aims to evaluate and assist in the improvement of the effectiveness of governance, risk management and control processes with high proficiency and independence, thereby contributing to the enhancement of the corporate value of the MUFG Group and to the achievement of the Group’s corporate vision. Internal Audit covers all aspects of the Group’s business activities and discusses and evaluates the management and operational frameworks and the implementation of business operations from legal compliance, rationality and efficiency perspectives, beyond checking compliance with defined procedures.

In addition, Internal Audit provides instructions and recommendations for operational improvement to audited divisions and reports to senior management on such instructions and recommendations, thereby contributing to safeguarding and development of the Group’s assets.

Three Lines of Defense Framework

Risk management is conducted at multiple levels within a business organization, including front-office divisions in charge of managing specific categories of risk, a compliance division, and an internal audit division.

As for financial institutions, including the MUFG Group, based on the experience of past financial crises, the traditional risk management structure that was heavily dependent on front-office divisions has been under

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close scrutiny. As a result, there is an increasing expectation for financial institutions to achieve more effective risk management through, for example, appropriate allocation of risk management roles and responsibilities among various divisions.

Cognizant of the importance of these developments, we have adopted the concept of “Three Lines of Defense” where the roles and responsibilities of each division in risk management are defined, classifying divisions within a financial institution into “the 1st Line of Defense”, “the 2nd Line of Defense” and “the 3rd Line of Defense”.

Line	Divisions	Roles
The 1st Line of Defense	Business divisions and client-facing divisions	•Undertake risks within the extent of risk exposure assigned •Responsible and accountable for identifying, evaluating and controlling business risks
The 2nd Line of Defense	Risk management division, compliance division, etc.	•Ensure that risks are appropriately identified and managed by the 1st Line of Defense
The 3rd Line of Defense	Internal audit division	•Independently evaluate the effectiveness of the governance, risk management, and control processes implemented by the 1st and 2nd Lines of Defense

Internal Audit plays an essential role in the Group’s risk management through ongoing communications with the 1st and 2nd Lines of Defense, while maintaining independence.

Group Internal Audit Framework

The MUFG Group has internal audit functions at the holding company level as well as at the subsidiary level, which are designed to ensure proficiency and independence through effective collaboration.

The internal audit division of the holding company receives reports from the internal audit divisions of subsidiaries on the status and results of their internal audits and provides them with instructions and evaluations as needed.

Reports to the Audit Committee

The holding company has an audit committee within its board of directors as required by the Companies Act of Japan, and each of the major subsidiaries has established an audit and supervisory committee. Within each of the holding company and the major subsidiaries, the internal audit division reports to the committee on important matters, including governing principles for internal audit plans and the status and results of internal audits.

MUFG Internal Audit Activity Charter

In April 2019, we adopted “MUFG Internal Audit Activity Charter”, which defines our basic policies for Internal Audit, including its mission, purposes, responsibilities, and roles.

This charter is designed to encourage Internal Audit staff to conduct internal audits in accordance with the global standards set by the Institute of Internal Auditors, an international organization established for, among other purposes, formulating practical internal audit standards.

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Item 12. Description of Securities Other than Equity Securities.

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

D. American Depositary Shares

For a description of ADSs, each representing one share of our common stock, see Exhibit 2(c) to this Annual Report.

Fees, charges and other payments relating to ADSs

As a holder of our ADSs, you will be required to pay to The Bank of New York Mellon, as depositary for the ADRs, or the Depositary, either directly or indirectly, the following fees or charges. The Depositary collects its fees for delivery and surrender of ADRs directly from investors depositing shares or surrendering ADRs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees.

ADS holders must pay:	For:
$5.00 (or less) per 100 ADSs (or portion thereof)	Each issuance of an ADR, including as a result of a distribution of shares or rights or other property Each cancellation of an ADR, including if the agreement terminates
$0.02 (or less) per ADS	Any cash distribution, to the extent permitted by any securities exchange on which the ADSs may be listed for trading
A fee equivalent to the fee that would be payable if securities distributed to the ADS holder had been shares and the shares had been deposited for issuance of ADRs	Distribution of securities distributed to holders of deposited securities which are distributed by the Depositary to registered ADS holders
Registration or transfer fees	Transfer and registration of shares on the share register from your name to the name of The Bank of New York Mellon or its agent and vice versa when you deposit or withdraw shares
Expenses of The Bank of New York Mellon	Conversion of foreign currency to U.S. dollars, as well as cable, telex and facsimile transmission expenses
Taxes and other governmental charges The Bank of New York Mellon or MUFG Bank, as custodian, have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes	As necessary

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Fees Waived or Paid by the Depositary

The Depositary has agreed to waive the standard out-of-pocket administrative, maintenance and other expenses for providing services to the registered holders of our ADSs, which include the expenses relating to the delivery of annual reports, dividend fund remittances, stationery, postage and photocopying. For the fiscal year ended March 31, 2020, the Depositary waived $131,752.95 of standard out-of-pocket expenses.

The Depositary has also agreed to reimburse us for expenses related to the administration and maintenance of the ADS program, including investor relations expenses, the annual New York Stock Exchange listing fees and other program-related expenses. There is a limit on the amount of expenses for which the Depositary will reimburse us based and conditioned on the number of outstanding ADSs and the amount of dividend fees collected by the Depositary. For the fiscal year ended March 31, 2020, the Depositary reimbursed us $1.0 million for such expenses.

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PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies.

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.

None.

Item 15. Controls and Procedures.

Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer, or CEO, and the Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934, as of the end of the period covered by this Annual Report.

Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2020.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the U.S. Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed by, or under the supervision of, MUFG’s principal executive and principal financial officers, and effected by MUFG’s board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of MUFG,

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of MUFG are being made only in accordance with authorizations of management and directors of MUFG, and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of MUFG’s assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management evaluated the effectiveness of our internal control over financial reporting as of March 31, 2020 based on the criteria established in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, management has concluded that MUFG maintained effective internal control over financial reporting as of March 31, 2020.

The effectiveness of our internal control over financial reporting as of March 31, 2020 has been audited by Deloitte Touche Tohmatsu LLC, an independent registered public accounting firm, as stated in its report, presented on page 209.

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Changes in Internal Control Over Financial Reporting

During the period covered by this Annual Report, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and the Shareholders of

Mitsubishi UFJ Financial Group, Inc.

(Kabushiki Kaisha Mitsubishi UFJ Financial Group)

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Mitsubishi UFJ Financial Group, Inc. (Kabushiki Kaisha Mitsubishi UFJ Financial Group) (“MUFG”) and subsidiaries (together, the “MUFG Group”) as of March 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the MUFG Group maintained, in all material respects, effective internal control over financial reporting as of March 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements as of and for the year ended March 31, 2020, of the MUFG Group and our report dated July 10, 2020, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The MUFG Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the MUFG Group’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the MUFG Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte Touche Tohmatsu LLC

Tokyo, Japan

July 10, 2020

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Item 16A. Audit Committee Financial Expert.

Our board of directors has determined that Mr. Akira Yamate, an outside director, is an “audit committee financial expert” as defined in Item 16A of Form 20-F and is, and has remained since his assumption of office as a member of our audit committee, “independent” as defined in the listing standards of the NYSE. Mr. Yamate has spent most of his professional carrier as a certified public accountant in Japan, auditing Japanese corporations, including those registered with the U.S. Securities and Exchange Commission. Mr. Yamate is also the chair of our audit committee.

Item 16B. Code of Ethics.

We have adopted a code of ethics, which consists of internal rules named MUFG Group Code of Conduct, compliance rules, compliance manual and rules of employment. Each of these rules applies to our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The MUFG Group Code of Conduct was most recently amended on April 1, 2020 to clarify explanations and add contact information for reporting purposes. A copy of the MUFG Group Code of Conduct and the sections of our compliance rules, compliance manual and rules of employment relating to the “code of ethics” (as defined in paragraph (b) of Item 16B of Form 20-F) is attached as Exhibit 11 to this Annual Report.

No waivers of the MUFG Group Code of Conduct or the relevant sections of our compliance rules, compliance manual and rules of employment were granted to our principal executive officer, principal financial officer, principal accounting officer, directors or corporate auditors during the fiscal year ended March 31, 2020.

Item 16C. Principal Accountant Fees and Services.

Fees and Services of Deloitte Touche Tohmatsu LLC

The aggregate fees billed by Deloitte Touche Tohmatsu LLC, our independent registered public accounting firm and its affiliates, for the fiscal years ended March 31, 2019 and 2020 are presented in the following table:

	2019		2020
	(in millions)
Audit fees	¥	8,079	¥	8,564
Audit-related fees		119		249
Tax fees		172		117
All other fees		119		420
Total	¥	8,489	¥	9,350

The description of our fees billed for each category described above is as follows:

Audit fees—Audit fees are primarily for an annual audit of our financial statements, review of our semi-annual condensed financial statements, statutory audit of our financial statements and audits of our subsidiary financial statements and attestation services relating to the internal controls over financial reporting under Section 404 of the U.S. Sarbanes-Oxley Act of 2002.

Audit-related fees—Audit-related fees primarily include accounting consultations, agreed upon procedures on internal controls, employee benefit plan audit, and advisory services relating to internal control reviews.

Tax fees—Tax fees relate primarily to tax compliance, including assistance with preparation of tax return filings, tax advisory and tax planning services.

All other fees—All other fees primarily include fees for risk management and compliance advisory services.

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Pre-Approval Policies and Procedures for Services by Deloitte Touche Tohmatsu LLC

Our audit committee performs the pre-approval function required by applicable SEC rules and regulations. Our audit committee has established pre-approval policies and procedures that MUFG and its subsidiaries must follow before engaging Deloitte Touche Tohmatsu LLC to perform audit and permitted non-audit services.

When MUFG or a subsidiary intends to engage Deloitte Touche Tohmatsu LLC to perform audit and permitted non-audit services, it must make an application for pre-approval on either a periodic or case-by-case basis.

• Periodic application is an application for pre-approval made each fiscal year for services that are expected to be provided by Deloitte Touche Tohmatsu LLC during the next fiscal year.

• Case-by-case application is an application for pre-approval made on a case-by-case basis for services to be provided by Deloitte Touche Tohmatsu LLC that are not covered by the periodic application.

Pre-approval is resolved in principle by our audit committee prior to engagement, although if necessary a full-time member of our audit committee may consider any case-by-case application for pre-approval on behalf of the audit committee prior to the next scheduled audit committee meeting. Such decisions made individually by a full-time member of our audit committee are reported to the audit committee as appropriate at the next scheduled audit committee meeting.

Fees approved pursuant to the procedures described in paragraph 2-01(c)(7)(i)(C) of Regulation S-X, which provides for an exception to the general requirement for pre-approval in certain circumstances, were approximately 0.3% of the total fees paid to Deloitte Touche Tohmatsu LLC for the fiscal year ended March 31, 2019 and less than 0.1% of the total fees paid to Deloitte Touche Tohmatsu LLC for the fiscal year ended March 31, 2020.

Item 16D. Exemptions from the Listing Standards for Audit Committees.

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

Issuer Purchases of Common Stock

	Total Number of Shares Purchased(1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(2)
April 1 to April 30, 2019		4,954	¥	563.49		—		—
May 1 to May 31, 2019		3,126		522.36		—		—
June 1 to June 30, 2019		2,591		506.28		—		—
July 1 to July 31, 2019		3,916		522.84		—		—
August 1 to August 31, 2019		2,280		513.88		—		—
September 1 to September 30, 2019		2,475		536.06		—		—
October 1 to October 31, 2019		3,417		548.11		—		—
November 1 to November 30, 2019		2,667		577.32		36,888,100		63,111,900
December 1 to December 31, 2019		5,055		587.13		48,887,300		14,224,600
January 1 to January 31, 2020		3,983		582.92		—		—
February 1 to February 29, 2020		2,586		569.51		—		—
March 1 to March 31, 2020		3,799		459.82		—		—
Total		40,849	¥	582.89		85,775,400		—

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Notes:

(1) The shares purchased were shares constituting less than one unit (100 shares) purchased from registered holders of the shares and shares purchased pursuant to applicable Japanese law from shareholders who have not responded to communications sent to their registered addresses for five consecutive years or more and by whom dividend payments have not been received for five consecutive years, each at the current market price.

(2) During November and December 2019, we repurchased 85,775,400 shares of our common stock for ¥49,999,996,482 under a share repurchase program that was adopted on November 13, 2019 and completed in December 2019. Under the program, we were authorized by the Board of Directors to repurchase up to the lesser of an aggregate of 100,000,000 shares of our common stock and an aggregate of ¥50.0 billion between November 14, 2019 and December 31, 2019. All of the repurchased shares were cancelled on January 20, 2020.

We did not make any purchases of shares of our common stock other than as shown in the above table for the fiscal year ended March 31, 2020.

In connection with the MUFG Americas Holdings Corporation Stock Bonus Plan, 9,275,070 ADSs were purchased by the trustee of the independent trust between April 1, 2019 and March 31, 2020. For descriptions of our stock compensation and bonus plans, see “Item 6.B. Directors, Senior Management and Employees—Compensation.”

Item 16F. Change in Registrant’s Certifying Accountant.

None.

Item 16G. Corporate Governance.

The NYSE allows NYSE-listed companies that are foreign private issuers, such as MUFG, with certain exceptions, to follow home-country practices in lieu of the corporate governance practices followed by U.S. companies pursuant to the NYSE’s Listed Company Manual. The following is a summary of the significant differences between MUFG’s corporate governance practices and those followed by U.S. listed companies under the NYSE’s Listed Company Manual.

1. A NYSE-listed U.S. company must have a majority of directors that meet the independence requirements under Section 303A of the NYSE’s Listed Company Manual.

As of the date of this Annual Report, we have nine outside directors as members of our board of directors, which consists of a total of sixteen members. Under our governance system, we are required to have outside directors on each of our nominating, audit and compensation committees, constituting a majority of its members. For a description of an outside director, see “Item 6.C. Directors and Senior Management—Board Practices.”

The Tokyo Stock Exchange rules require listed companies, including us, to identify at least one individual who the company believes is unlikely to have a conflict of interest with general shareholders and have such individual serve as an independent director or outside corporate auditor. An amendment to the Companies Act, which is expected to take effect in 2021, will require any listed company to have an outside director.

Further, a listed company with fewer than two outside directors who are considered independent based on such internal standards as the company establishes pursuant to the Tokyo Stock Exchange requirements must publicly disclose the reason for not having at least two such directors on its board of directors. In addition, if a listed company determines that at least one-third of the members of its board of directors should be independent outside directors, the listed company must disclose its policy relating to the determination. We have adopted and made public our corporate governance policy providing, among other things, that, in general, half of the members of our board of directors will be independent outside directors.

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2. A NYSE-listed U.S. company must have an audit committee composed entirely of independent directors.

Under the Companies Act, we are required to have an audit committee consisting of at least three non-executive directors, and the majority of its members must be outside directors. Currently, our audit committee consists of three outside directors and two non-executive directors. Our audit committee satisfies the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934, including the independence requirements thereunder.”

3. A NYSE-listed U.S. company must have a compensation committee composed entirely of independent directors.

Under the Companies Act, we are required to have a compensation committee consisting of at least three directors, and the majority of its members must be outside directors. Currently, our compensation committee consists of five directors, four of whom are outside directors.

4. A NYSE-listed U.S. company must have a nominating or corporate governance committee composed entirely of independent directors.

Under the Companies Act, we are required to have a nominating committee consisting of at least three directors, and the majority of its members must be outside directors. Currently, our nominating committee, which we call the nominating and governance committee, consists of five directors, four of whom are outside directors.

5. A NYSE-listed U.S. company must obtain shareholder approval with respect to any equity compensation plan.

Under the Companies Act, an equity compensation plan for directors and corporate executives is deemed to be compensation for the services performed by the company’s directors and corporate executives. Our compensation committee establishes the policy with respect to the determination of the individual compensation of our directors and corporate executives, including equity compensation in the form of performance-based stock compensation plan, and determines individual compensation in accordance with the policy. Under the Companies Act, a public company with board audit, compensation and nominating committees seeking to introduce a performance-based stock compensation plan must obtain the approval of its compensation committee, not its shareholders.

6. A NYSE-listed U.S. company must adopt and disclose Corporate Governance Guidelines and a Code of Business Conduct and Ethics, and it must also disclose any exemptions granted to directors or executives.

Our corporate governance policies, which are called the “MUFG Corporate Governance Policies,” are based on applicable home-country rules, particularly the Tokyo Stock Exchange rules, which require listed companies, such as us, to adopt a corporate governance code setting forth fundamental principles designed to establish an effective corporate governance system or explain in their corporate governance reports the reasons for not adopting such a code. We disclose these policies on our website.

We have adopted a code of conduct, compliance rules, compliance manual and rules of employment, which meet the definition of “code of ethics” in “Item 16B. Code of Ethics.”

7. A NYSE-listed U.S. company must hold regularly scheduled executive sessions where participants are limited to non-management directors.

Under the Companies Act, Japanese corporations are not obliged to hold executive sessions where participants are limited to non-management directors. Such executive sessions are also not required under our internal corporate governance rules.

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Item 16H. Mine Safety Disclosure.

Not Applicable.

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PART III

Item 17. Financial Statements.

In lieu of responding to this item, we have responded to Item 18 of this Annual Report.

Item 18. Financial Statements.

Our consolidated financial statements are included in this Annual Report, as required by this item, starting on page F-1.

Pursuant to Rule 3-09 of Regulation S-X, the financial statements and supplementary data of Morgan Stanley, our equity method investee, as of December 31, 2018 and 2019 and for the fiscal years ended December 31, 2017, 2018 and 2019, are incorporated in this Annual Report as Exhibit 99(c) by reference to Morgan Stanley’s annual report on Form 10-K filed on February 27, 2020.

Item 19. Exhibits.

Exhibit	Description
1(a)	Articles of Incorporation of Mitsubishi UFJ Financial Group, Inc., as amended on July 6, 2018 (English translation)*
1(b)	Board of Directors Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on June 25, 2015 (English translation)*
1(c)	Corporation Meetings Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on July 1, 2018 (English translation)*
1(d)	Share Handling Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on June 25, 2015 (English Translation)**
1(e)	Charter of the Audit Committee of Mitsubishi UFJ Financial Group, Inc., as amended on July 1, 2018 (English translation)*
1(f)	Charter of the Compensation Committee of Mitsubishi UFJ Financial Group, Inc., as amended on July 1, 2018 (English translation)*
1(g)	Charter of the Nominating and Governance Committee of Mitsubishi UFJ Financial Group, Inc., as amended on July 1, 2018 (English translation)*
1(h)	Charter of the Risk Committee of Mitsubishi UFJ Financial Group, Inc., as amended on July 1, 2018 (English translation)*
2(a)	Form of American Depositary Receipt*
2(b)	Form of Deposit Agreement, amended and restated as of December 22, 2004, among Mitsubishi Tokyo Financial Group, Inc. (subsequently renamed Mitsubishi UFJ Financial Group, Inc.), The Bank of New York Mellon and the holders from time to time of American Depositary Receipts issued thereunder*
2(c)	Description of Securities
8	Subsidiaries of the Company—see “Item 4.C. Information on the Company—Organizational Structure.”
11	MUFG Group Code of Conduct, Compliance Rules, Compliance Manual, and Rules of Employment of Mitsubishi UFJ Financial Group, Inc. applicable to its principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions (English translation of relevant sections)

214

Exhibit	Description
12	Certifications required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a))
13	Certifications required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
15(a)	Consent of independent registered public accounting firm (Deloitte Touche Tohmatsu LLC)
15(b)	Consent of independent registered public accounting firm (Deloitte & Touche LLP)
99(a)	Capitalization and Indebtedness of Mitsubishi UFJ Financial Group, Inc. as of March 31, 2020***
99(b)	Unaudited Reverse Reconciliation of Selected Financial Information of Mitsubishi UFJ Financial Group, Inc. as of and for the fiscal year ended March 31, 2020****
99(c)	Financial Statements and Supplementary Data of Morgan Stanley*****
101.INS	Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	The cover page for the Company’s Annual Report on From 20-F for the year ended March 31, 2020, has been formatted in Inline XBRL

Notes:

* Incorporated by reference to our annual report on Form 20-F (File No. 000-54189) filed on July 12, 2018.

** Incorporated by reference to our registration statement on Form S-8 (File No. 333-230590) filed on March 29, 2019.

*** Deemed to be incorporated by reference into the registration statement on Form F-3 (No. 333-229697) of Mitsubishi UFJ Financial Group, Inc. and to be a part thereof.

**** Deemed to be incorporated as Annex A to the registration statement on Form F-3 (No. 333-229697) of Mitsubishi UFJ Financial Group, Inc. and to be a part thereof.

***** Incorporated by reference to Morgan Stanley’s annual report on Form 10-K (File No. 001-11758) filed on February 27, 2020.

215

SELECTED STATISTICAL DATA

Due to close integration of our foreign and domestic activities, it is difficult to make a precise determination of the assets, liabilities, income and expenses of our foreign operations. The foreign operations as presented include the business conducted by overseas subsidiaries and branches, and the international business principally conducted by the international banking-related divisions headquartered in Japan. Our management believes that the results appropriately represent our domestic and foreign activities.

A-1

I.     Distribution of Assets, Liabilities and Equity; Interest Rates and Interest Differential

Average Balance Sheets, Interest and Average Rates

The following table shows our average balances, interest and average interest rates for the fiscal years ended March 31, 2018, 2019 and 2020. Average balances are generally based on a daily average while a month-end average is used for certain average balances when it is not practicable to obtain applicable daily averages.

	Fiscal years ended March 31,
	2018								2019								2020
	Average balance			Interest income		Average rate			Average balance			Interest income		Average rate			Average balance			Interest income		Average rate
	(in millions, except percentages)
Assets:
Interest-earning assets:
Interest-earning deposits in other banks:
Domestic	¥	31,515,803		¥	26,391		0.08	%	¥	32,727,743		¥	31,287		0.10	%	¥	30,349,122		¥	31,578		0.10	%
Foreign		7,889,777			100,217		1.27			9,025,391			152,040		1.68			8,268,196			135,689		1.64
Total		39,405,580			126,608		0.32			41,753,134			183,327		0.44			38,617,318			167,267		0.43
Call loans, funds sold, and receivables under resale agreements and securities borrowing transactions:
Domestic		7,703,606			7,246		0.09			6,429,788			5,920		0.09			8,170,312			4,624		0.06
Foreign		7,873,112			77,447		0.98			7,594,119			149,788		1.97			10,339,632			252,973		2.45
Total		15,576,718			84,693		0.54			14,023,907			155,708		1.11			18,509,944			257,597		1.39
Trading account assets:
Domestic		4,737,292			27,126		0.57			5,204,308			31,284		0.60			7,305,805			29,108		0.40
Foreign		20,012,444			405,469		2.03			19,467,632			468,440		2.41			22,242,975			460,734		2.07
Total		24,749,736			432,595		1.75			24,671,940			499,724		2.03			29,548,780			489,842		1.66
Investment securities(1):
Domestic		34,659,859			183,622		0.53			35,073,801			202,755		0.58			34,535,660			200,330		0.58
Foreign		6,891,939			160,279		2.33			7,782,349			195,448		2.51			8,623,509			214,175		2.48
Total		41,551,798			343,901		0.83			42,856,150			398,203		0.93			43,159,169			414,505		0.96
Loans(2):
Domestic		65,985,440			757,623		1.15			65,843,445			777,306		1.18			64,897,973			732,783		1.13
Foreign		51,779,709			1,513,596		2.92			52,258,780			1,799,111		3.44			51,550,492			1,865,149		3.62
Total		117,765,149			2,271,219		1.93			118,102,225			2,576,417		2.18			116,448,465			2,597,932		2.23
Total interest-earning assets:
Domestic		144,602,000			1,002,008		0.69			145,279,085			1,048,552		0.72			145,258,872			998,423		0.69
Foreign		94,446,981			2,257,008		2.39			96,128,271			2,764,827		2.88			101,024,804			2,928,720		2.90
Total		239,048,981			3,259,016		1.36			241,407,356			3,813,379		1.58			246,283,676			3,927,143		1.59
Non-interest-earning assets:
Cash and due from banks		34,040,675								33,631,665								32,929,678
Other non-interest-earning assets		48,549,541								46,952,826								46,962,448
Allowance for credit losses		(1,049,265	)							(699,000	)							(675,353	)
Total non-interest-earning assets		81,540,951								79,885,491								79,216,773
Total assets	¥	320,589,932							¥	321,292,847							¥	325,500,449
Notes: (1) Tax-exempt income of tax-exempt investment securities has not been calculated on a tax equivalent basis because the effect of such calculation would not be material. (2) Average balances on loans outstanding include all nonaccrual and restructured loans. See “III. Loan Portfolio.” The amortized portion of net loan origination fees (costs) is included in interest income on loans, which accounts for an insignificant amount of an adjustment to the yields.

A-2

	Fiscal years ended March 31,
	2018							2019							2020
	Average balance		Interest expense		Average rate			Average balance		Interest expense		Average rate			Average balance		Interest expense		Average rate
	(in millions, except percentages)
Liabilities and equity:
Interest-bearing liabilities:
Deposits:
Domestic	¥	123,141,060	¥	58,779		0.05	%	¥	124,661,909	¥	67,948		0.05	%	¥	124,294,925	¥	77,143		0.06	%
Foreign		41,421,717		456,089		1.10			41,945,626		649,418		1.55			45,216,271		758,938		1.68
Total		164,562,777		514,868		0.31			166,607,535		717,366		0.43			169,511,196		836,081		0.49
Call money, funds purchased, and payables under repurchase agreements and securities lending transactions:
Domestic		17,913,277		113,805		0.64			17,201,589		188,009		1.09			17,245,242		137,759		0.80
Foreign		10,138,998		56,955		0.56			9,204,904		149,536		1.62			10,502,391		222,893		2.12
Total		28,052,275		170,760		0.61			26,406,493		337,545		1.28			27,747,633		360,652		1.30
Due to trust account, other short-term borrowings and trading account liabilities:
Domestic		6,833,724		11,121		0.16			5,777,333		13,576		0.23			6,025,686		20,557		0.34
Foreign		6,476,232		82,523		1.27			7,184,301		141,697		1.97			7,542,997		144,350		1.91
Total		13,309,956		93,644		0.70			12,961,634		155,273		1.20			13,568,683		164,907		1.22
Long-term debt:
Domestic		25,277,891		183,944		0.73			25,558,707		234,603		0.92			25,313,006		237,995		0.94
Foreign		2,654,153		65,539		2.47			3,108,828		73,194		2.35			2,721,002		84,709		3.11
Total		27,932,044		249,483		0.89			28,667,535		307,797		1.07			28,034,008		322,704		1.15
Total interest-bearing liabilities:
Domestic		173,165,952		367,649		0.21			173,199,538		504,136		0.29			172,878,859		473,454		0.27
Foreign		60,691,100		661,106		1.09			61,443,659		1,013,845		1.65			65,982,661		1,210,890		1.84
Total		233,857,052		1,028,755		0.44			234,643,197		1,517,981		0.65			238,861,520		1,684,344		0.71
Non-interest-bearing liabilities		71,309,802							70,572,971							71,221,044
Total equity		15,423,078							16,076,679							15,417,885
Total liabilities and equity	¥	320,589,932						¥	321,292,847						¥	325,500,449
Net interest income and interest rate spread			¥	2,230,261		0.92	%			¥	2,295,398		0.93	%			¥	2,242,799		0.88	%
Net interest income as a percentage of total interest-earning assets						0.93	%						0.95	%						0.91	%

The percentage of total average assets attributable to foreign activities was 36.6%, 36.8% and 38.1%, respectively, for the fiscal years ended March 31, 2018, 2019 and 2020.

The percentage of total average liabilities attributable to foreign activities was 36.9%, 37.0% and 38.2%, respectively, for the fiscal years ended March 31, 2018, 2019 and 2020.

A-3

Analysis of Net Interest Income

The following table shows changes in our net interest income by changes in volume and by changes in interest rate for the fiscal year ended March 31, 2019 compared to the fiscal year ended March 31, 2018, and the fiscal year ended March 31, 2020 compared to the fiscal year ended March 31, 2019.

	Fiscal year ended March 31, 2018 versus fiscal year ended March 31, 2019									Fiscal year ended March 31, 2019 versus fiscal year ended March 31, 2020
	Increase (decrease) due to changes in						Net change			Increase (decrease) due to changes in						Net change
	Volume(1)			Rate(1)						Volume(1)			Rate(1)
	(in millions)
Interest income:
Interest-earning deposits in other banks:
Domestic	¥	1,046		¥	3,850		¥	4,896		¥	(2,365	)	¥	2,656		¥	291
Foreign		15,865			35,958			51,823			(12,504	)		(3,847	)		(16,351	)
Total		16,911			39,808			56,719			(14,869	)		(1,191	)		(16,060	)
Call loans, funds sold, and receivables under resale agreements and securities borrowing transactions:
Domestic		(1,176	)		(150	)		(1,326	)		1,348			(2,644	)		(1,296	)
Foreign		(2,838	)		75,179			72,341			61,973			41,212			103,185
Total		(4,014	)		75,029			71,015			63,321			38,568			101,889
Trading account assets:
Domestic		2,763			1,395			4,158			10,311			(12,487	)		(2,176	)
Foreign		(11,301	)		74,272			62,971			62,079			(69,785	)		(7,706	)
Total		(8,538	)		75,667			67,129			72,390			(82,272	)		(9,882	)
Investment securities(2):
Domestic		2,216			16,917			19,133			(3,120	)		695			(2,425	)
Foreign		21,730			13,439			35,169			20,913			(2,186	)		18,727
Total		23,946			30,356			54,302			17,793			(1,491	)		16,302
Loans:
Domestic		(1,634	)		21,317			19,683			(11,041	)		(33,482	)		(44,523	)
Foreign		14,127			271,388			285,515			(24,645	)		90,683			66,038
Total		12,493			292,705			305,198			(35,686	)		57,201			21,515
Total interest income:
Domestic		3,215			43,329			46,544			(4,867	)		(45,262	)		(50,129	)
Foreign		37,583			470,236			507,819			107,816			56,077			163,893
Total	¥	40,798		¥	513,565		¥	554,363		¥	102,949		¥	10,815		¥	113,764

Notes:

(1) Volume/rate variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total “net change.”

(2) Tax-exempt income of tax-exempt investment securities has not been calculated on a tax equivalent basis because the effect of such calculation would not be material.

A-4

	Fiscal year ended March 31, 2018 versus fiscal year ended March 31, 2019									Fiscal year ended March 31, 2019 versus fiscal year ended March 31, 2020
	Increase (decrease) due to changes in						Net change			Increase (decrease) due to changes in						Net change
	Volume(1)			Rate(1)						Volume(1)			Rate(1)
	(in millions)
Interest expense:
Deposits:
Domestic	¥	734		¥	8,435		¥	9,169		¥	(201	)	¥	9,396		¥	9,195
Foreign		5,839			187,490			193,329			52,686			56,834			109,520
Total		6,573			195,925			202,498			52,485			66,230			118,715
Call money, funds purchased, and payables under repurchase agreements and securities lending transactions:
Domestic		(4,692	)		78,896			74,204			476			(50,726	)		(50,250	)
Foreign		(5,708	)		98,289			92,581			23,113			50,244			73,357
Total		(10,400	)		177,185			166,785			23,589			(482	)		23,107
Due to trust account, other short-term borrowings and trading account liabilities:
Domestic		(1,916	)		4,371			2,455			607			6,374			6,981
Foreign		9,845			49,329			59,174			6,943			(4,290	)		2,653
Total		7,929			53,700			61,629			7,550			2,084			9,634
Long-term debt:
Domestic		2,065			48,594			50,659			(2,271	)		5,663			3,392
Foreign		10,816			(3,161	)		7,655			(9,952	)		21,467			11,515
Total		12,881			45,433			58,314			(12,223	)		27,130			14,907
Total interest expense:
Domestic		(3,809	)		140,296			136,487			(1,389	)		(29,293	)		(30,682	)
Foreign		20,792			331,947			352,739			72,790			124,255			197,045
Total	¥	16,983		¥	472,243		¥	489,226		¥	71,401		¥	94,962		¥	166,363
Net interest income:
Domestic	¥	7,024		¥	(96,967	)	¥	(89,943	)	¥	(3,478	)	¥	(15,969	)	¥	(19,447	)
Foreign		16,791			138,289			155,080			35,026			(68,178	)		(33,152	)
Total	¥	23,815		¥	41,322		¥	65,137		¥	31,548		¥	(84,147	)	¥	(52,599	)

Note:

(1) Volume/rate variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total “net change.”

A-5

II. Investment Portfolio

The following table shows information as to the value of our Available-for-sale debt securities, Held-to-maturity debt securities, and Marketable equity securities at March 31, 2018, 2019 and 2020:

	At March 31,
	2018							2019							2020
	Amortized cost		Fair value		Net unrealized gains (losses)			Amortized cost		Fair value		Net unrealized gains (losses)			Amortized cost		Fair value		Net unrealized gains (losses)
	(in millions)
Available-for-sale debt securities:
Domestic:
Japanese national government and Japanese government agency bonds		¥24,272,345		¥24,567,904	¥	295,559		¥	23,748,558	¥	24,077,696	¥	329,138		¥	23,308,538	¥	23,462,879	¥	154,341
Corporate bonds		923,912		935,965		12,053			988,137		999,707		11,570			1,090,442		1,099,328		8,886
Other securities		2,581,942		2,589,367		7,425			3,377,266		3,402,696		25,430			4,064,659		4,080,746		16,087
Total domestic		27,778,199		28,093,236		315,037			28,113,961		28,480,099		366,138			28,463,639		28,642,953		179,314
Foreign:
U.S. Treasury and other U.S. government agencies bonds		1,400,997		1,366,456		(34,541	)		1,722,943		1,710,328		(12,615	)		1,994,173		2,086,763		92,590
Other government and official institution bonds		806,665		805,236		(1,429	)		925,931		931,091		5,160			941,937		950,725		8,788
Mortgage-backed securities		1,229,111		1,214,211		(14,900	)		1,138,101		1,115,714		(22,387	)		1,063,983		1,064,787		804
Other securities		1,341,697		1,353,975		12,278			1,273,551		1,281,271		7,720			1,444,035		1,454,975		10,940
Total foreign		4,778,470		4,739,878		(38,592	)		5,060,526		5,038,404		(22,122	)		5,444,128		5,557,250		113,122
Total	¥	32,556,669	¥	32,833,114	¥	276,445		¥	33,174,487	¥	33,518,503	¥	344,016		¥	33,907,767	¥	34,200,203	¥	292,436
Held-to-maturity debt securities:
Domestic:
Japanese national government and Japanese government agency bonds		¥1,100,807	¥	1,141,019	¥	40,212		¥	1,100,701	¥	1,142,320	¥	41,619		¥	1,100,574	¥	1,130,430	¥	29,856
Total domestic		1,100,807		1,141,019		40,212			1,100,701		1,142,320		41,619			1,100,574		1,130,430		29,856
Foreign:
U.S. Treasury and other U.S. government agencies bonds		59,330		59,610		280			138,731		138,712		(19	)		148,927		148,318		(609	)
Other government and official institution bonds		—		—		—			—		—		—			2,628		2,791		163
Mortgage-backed securities		1,057,612		1,047,635		(9,977	)		1,071,257		1,051,135		(20,122	)		883,281		893,423		10,142
Asset-backed securities		1,365,192		1,372,408		7,216			2,131,212		2,120,780		(10,432	)		2,030,371		2,002,932		(27,439	)
Total foreign		2,482,134		2,479,653		(2,481	)		3,341,200		3,310,627		(30,573	)		3,065,207		3,047,464		(17,743	)
Total	¥	3,582,941	¥	3,620,672	¥	37,731		¥	4,441,901	¥	4,452,947	¥	11,046		¥	4,165,781	¥	4,177,894	¥	12,113
Marketable equity securities:
Domestic:
Marketable equity securities		—	¥	6,544,938		—			—	¥	6,331,815		—			—	¥	4,740,188		—
Total domestic		—		6,544,938		—			—		6,331,815		—			—		4,740,188		—
Foreign:
Marketable equity securities		—		126,646		—			—		26,728		—			—		28,130		—
Total foreign		—		126,646		—			—		26,728		—			—		28,130		—
Total		—	¥	6,671,584		—			—	¥	6,358,543		—			—	¥	4,768,318		—

Nonmarketable equity securities presented in Equity securities in the accompanying consolidated financial statements were primarily carried at cost of ¥538,251 million, ¥591,237 million and ¥576,977 million, at March 31, 2018, 2019 and 2020, respectively. The corresponding fair values at those dates were not readily determinable. Investment securities held by certain subsidiaries subject to specialized industry accounting principles for investment companies and brokers and dealers presented in Equity securities were carried at fair value of ¥28,359 million, ¥27,820 million and ¥39,963 million, at March 31, 2018, 2019 and 2020, respectively.

A-6

The following table presents the book values, maturities and weighted average yields of Available-for-sale debt securities and Held-to-maturity debt securities at March 31, 2020. Weighted average yields are calculated based on amortized cost. Yields on tax-exempt obligations have not been calculated on a tax equivalent basis because the effect of such calculation would not be material:

	Maturities within one year					Maturities after one year but within five years					Maturities after five years but within ten years					Maturities after ten years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(in millions, except percentages)
Available-for-sale debt securities:
Domestic:
Japanese national government and Japanese government agency bonds	¥	10,480,660		0.06	%	¥	7,051,108		0.18	%	¥	1,947,633		0.29	%	¥	3,983,478		0.74	%	¥	23,462,879		0.23	%
Corporate bonds		135,209		0.13			810,264		0.17			103,185		0.35			50,670		0.61			1,099,328		0.20
Other securities		58,626		0.36			942,923		0.18			2,319,921		0.18			759,276		0.21			4,080,746		0.19
Total domestic		10,674,495		0.06			8,804,295		0.18			4,370,739		0.23			4,793,424		0.65			28,642,953		0.22
Foreign:
U.S. Treasury and other U.S. government agencies bonds		167,837		2.11			831,515		1.95			1,046,109		2.24			41,302		4.20			2,086,763		2.15
Other government and official institution bonds		500,099		2.25			423,411		2.84			25,928		3.36			1,287		4.41			950,725		2.54
Mortgage-backed securities		3,475		3.11			18,267		2.42			260,387		2.21			782,658		2.81			1,064,787		2.66
Other securities		481,200		2.09			756,109		2.54			91,715		3.09			125,951		3.32			1,454,975		2.49
Total foreign		1,152,611		2.16			2,029,302		2.37			1,424,139		2.31			951,198		2.94			5,557,250		2.41
Total	¥	11,827,106		0.26	%	¥	10,833,597		0.58	%	¥	5,794,878		0.73	%	¥	5,744,622		1.04	%	¥	34,200,203		0.57	%
Held-to-maturity debt securities:
Domestic:
Japanese national government and Japanese government agency bonds	¥	—		—	%	¥	1,100,574		0.51	%	¥	—		—	%	¥	—		—	%	¥	1,100,574		0.51	%
Total domestic		—		—			1,100,574		0.51			—		—			—		—			1,100,574		0.51
Foreign:
U.S. Treasury and other U.S. government agencies bonds		986		8.62			—		—			147,941		2.51			—		—			148,927		2.55
Other government and official institution bonds		110		5.45			1,740		7.18			739		6.63			39		7.69			2,628		6.96
Mortgage-backed securities		—		—			77,130		2.23			96,961		2.34			709,190		2.62			883,281		2.56
Asset-backed securities		22,917		1.72			23,457		1.60			345,830		1.92			1,638,167		2.01			2,030,371		1.99
Total foreign		24,013		2.02			102,327		2.17			591,471		2.14			2,347,396		2.20			3,065,207		2.18
Total	¥	24,013		2.02	%	¥	1,202,901		0.65	%	¥	591,471		2.14	%	¥	2,347,396		2.20	%	¥	4,165,781		1.74	%

Other than U.S. Treasury and other U.S. government agencies bonds and Japanese national government bonds, none of the individual issuers held in our investment securities portfolio exceeded 10% of the consolidated total Mitsubishi UFJ Financial Group shareholders’ equity at March 31, 2020.

A-7

III. Loan Portfolio

The following table shows our loans outstanding, before deduction of allowance for credit losses, by domicile and industry of the borrower at March 31 for each of the five fiscal years ended March 31, 2020. Classification of loans by industry is based on the industry segment loan classification as defined by the Bank of Japan for regulatory reporting purposes and is not necessarily based on the use of proceeds:

	At March 31,
	2016			2017			2018			2019			2020
	(in millions)
Domestic:
Manufacturing	¥	12,158,642		¥	11,796,803		¥	10,876,625		¥	11,153,996		¥	11,448,778
Construction		913,180			819,262			781,262			717,664			733,212
Real estate		11,175,130			11,622,372			11,763,769			11,706,419			12,054,671
Services		2,503,446			2,549,300			2,689,086			2,653,191			2,585,111
Wholesale and retail		7,891,364			7,970,579			7,989,080			7,643,397			7,504,561
Banks and other financial institutions(1)		5,146,932			5,223,906			4,818,364			5,213,020			5,161,093
Communication and information services		1,509,858			1,634,584			1,551,533			1,510,596			1,572,344
Other industries		14,739,826			8,898,712			8,939,291			8,756,483			8,673,871
Consumer		16,397,560			16,491,010			16,287,332			15,802,024			15,319,721
Total domestic		72,435,938			67,006,528			65,696,342			65,156,790			65,053,362
Foreign:
Governments and official institutions		1,125,031			1,037,795			920,538			841,695			726,347
Banks and other financial institutions(1)		13,654,335			13,844,964			12,851,570			11,641,373			11,788,225
Commercial and industrial		30,056,474			30,279,641			30,591,173			31,951,169			32,565,030
Other		5,818,747			6,334,551			7,270,928			7,597,502			8,404,062
Total foreign		50,654,587			51,496,951			51,634,209			52,031,739			53,483,664
Total		123,090,525			118,503,479			117,330,551			117,188,529			118,537,026
Unearned income, unamortized premiums—net and deferred loan fees—net		(299,567	)		(288,507	)		(294,656	)		(304,588	)		(350,287	)
Total(2)	¥	122,790,958		¥	118,214,972		¥	117,035,895		¥	116,883,941		¥	118,186,739

Notes:

(1) Loans to so-called “non-bank finance companies” are generally included in the “Banks and other financial institutions” category. Non-bank finance companies are primarily engaged in consumer lending, factoring and credit card businesses.

(2) The above table includes loans held for sale of ¥100,889 million, ¥185,940 million, ¥226,923 million, ¥291,794 million and ¥344,790 million at March 31, 2016, 2017, 2018, 2019 and 2020, respectively, which are carried at the lower of cost or fair value.

A-8

Maturities and Sensitivities of Loans to Changes in Interest Rates

The following table shows the maturities of our loan portfolio at March 31, 2020:

	Maturity
	One year or less		One to five years		Over five years		Total
	(in millions)
Domestic:
Manufacturing	¥	6,437,196	¥	3,295,852	¥	1,715,730	¥	11,448,778
Construction		393,789		258,601		80,822		733,212
Real estate		2,845,169		4,232,351		4,977,151		12,054,671
Services		1,135,003		997,954		452,154		2,585,111
Wholesale and retail		5,170,771		1,679,548		654,242		7,504,561
Banks and other financial institutions		3,204,961		1,186,980		769,152		5,161,093
Communication and information services		542,120		863,639		166,585		1,572,344
Other industries		5,240,434		2,073,206		1,360,231		8,673,871
Consumer		2,090,295		3,010,455		10,218,971		15,319,721
Total Domestic		27,059,738		17,598,586		20,395,038		65,053,362
Foreign		22,409,581		19,053,595		12,020,488		53,483,664
Total	¥	49,469,319	¥	36,652,181	¥	32,415,526	¥	118,537,026

The above loans due after one year which had predetermined interest rates and floating or adjustable interest rates at March 31, 2020 are shown below:

	Domestic		Foreign		Total
	(in millions)
Predetermined rate	¥	18,140,119	¥	5,525,084	¥	23,665,203
Floating or adjustable rate		19,853,505		25,548,999		45,402,504
Total	¥	37,993,624	¥	31,074,083	¥	69,067,707

Nonaccrual, Past Due and Restructured Loans

We generally discontinue the accrual of interest income on loans when substantial doubt exists as to the full and timely collection of either principal or interest, when principal or interest is contractually past due one month or more with respect to loans within all classes of the Commercial segment, three months or more with respect to loans within the Card, MUFG Americas Holdings, and Krungsri segments, and six months or more with respect to loans within the Residential segment.

Regarding our policy for placing loans on nonaccrual status, see “Summary of Significant Accounting Policies — Loans” in Note 1 to our consolidated financial statements included elsewhere in this Annual Report.

A-9

The following table shows the distribution of our nonaccrual loans, restructured loans and accruing loans which are contractually past due 90 days or more as to principal or interest payments at March 31 of each of the five fiscal years ended March 31, 2020, based on the domicile and type of industry of the borrowers:

	At March 31,
	2016		2017		2018		2019		2020
	(in millions)
Nonaccrual loans:
Domestic:
Manufacturing	¥	372,875	¥	185,124	¥	77,188	¥	65,921	¥	93,798
Construction		15,256		15,248		10,922		9,877		8,558
Real estate		66,210		50,142		37,853		26,513		30,449
Services		41,056		38,977		31,733		27,115		52,182
Wholesale and retail		132,858		131,545		108,639		94,990		94,440
Banks and other financial institutions		675		2,432		1,145		898		994
Communication and information services		20,270		18,711		13,815		11,955		10,539
Other industries		29,715		10,352		37,677		26,110		20,766
Consumer		174,106		161,680		149,491		143,668		136,181
Total domestic		853,021		614,211		468,463		407,047		447,907
Foreign:
Governments and official institutions		132		—		—		—		34
Banks and other financial institutions		14,337		5,902		1,716		1,160		443
Commercial and industrial		264,163		301,685		215,601		219,669		255,214
Other		68,514		64,834		67,869		78,780		100,628
Total foreign		347,146		372,421		285,186		299,609		356,319
Total	¥	1,200,167	¥	986,632	¥	753,649	¥	706,656	¥	804,226
Restructured loans:
Domestic	¥	459,294	¥	682,041	¥	557,368	¥	511,151	¥	492,566
Foreign		166,240		158,784		137,674		127,931		172,549
Total	¥	625,534	¥	840,825	¥	695,042	¥	639,082	¥	665,115
Accruing loans contractually past due 90 days or more:
Domestic	¥	47,919	¥	37,650	¥	17,356	¥	13,621	¥	11,148
Foreign(1)		314		3,430		2,408		2,778		2,339
Total	¥	48,233	¥	41,080	¥	19,764	¥	16,399	¥	13,487
Total(2)	¥	1,873,934	¥	1,868,537	¥	1,468,455	¥	1,362,137	¥	1,482,828

Notes:

(1) Foreign accruing loans contractually past due 90 days or more do not include ¥1,930 million, ¥1,514 million, ¥549 million, ¥234 million and ¥74 million of Federal Deposit Insurance Corporation (“FDIC”) covered loans held by MUFG Americas Holdings which are subject to the guidance on loans and debt securities acquired with deteriorated credit quality at March 31, 2016, 2017, 2018, 2019 and 2020, respectively.

(2) The sum of nonaccrual loans, restructured loans and accruing loans contractually past due 90 days or more includes large groups of smaller-balance homogenous loans that have not been modified and are collectively evaluated for impairment, and accruing loans contractually past due 90 days or more. However, these loans are excluded from the impaired loan balances of ¥1,209,791 million and ¥1,306,829 million, at March 31, 2019 and 2020, respectively, disclosed in Note 4 to our consolidated financial statements included elsewhere in this Annual Report.

Gross interest income which would have been accrued at the original terms on domestic nonaccrual and restructured loans outstanding during the fiscal year ended March 31, 2020 was approximately ¥32.5 billion, of

A-10

which ¥11.9 billion was included in the results of operations for the fiscal year. Gross interest income which would have been accrued at the original terms on foreign nonaccrual and restructured loans outstanding for the fiscal year ended March 31, 2020 was approximately ¥38.5 billion, of which ¥18.3 billion was included in the results of operations for the fiscal year.

Potential Problem Loans

We do not have potential problem loans where known information about possible credit problems of borrowers causes management to have serious doubts as to the borrowers’ ability to comply with the present loan repayment terms that are not disclosed as nonaccrual loans, restructured loans and accruing loans past due 90 days or more.

Foreign Loans Outstanding

We had no cross-border outstandings to borrowers domiciled in a foreign country which in total exceeded 0.75% of our consolidated total assets at March 31, 2018, 2019 and 2020. Cross-border outstandings are defined, for this purpose, as loans (including accrued interest), acceptances, interest-earning deposits with other banks, other interest-earning investments and any other monetary assets denominated in Japanese yen or other non-local currencies. Material local currency loans outstanding which are neither hedged nor funded by local currency borrowings are included in cross-border outstandings.

Guarantees of outstandings to borrowers domiciled in other countries are considered to be outstandings of the guarantor. Loans made to, or deposits placed with, a branch of a foreign bank located outside the foreign bank’s home country are considered to be loans to, or deposits with, the foreign bank. Outstandings of a country do not include principal or interest amounts which are supported by written, legally enforceable guarantees by guarantors of other countries or the amounts of outstandings to the extent that they are secured by tangible, liquid collateral held and realizable by MUFG Bank, Mitsubishi UFJ Trust and Banking and their subsidiaries outside the country in which they operate.

In addition to credit risk, cross-border outstandings are subject to country risk that as a result of political or economic conditions in a country, borrowers may be unable or unwilling to pay principal and interest according to contractual terms. Other risks related to cross-border outstandings include the possibility of insufficient foreign exchange and restrictions on its availability.

In order to manage country risk, we establish various risk management measures internally. Among other things, we regularly monitor economic conditions and other factors globally and assess country risk in each country where we have cross-border exposure. For the purposes of monitoring and controlling the amount of credit exposed to country risk, we set a country limit, the maximum amount of credit exposure for an individual country, in consideration of the level of country risk and our ability to bear such potential risk. We also determine our credit policy for each country in accordance with our country risk level and our business plan with regard to the country. The assessment of country risk, establishment of country limits, and determination of country credit policies are subject to review and approval by our senior management and are updated periodically.

Loan Concentrations

At March 31, 2020, there were no concentrations of loans to a single industry group of borrowers, as defined by the Bank of Japan industry segment loan classifications, which exceeded 10 % of our consolidated total loans, except for loans in a category disclosed in the table of loans outstanding above.

A-11

Credit Risk Management

We have a credit rating system, under which borrowers and transactions are graded on a worldwide basis. We calculate probability of default by statistical means and manage our credit portfolio based on this credit rating system. For a detailed description of this system and other elements of our risk management structure, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Credit Risk Management.”

IV. Summary of Loan Loss Experience

The following table shows an analysis of our loan loss experience by industry of the borrower for each of the five fiscal years ended March 31, 2020:

	Fiscal years ended March 31,
	2016			2017			2018			2019			2020
	(in millions, except percentages)
Allowance for credit losses at beginning of fiscal year	¥	1,055,479		¥	1,111,130		¥	1,182,188		¥	764,124		¥	658,184
Provision for (reversal of) credit losses		231,862			253,688			(240,847	)		34,330			321,713
Charge-offs:
Domestic:
Manufacturing		50,813			30,549			10,621			10,525			9,923
Construction		1,617			647			789			992			300
Real estate		1,857			2,318			1,305			619			2,584
Services		5,102			5,225			1,867			4,207			6,533
Wholesale and retail		32,910			17,402			20,979			20,901			12,529
Banks and other financial institutions		35			—			650			2,523			12
Communication and information services		1,173			2,903			1,254			11,309			1,370
Other industries		953			767			29,839			2,758			596
Consumer		15,847			22,877			26,786			24,795			28,791
Total domestic		110,307			82,688			94,090			78,629			62,638
Total foreign		88,464			131,070			138,019			95,412			180,497
Total		198,771			213,758			232,109			174,041			243,135
Recoveries:
Domestic		22,357			21,954			22,261			15,467			24,838
Foreign		19,455			21,995			28,849			28,650			39,020
Total		41,812			43,949			51,110			44,117			63,858
Net charge-offs		156,959			169,809			180,999			129,924			179,277
Other(1)		(19,252	)		(12,821	)		3,782			(10,346	)		8,920
Allowance for credit losses at end of fiscal year	¥	1,111,130		¥	1,182,188		¥	764,124		¥	658,184		¥	809,540
Allowance for credit losses applicable to foreign activities:
Balance at beginning of fiscal year	¥	267,293		¥	416,221		¥	387,250		¥	303,719		¥	303,867
Balance at end of fiscal year	¥	416,221		¥	387,250		¥	303,719		¥	303,867		¥	402,784
Provision for credit losses	¥	237,189		¥	92,689		¥	21,889		¥	77,338		¥	231,831
Ratio of net charge-offs during the fiscal year to average loans outstanding during the fiscal year		0.13	%		0.14	%		0.15	%		0.11	%		0.15	%

Note:

(1) Other principally includes losses (gains) from foreign exchange translation.

A-12

The following table shows an allocation of our allowance for credit losses at March 31 for each of the five fiscal years ended March 31, 2020:

	At March 31,
	2016						2017						2018						2019						2020
	Amount			% of loans in each category to total loans			Amount			% of loans in each category to total loans			Amount			% of loans in each category to total loans			Amount			% of loans in each category to total loans			Amount			% of loans in each category to total loans
	(in millions, except percentages)
Domestic:
Manufacturing	¥	321,412			9.88	%	¥	409,018			9.95	%	¥	179,799			9.27	%	¥	108,463			9.52	%	¥	146,281			9.66	%
Construction		9,813			0.74			12,097			0.69			7,934			0.67			6,856			0.61			5,671			0.62
Real estate		31,960			9.08			33,579			9.81			21,062			10.03			15,664			9.99			15,244			10.17
Services		34,430			2.03			42,023			2.15			29,518			2.29			24,473			2.26			45,202			2.18
Wholesale and retail		116,450			6.41			138,119			6.73			99,985			6.81			93,112			6.52			93,636			6.33
Banks and other financial institutions		12,840			4.18			14,732			4.41			7,636			4.11			6,198			4.45			5,932			4.35
Communication and information services		14,371			1.23			13,902			1.38			17,300			1.32			8,327			1.29			7,327			1.33
Other industries		48,870			11.97			25,156			7.50			13,543			7.62			15,398			7.47			15,055			7.32
Consumer		102,351			13.33			106,312			13.92			80,238			13.88			75,271			13.49			72,408			12.93
Foreign:
Governments and official institutions		22,950			0.91			25,098			0.88			751			0.78			367			0.72			369			0.61
Banks and other financial institutions		24,471			11.09			20,717			11.68			10,452			10.95			6,970			9.93			10,117			9.94
Commercial and industrial		307,050			24.42			263,429			25.55			197,653			26.07			196,237			27.27			250,438			27.47
Other		61,750			4.73			78,006			5.35			94,863			6.20			100,293			6.48			141,860			7.09
Unallocated		2,412			—			—			—			3,390			—			555			—			—			—
Total	¥	1,111,130			100.00	%	¥	1,182,188			100.00	%	¥	764,124			100.00	%	¥	658,184			100.00	%	¥	809,540			100.00	%
Allowance as a percentage of loans		0.90	%					1.00	%					0.65	%					0.56	%					0.68	%
Allowance as a percentage of nonaccrual loans, restructured loans and accruing loans contractually past due 90 days or more		59.29	%					63.27	%					52.04	%					48.32	%					54.59	%

While the allowance for credit losses contains amounts allocated to components of specifically identified loans as well as a group on a portfolio of loans, the allowance for credit losses covers the credit losses of the entire loan portfolio and the allocations shown above are not intended to be restricted to the specific loan category. Accordingly, as the evaluation of credit risk changes, allocations of the allowance will be adjusted to reflect current conditions and various other factors.

A-13

V. Deposits

The following table shows the average amount of, and the average rate paid on, the following deposit categories for the fiscal years ended March 31, 2018, 2019 and 2020:

	Fiscal years ended March 31,
	2018					2019					2020
	Average amount		Average rate			Average amount		Average rate			Average amount		Average rate
	(in millions, except percentages)
Domestic offices:
Non-interest-bearing demand deposits	¥	22,701,413		—	%	¥	24,429,358		—	%	¥	25,243,586		—	%
Interest-bearing demand deposits		76,104,436		0.03			80,318,814		0.05			81,846,344		0.07
Deposits at notice		1,773,780		0.00			1,658,467		0.01			1,413,584		0.00
Time deposits		41,501,996		0.08			40,670,338		0.07			39,291,672		0.04
Certificates of deposit		3,760,848		0.01			2,014,290		0.01			1,743,325		0.01
Foreign offices:
Non-interest-bearing demand deposits		5,477,038		—			5,356,424		—			5,037,045		—
Interest-bearing deposits, principally time deposits and certificates of deposit		41,421,717		1.10			41,945,626		1.55			45,216,271		1.68
Total	¥	192,741,228				¥	196,393,317				¥	199,791,827

Deposits at notice represent interest-bearing demand deposits which require the depositor to give two or more days notice in advance of withdrawal.

The average amounts of total deposits by foreign depositors included in domestic offices for the fiscal years ended March 31, 2018, 2019 and 2020 were ¥882,772 million, ¥820,311 million and ¥775,125 million, respectively.

At March 31, 2020, the balances and remaining maturities of time deposits and certificates of deposit (“CDs”) issued by domestic offices in amounts of ¥10 million (approximately U.S.$93 thousand at the Federal Reserve Bank of New York’s noon buying rate on March 31, 2020) or more and total foreign deposits issued in amounts of U.S.$100,000 or more are shown in the following table:

	Time deposits		Certificates of deposit		Total
	(in millions)
Domestic offices:
Three months or less	¥	6,245,409	¥	1,053,269	¥	7,298,678
Over three months through six months		3,767,815		132,490		3,900,305
Over six months through twelve months		9,461,967		112,302		9,574,269
Over twelve months		3,088,431		95,393		3,183,824
Total	¥	22,563,622	¥	1,393,454	¥	23,957,076
Foreign offices					¥	23,329,855

A-14

VI. Short-Term Borrowings

The following table shows certain additional information with respect to our short-term borrowings for the fiscal years ended March 31, 2018, 2019 and 2020:

	Fiscal years ended March 31,
	2018			2019			2020
	(in millions, except percentages)
Call money, funds purchased, and payables under repurchase agreements and securities lending transactions:
Average balance outstanding during the fiscal year	¥	28,052,275		¥	26,406,493		¥	27,747,633
Maximum balance outstanding at any month-end during the fiscal year		28,757,355			31,395,497			36,535,711
Balance at end of fiscal year		28,757,355			28,588,039			36,535,711
Weighted average interest rate during the fiscal year		0.61	%		1.28	%		1.30	%
Weighted average interest rate on balance at end of fiscal year		0.61	%		1.13	%		0.72	%
Due to trust account and other short-term borrowings:
Average balance outstanding during the fiscal year	¥	10,556,895		¥	9,875,361		¥	9,883,337
Maximum balance outstanding at any month-end during the fiscal year		11,823,043			10,821,354			19,433,229
Balance at end of fiscal year		10,267,282			9,467,025			19,433,229
Weighted average interest rate during the fiscal year		0.65	%		1.25	%		1.34	%
Weighted average interest rate on balance at end of fiscal year		0.87	%		1.40	%		0.55	%

A-15

CONSOLIDATED FINANCIAL STATEMENTS

INDEX

	Page
Report of Independent Registered Public Accounting Firm		F-3
Consolidated Balance Sheets as of March 31, 2019 and 2020		F-9
Consolidated Statements of Income for the Fiscal Years ended March 31, 2018, 2019 and 2020		F-11
Consolidated Statements of Comprehensive Income for the Fiscal Years ended March 31, 2018, 2019 and 2020		F-13
Consolidated Statements of Equity for the Fiscal Years ended March 31, 2018, 2019 and 2020		F-14
Consolidated Statements of Cash Flows for the Fiscal Years ended March 31, 2018, 2019 and 2020		F-16
Notes to Consolidated Financial Statements		F-18
1. Basis of Financial Statements and Summary of Significant Accounting Policies		F-18
2. Business Developments		F-36
3. Investment Securities		F-41
4. Loans and Allowance for Credit Losses		F-48
5. Premises and Equipment		F-65
6. Goodwill and Other Intangible Assets		F-66
7. Lease Transactions		F-70
8. Income Taxes		F-72
9. Pledged Assets and Collateral		F-77
10. Deposits		F-79
11. Call Money and Funds Purchased		F-79
12. Due to Trust Account, Short-term Borrowings and Long-term Debt		F-80
13. Severance Indemnities and Pension Plans		F-83
14. Other Assets and Liabilities		F-92
15. Offsetting of Derivatives, Repurchase Agreements, and Securities Lending Transactions		F-95
16. Repurchase Agreements, and Securities Lending Transactions Accounted for as Secured Borrowings		F-96
17. Preferred Stock		F-98
18. Common Stock and Capital Surplus		F-98
19. Retained Earnings, Legal Reserve and Dividends		F-100
20. Accumulated Other Comprehensive Income (Loss)		F-102
21. Regulatory Capital Requirements		F-106
22. Earnings per Common Share Applicable to Common Shareholders of MUFG		F-114
23. Derivative Financial Instruments		F-114
24. Obligations Under Guarantees and Other Off-balance Sheet Instruments		F-121
25. Variable Interest Entities		F-125
26. Commitments and Contingent Liabilities		F-136
27. Fees and Commissions Income		F-137
28. Trading Account Profits and Losses		F-138
29. Business Segments		F-139
30. Foreign Activities		F-142
31. Fair Value		F-144
32. Parent Company Only Financial Information		F-161
33. Subsequent Events		F-164

F-1

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F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and the Shareholders of

Mitsubishi UFJ Financial Group, Inc.

(Kabushiki Kaisha Mitsubishi UFJ Financial Group)

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Mitsubishi UFJ Financial Group, Inc. (Kabushiki Kaisha Mitsubishi UFJ Financial Group) (“MUFG”) and subsidiaries (together, the “MUFG Group”) as of March 31, 2019 and 2020, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended March 31, 2020, and the related notes (collectively referred to as the “financial statements”) (all expressed in Japanese yen). In our opinion, the financial statements present fairly, in all material respects, the financial position of the MUFG Group as of March 31, 2019 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the MUFG Group’s internal control over financial reporting as of March 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 10, 2020, expressed an unqualified opinion on the MUFG Group’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the MUFG Group changed its method of accounting for unrealized holding gains and losses on equity investment securities on April 1, 2018 due to the adoption of Financial Accounting Standards Board Accounting Standards Update 2016-01, Financial Instruments—Overall (Subtopic 825-10)—Recognition and Measurement of Financial Assets and Financial Liabilities.

Basis for Opinion

These financial statements are the responsibility of the MUFG Group’s management. Our responsibility is to express an opinion on the MUFG Group’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the MUFG Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

F-3

Allowance for Credit Losses—Commercial Segment—Refer to Notes 1 and 4 to the Financial Statements

Critical Audit Matter Description

The MUFG Group has banking subsidiaries and they are engaged in lending business as one of their core businesses. It maintains an allowance for credit losses to absorb incurred probable losses inherent in the loan portfolio because there is a risk of not collecting all or part of the loan amount due to credit events such as borrower’s bankruptcy. The appropriate level of the allowance for credit losses for the loan portfolio was determined by evaluating various factors and assumptions, such as the borrower’s internal credit rating and historical loss experience as well as adjustments to reflect existing economic conditions at the balance sheet date. At March 31, 2020, the MUFG Group had ¥86,622,787 million of loans in the Commercial segment and recorded an allowance for credit losses against these loans of ¥482,275 million.

Of the various factors and assumptions, the determination of the allowance for credit losses for the Commercial segment requires management to make significant judgments due to the subjectivity and uncertainty associated with the determination of borrowers’ internal credit ratings which are highly dependent on the estimation of the borrowers’ performance and business sustainability in case the borrowers experience financial problems. As the particular borrowers’ internal credit ratings are affected by changes in the borrowers’ external and internal business environment, there is a high degree of uncertainty and subjective judgment made by management.

In addition, the MUFG Group recognized a qualitative reserve for loan losses, specific to the Commercial segment as a result of the estimated impact that COVID-19 had on borrowers’ credit risk which has been incurred but did not appear on the individual borrower’s financials. The estimate included assumptions regarding which borrowers (certain industries and regions) have suffered significant impacts on their performance as a result of the COVID-19. Assumptions about the severity and duration of the COVID-19 were also used to estimate the impact of the COVID-19 on the borrowers. There is a high degree of uncertainty and subjective judgment made by management due to the lack of consensus relating to the severity and duration of the COVID-19.

Thus, we identified the particular borrowers’ internal credit ratings used to determine the allowance for credit losses for the Commercial segment and the qualitative reserve recorded in the Commercial segment as a result of the COVID-19 as critical audit matters. Auditing the determination of the internal credit ratings and the qualitative reserve required a high degree of auditor judgment and an increased extent of effort, including the need to involve our credit specialists, when performing audit procedures to evaluate the reasonableness of the internal credit ratings and the amount of the qualitative reserve.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the particular borrowers’ internal credit ratings used to determine the allowance for credit losses for the Commercial segment and the qualitative reserve recorded in the Commercial segment as a result of the COVID-19 included the following, among others:

• We tested the effectiveness of controls, including review and approval, over the borrowers’ internal credit ratings and the determination of the amount of the qualitative reserve as a result of the COVID-19.

• We tested the effectiveness of controls over the completeness and accuracy of the information used in performing the aforementioned controls, including the borrowers’ underlying information.

• With the assistance of our credit specialists, we tested significant assumptions applied by management to determine the internal credit ratings and the appropriateness of the borrowers’ underlying information by comparing them with available relevant external information.

F-4

• For the borrowers in certain industries and regions who have suffered significant impacts on their performance as a result of the COVID-19, with the assistance of our credit specialists, we tested the reasonableness of these significant assumptions used to estimate the impact of the COVID-19 on the borrowers by comparing the information which is the basis for management’s determination of the qualitative reserve as a result of the COVID-19 with available relevant external information and evaluating appropriateness of the information used by management.

Business Developments—Danamon’s Relationships with Agents and FSI’s Customer Relationships—Refer to Note 2 to the Financial Statements

Critical Audit Matter Description

As part of the global strategies, the MUFG Group has executed multiple large-scale acquisitions, investments, and capital alliances. The MUFG Group recorded intangible assets through these business combinations. As the fair value measurement of the intangible assets includes complex estimates that require specialized knowledge, there is a risk that fair value of the intangible assets is not properly estimated. The MUFG Group completed the acquisition of PT Bank Danamon Indonesia, Tbk. (“Danamon”) on April 29, 2019 and the acquisition of nine subsidiaries of Colonial First State Group Limited, which collectively, including their subsidiaries, represent the global asset management business of Colonial First State Global Asset Management, on August 2, 2019, which were renamed First Sentier Investors (“FSI”) after the acquisition. The MUFG Group accounted for these acquisitions under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including Danamon’s relationships with agents of ¥79,552 million and FSI’s customer relationships of ¥100,862 million, respectively. Management estimated the fair values of these intangible assets using the multi-period excess earnings method, which is a specific discounted cash flow method.

The estimation of the fair values of these intangible assets required management to make significant judgements related to the following assumptions due to the subjectivity and uncertainty:

For the Danamon’s relationships with agents,

• The growth rate of loan origination amounts reflecting market growth forecast

• The attrition rate of the existing agents based on historical actual results

• The discount rate in which the risk that the future cash flows differ from the estimate is taken into consideration

For the FSI’s customer relationships,

• The growth rate of asset under management reflecting market growth forecast

• The attrition rate of the existing customers based on historical actual results

• The discount rate in which the risk that the future cash flows differ from the estimate is taken into consideration

As determination of these assumptions require specialized knowledge of corporate valuation and are affected by external factors such as market and customer conditions, there is a high degree of uncertainty and subjective judgment made by management. If these assumptions are not appropriate, there is a potential risk that fair values of the intangible assets at the time of the business combination are not properly measured.

Thus, we identified the aforementioned assumptions used to estimate the fair values of the Danamon’s relationships with agents and the FSI’s customer relationships as critical audit matters because of the significant judgments made by management to estimate the fair values of the intangible assets. Auditing these significant assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our specialists, when performing audit procedures to evaluate the reasonableness of the significant assumptions.

F-5

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the significant assumptions used to estimate the fair values of the Danamon’s relationships with agents and the FSI’s customer relationships included the following, among others:

• We tested the effectiveness of controls related to the valuation of intangible assets, including review and approval, over the growth rates of loan origination amounts and asset under management reflecting the market growth forecast, the attrition rates of existing agents and customers based on historical actual results, and the discount rates applied to estimation of future cash flows.

• We tested the effectiveness of controls over the completeness and accuracy of the key underlying data used in performing the aforementioned controls.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the growth rates of loan origination amounts and assets under management reflecting the market growth forecast, the attrition rates of existing agents and customers based on historical actual results, and the discount rates applied to estimation of future cash flows by evaluating whether they were appropriately estimated to reflect the circumstances inherent to the entity, which includes comparing them with available external information.

Goodwill—Danamon and MUFG Americas Holdings Corporation Reporting Units—Refer to Notes 1 and 6 to the Financial Statements

Critical Audit Matter Description

As part of the global strategies, the MUFG Group has executed multiple large-scale acquisitions, investments, and capital alliances. The MUFG Group recorded a large amount of goodwill through these business combinations. There is a risk of a large amount of loss by the goodwill impairment as the MUFG Group does not obtain the expected synergy effects due to various factors such as unexpected changes in the region and industry of investees. The MUFG Group’s consolidated goodwill balance was ¥517,626 million at March 31, 2020, which was allocated to the MUFG Group’s reporting units. Goodwill arising from a business combination is not amortized but is tested at least annually for impairment. Goodwill is recorded at a designated reporting unit level for the purpose of assessing impairment. The MUFG Group’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its respective carrying value. The fair value of the Danamon reporting unit was measured using Danamon’s market capitalization and a corresponding control premium as a market approach, which was also corroborated by other valuation techniques. The MUFG Group determined that the carrying value of Danamon exceeded the fair value as of the measurement date, resulting in the impairment loss on goodwill of ¥241,356 million for the fiscal year ended March 31, 2020. In addition, the MUFG Group measured the fair values of the MUFG Americas Holdings Corporation (“MUAH”) reporting units within the Global Commercial Banking Business Group segment and Global Corporate & Investment Banking Business Group segment (“MUAH reporting units”) using a combination of the income and the market approaches. The income approach estimates the fair values of the reporting units by discounting management’s projections of each reporting unit’s cash flows, including a terminal value to estimate the fair value of cash flows beyond the final year of projected results, using a discount rate derived from the Capital Asset Pricing Model. The market approach incorporates comparable public company price to tangible book value and price to earnings multiples. The MUFG Group determined that the carrying values of the MUAH reporting units exceeded the fair values as of the measurement date, resulting in the impairment loss on goodwill of ¥80,297 million for the fiscal year ended March 31, 2020.

The estimation of the fair values of the Danamon and MUAH reporting units requires management to make significant judgements related to the following significant assumptions due to the subjectivity and uncertainty:

For the Danamon reporting unit,

• The market capitalization to estimate the fair value of the Danamon reporting unit

• The control premium considered in relation to market capitalization

F-6

For the MUAH reporting units,

• Projected future operating cash flows based on forecasted future income in the income approach

If these assumptions are not appropriate, there is a potential risk that the valuation of the goodwill is not properly measured.

Thus, we identified the aforementioned assumptions used to estimate the fair values of the Danamon and MUAH reporting units as critical audit matters because of the significant judgments made by management to develop the significant assumptions used in estimation of the fair values of the Danamon and MUAH reporting units. Auditing these significant assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our specialists, when performing audit procedures to evaluate the reasonableness of the aforementioned significant assumptions.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the significant assumptions used to estimate the fair values of the Danamon and MUAH reporting units included the following, among others:

For the Danamon reporting unit,

• We tested the effectiveness of controls, including review and approval of determination whether an adjustment to the market capitalization is necessary by assessing the volume and level of activity in the market.

• We tested the effectiveness of controls, including review and approval of determination of comparable transactions used to determine the control premium.

• We tested the effectiveness of controls, including review and approval of the comparison of the fair value of the Danamon reporting unit calculated by market approach with the fair values calculated by alternative valuation techniques.

• We tested the effectiveness of controls over the completeness and accuracy of the key underlying data used in performing the aforementioned controls.

• We tested whether an adjustment to the market capitalization is necessary by assessing the volume and level of activity in the market.

• With the assistance of our fair value specialists, for the estimation of the control premium, we evaluated the relevance of the comparable transactions to Danamon acquisition by considering their industries, sizes, and businesses, among other factors. In addition, we evaluated the reasonableness of the control premium pertaining to the comparable transactions.

• With the assistance of our fair value specialists, in order to test the reasonableness of the valuation technique used to calculate the fair value of the Danamon reporting unit, we compared management’s fair value estimate with the fair values calculated by alternative valuation techniques.

For the MUAH reporting units,

• We tested the effectiveness of controls, including review and approval, over the projected future operating cash flows based on forecasted future income in the income approach, including controls over the assumptions used to estimate the projected future operating cash flows.

• We tested the effectiveness of controls over the completeness and accuracy of the key underlying data used in performing the aforementioned controls.

F-7

• We evaluated the reasonableness of management’s projected future operating cash flows based on forecasted future income by inquiring of management, comparing the projections to historical results, and inspecting financial trends and metrics.

• We considered the impact of changes in macroeconomic and company specific factors on management’s forecasts.

• With the assistance of our fair value specialists, we evaluated the reasonableness of management’s projected future operating cash flows based on forecasted future income for each of the MUAH reporting units.

/s/Deloitte Touche Tohmatsu LLC

Tokyo, Japan

July 10, 2020

We have served as the MUFG Group’s auditor since 1976.

F-8

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2019 AND 2020

(in millions)	2019			2020
ASSETS
Cash and due from banks (Note 9)	¥	33,924,340		¥	33,283,032
Interest-earning deposits in other banks (Note 9)		40,646,920			45,266,680
Cash, due from banks and interest-earning deposits in other banks		74,571,260			78,549,712
Call loans and funds sold		1,109,995			1,168,515
Receivables under resale agreements (Note 15)		10,974,740			23,995,961
Receivables under securities borrowing transactions (Note 15)		2,758,573			3,443,959
Trading account assets (including assets pledged that secured parties are permitted to sell or repledge of ¥7,512,025 and ¥6,709,467 in 2019 and 2020) (including ¥18,597,303 and ¥20,964,024 measured at fair value under the fair value option in 2019 and 2020) (Notes 9, 15, 23 and 31)		40,576,618			47,504,058
Investment securities (Notes 3, 9 and 31):
Available-for-sale debt securities (including assets pledged that secured parties are permitted to sell or repledge of ¥6,981,664 and ¥4,490,360 in 2019 and 2020)		33,518,503			34,200,203
Held-to-maturity debt securities (including assets pledged that secured parties are permitted to sell or repledge of ¥160,828 and ¥56,411 in 2019 and 2020) (fair value of ¥4,452,947 and ¥4,177,894 in 2019 and 2020)		4,441,901			4,165,781
Equity securities (including assets pledged that secured parties are permitted to sell or repledge of ¥1,364 and ¥616 in 2019 and 2020) (including ¥6,413,867 and ¥4,850,376 in 2019 and 2020 measured at fair value)		6,977,600			5,385,258
Total investment securities		44,938,004			43,751,242
Loans, net of unearned income, unamortized premiums and deferred loan fees (including assets pledged that secured parties are permitted to sell or repledge of ¥802,185 and ¥648,437 in 2019 and 2020) (Notes 4 and 9)		116,883,941			118,186,739
Allowance for credit losses (Note 4)		(658,184	)		(809,540	)
Net loans		116,225,757			117,377,199
Premises and equipment—net (Note 5 and 7)		973,600			929,529
Customers’ acceptance liability		247,996			167,257
Intangible assets—net (Notes 2 and 6)		927,196			1,239,526
Goodwill (Notes 2 and 6)		433,891			517,626
Other assets (Notes 7, 8, 9, 13, 14 and 31)		11,491,269			13,108,699
Total assets	¥	305,228,899		¥	331,753,283
Assets of consolidated VIEs included in total assets above that can be used only to settle obligations of consolidated VIEs (Note 25)
Cash and due from banks	¥	7		¥	846
Interest-earning deposits in other banks		23,655			30,047
Trading account assets		528,690			695,069
Investment securities		1,828,194			1,804,459
Loans		15,545,328			16,072,595
All other assets		294,212			244,645
Total assets of consolidated VIEs	¥	18,220,086		¥	18,847,661

F-9

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS—(Continued)

AS OF MARCH 31, 2019 AND 2020

(in millions, except shares)	2019			2020
LIABILITIES AND EQUITY
Deposits (Notes 9 and 10):
Domestic offices:
Non-interest-bearing	¥	25,222,218		¥	28,091,421
Interest-bearing		124,859,036			126,485,629
Overseas offices:
Non-interest-bearing		5,220,557			5,290,262
Interest-bearing		43,978,978			44,087,216
Total deposits		199,280,789			203,954,528
Call money and funds purchased (Notes 9 and 11)		2,450,320			3,668,922
Payables under repurchase agreements (Notes 9, 15 and 16)		25,224,632			31,849,915
Payables under securities lending transactions (Notes 9, 15 and 16)		913,087			1,016,874
Due to trust account and other short-term borrowings (including ¥289,755 and ¥377,133 measured at fair value under the fair value option in 2019 and 2020) (Notes 9, 12 and 31)		9,467,025			19,433,229
Trading account liabilities (Notes 15, 23 and 31)		13,009,492			14,767,433
Bank acceptances outstanding		247,996			167,257
Long-term debt (including ¥325,808 and ¥304,067 measured at fair value under the fair value option in 2019 and 2020) (Notes 7, 9, 12 and 31)		27,990,543			27,926,763
Other liabilities (Notes 1, 7, 8, 9, 13, 14, 15, 16, 26 and 31)		10,660,267			13,223,846
Total liabilities		289,244,151			316,008,767
Commitments and contingent liabilities (Notes 24 and 26)
Mitsubishi UFJ Financial Group shareholders’ equity:
Capital stock (Notes 17 and 18)—common stock authorized, 33,000,000,000 shares; common stock issued, 13,667,770,520 shares and 13,581,995,120 shares at March 31, 2019 and 2020, with no stated value		2,090,270			2,090,270
Capital surplus (Note 18)		5,577,186			5,533,520
Retained earnings (Notes 19 and 33):
Appropriated for legal reserve		239,571			239,571
Unappropriated retained earnings		8,094,026			8,079,530
Accumulated other comprehensive income, net of taxes (Note 20)		(284,269	)		(420,417	)
Treasury stock, at cost—745,921,774 common shares and 741,772,308 common shares at March 31, 2019 and 2020		(517,236	)		(505,987	)
Total Mitsubishi UFJ Financial Group shareholders’ equity		15,199,548			15,016,487
Noncontrolling interests		785,200			728,029
Total equity		15,984,748			15,744,516
Total liabilities and equity	¥	305,228,899		¥	331,753,283
Liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general credit of Mitsubishi UFJ Financial Group (Note 25)
Other short-term borrowings	¥	20,535		¥	30,831
Long-term debt		490,033			465,352
All other liabilities		62,146			101,969
Total liabilities of consolidated VIEs	¥	572,714		¥	598,152

See the accompanying notes to Consolidated Financial Statements.

F-10 

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE FISCAL YEARS ENDED MARCH 31, 2018, 2019 AND 2020

(in millions)	2018			2019			2020
Interest income:
Loans, including fees (Note 4)	¥	2,271,219		¥	2,576,417		¥	2,597,932
Deposits in other banks		126,608			183,327			167,267
Investment securities:
Interest		198,715			237,378			242,123
Dividends		145,186			160,825			172,382
Trading account assets		432,595			499,724			489,842
Call loans and funds sold		10,808			10,354			11,286
Receivables under resale agreements and securities borrowing transactions		73,885			145,354			246,311
Total		3,259,016			3,813,379			3,927,143
Interest expense:
Deposits		514,868			717,366			836,081
Call money and funds purchased		5,248			3,913			3,270
Payables under repurchase agreements and securities lending transactions		165,512			333,632			357,382
Due to trust account, other short-term borrowings and trading account liabilities		93,644			155,273			164,907
Long-term debt		249,483			307,797			322,704
Total		1,028,755			1,517,981			1,684,344
Net interest income		2,230,261			2,295,398			2,242,799
Provision for (reversal of) credit losses (Note 4)		(240,847	)		34,330			321,713
Net interest income after provision for (reversal of) credit losses		2,471,108			2,261,068			1,921,086
Non-interest income:
Fees and commissions income (Note 27)		1,462,792			1,438,578			1,502,052
Foreign exchange losses—net (Note 28)		(49,561	)		(95,987	)		(281,790	)
Trading account profits (losses)—net (Notes 28 and 31)		(73,114	)		168,900			765,373
Investment securities gains (losses)—net (Note 3)(1)(2)		286,903			(252,307	)		(532,248	)
Equity in earnings of equity method investees—net (Note 14)		227,984			209,732			282,712
Gains on sales of loans (Note 4)		16,109			22,663			9,956
Gain on remeasurement of previously held equity method investment (Note 2)		—			—			41,218
Other non-interest income		63,978			103,665			88,422
Total		1,935,091			1,595,244			1,875,695
Non-interest expense:
Salaries and employee benefits (Note 13)		1,165,357			1,175,405			1,242,563
Occupancy expenses—net (Notes 5 and 26)		179,100			179,780			182,917
Fees and commissions expenses		297,847			313,745			332,033
Outsourcing expenses, including data processing		276,236			275,052			303,632
Depreciation of premises and equipment (Note 5)		96,180			98,867			113,489
Amortization of intangible assets (Note 6)		234,376			235,083			237,328
Impairment of intangible assets (Note 6)		21,900			118,108			3,732
Insurance premiums, including deposit insurance		91,847			93,756			98,441
Communications		58,067			59,166			59,976
Taxes and public charges		90,210			95,358			100,198
Impairment of goodwill (Note 6)		—			—			383,810
Provision for (reversal of) off-balance sheet credit instruments		(96,054	)		38,463			(62,279	)
Other non-interest expenses (Notes 5 and 26)		329,314			302,687			367,721
Total		2,744,380			2,985,470			3,363,561

F-11

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME—(Continued)

FOR THE FISCAL YEARS ENDED MARCH 31, 2018, 2019 AND 2020

(in millions, except per share amount)	2018		2019		2020
Income before income tax expense		1,661,819		870,842		433,220
Income tax expense (Note 8)		407,823		133,237		114,505
Net income before attribution of noncontrolling interests		1,253,996		737,605		318,715
Net income attributable to noncontrolling interests		25,836		18,960		12,760
Net income attributable to Mitsubishi UFJ Financial Group	¥	1,228,160	¥	718,645	¥	305,955
Earnings applicable to common shareholders of Mitsubishi UFJ Financial Group	¥	1,228,160	¥	718,645	¥	305,955
Earnings per common share applicable to common shareholders of Mitsubishi UFJ Financial Group (Notes 19 and 22):
Basic earnings per common share—Earnings applicable to common shareholders of Mitsubishi UFJ Financial Group	¥	92.40	¥	55.03	¥	23.69
Diluted earnings per common share—Earnings applicable to common shareholders of Mitsubishi UFJ Financial Group		92.10		54.74		23.47
Cash dividend per common share		18.00		21.00		23.50
Weighted average common shares outstanding		13,292		13,059		12,913
Weighted average diluted common shares outstanding		13,293		13,059		12,913
Notes: (1) The following credit losses are included in Investment securities gains (losses)—net:
(in millions)	2018		2019		2020
Decline in fair value	¥	99	¥	596	¥	1,467
Other comprehensive income—net		15		10		123
Total credit losses	¥	114	¥	606	¥	1,590

(2) New guidance on recognition and measurement of financial assets and financial liabilities requires equity investments to be measured at fair value with changes in fair value recognized in net income from the fiscal year ended March 31, 2019. For additional information, refer to Note 1.

See the accompanying notes to Consolidated Financial Statements.

F-12

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE FISCAL YEARS ENDED MARCH 31, 2018, 2019 AND 2020

(in millions)	2018			2019			2020
Net income before attribution of noncontrolling interests	¥	1,253,996		¥	737,605		¥	318,715
Other comprehensive income (loss), net of tax (Note 20):
Net unrealized gains on investment securities(1)		230,308			88,180			23,619
Net debt valuation adjustments		(2,178	)		9,729			54,172
Net unrealized gains (losses) on derivatives qualifying for cash flow hedges		(7,025	)		(4,890	)		10,642
Defined benefit plans (Note 13)		109,838			(88,940	)		(131,523	)
Foreign currency translation adjustments		(104,778	)		(42,212	)		(81,065	)
Total		226,165			(38,133	)		(124,155	)
Comprehensive income		1,480,161			699,472			194,560
Net income attributable to noncontrolling interests		25,836			18,960			12,760
Other comprehensive income attributable to noncontrolling interests		1,320			21,209			11,993
Comprehensive income attributable to Mitsubishi UFJ Financial Group	¥	1,453,005		¥	659,303		¥	169,807

Note:

(1) Included unrealized gains (losses) related to only debt securities for the fiscal year ended March 31, 2019 and 2020.

See the accompanying notes to Consolidated Financial Statements.

F-13

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE FISCAL YEARS ENDED MARCH 31, 2018, 2019 AND 2020

(in millions, except per share amount)	2018			2019			2020
Capital stock (Notes 17 and 18):
Balance at beginning of fiscal year	¥	2,090,270		¥	2,090,270		¥	2,090,270
Balance at end of fiscal year	¥	2,090,270		¥	2,090,270		¥	2,090,270
Capital surplus (Note 18):
Balance at beginning of fiscal year	¥	5,956,644		¥	5,740,165		¥	5,577,186
Stock-based compensation		315			(180	)		2,596
Purchase of shares of Mitsubishi UFJ NICOS from noncontrolling interest shareholder (Note 2)		(34,751	)		—			—
Retirement of common stock		(190,054	)		(162,720	)		(58,626	)
Other—net		8,011			(79	)		12,364
Balance at end of fiscal year	¥	5,740,165		¥	5,577,186		¥	5,533,520
Retained earnings appropriated for legal reserve (Note 19):
Balance at beginning of fiscal year	¥	239,571		¥	239,571		¥	239,571
Balance at end of fiscal year	¥	239,571		¥	239,571		¥	239,571
Unappropriated retained earnings (Note 19):
Balance at beginning of fiscal year	¥	3,931,612		¥	4,945,733		¥	8,094,026
Net income attributable to Mitsubishi UFJ Financial Group		1,228,160			718,645			305,955
Cash dividends:
Common stock—¥18.00 per share in 2018, ¥21.00 per share in 2019, and ¥23.50 per share in 2020		(240,497	)		(275,551	)		(303,742	)
Losses on sales of shares of treasury stock		(8	)		—			(1	)
Effect of adopting new guidance by a foreign affiliated company		(2,605	)(1)		1,173	(2)		(1,825	)(3)
Effect of adopting new guidance on reclassification of certain tax effects		29,071			—			—
Effect of adopting new guidance on recognition and measurement of financial assets and financial liabilities (Note 1)		—			2,702,242			—
Effect of adopting new guidance on recognition of breakage for certain prepaid stored-value products		—			1,784			—
Effect of adopting new guidance on leases (Note 1)		—			—			(14,883	)
Balance at end of fiscal year	¥	4,945,733		¥	8,094,026		¥	8,079,530

F-14

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY—(Continued)

FOR THE FISCAL YEARS ENDED MARCH 31, 2018, 2019 AND 2020

(in millions)	2018			2019			2020
Accumulated other comprehensive income (loss), net of taxes:
Balance at beginning of fiscal year	¥	2,281,423		¥	2,477,315		¥	(284,269	)
Net change during the fiscal year		224,845			(59,342	)		(136,148	)
Effect of adopting new guidance by a foreign affiliated company		118			—			—
Effect of adopting new guidance on reclassification of certain tax effects		(29,071	)		—			—
Effect of adopting new guidance on recognition and measurement of financial assets and financial liabilities (Note 1)		—			(2,702,242	)		—
Balance at end of fiscal year	¥	2,477,315		¥	(284,269	)	¥	(420,417	)
Treasury stock, at cost:
Balance at beginning of fiscal year	¥	(513,988	)	¥	(522,872	)	¥	(517,236	)
Purchases of shares of treasury stock (Note 18)		(201,102	)		(161,043	)		(50,028	)
Sales of shares of treasury stock		2,098			3,775			2,635
Retirement of common stock		190,054			162,720			58,626
Net decrease resulting from changes in interests in consolidated subsidiaries, consolidated VIEs, and affiliated companies		66			184			16
Balance at end of fiscal year	¥	(522,872	)	¥	(517,236	)	¥	(505,987	)
Total Mitsubishi UFJ Financial Group shareholders’ equity	¥	14,970,182		¥	15,199,548		¥	15,016,487
Noncontrolling interests:
Balance at beginning of fiscal year	¥	779,176		¥	675,633		¥	785,200
Initial subscriptions of noncontrolling interests		48,828			108,235			58,228
Transactions between the consolidated subsidiaries and the related noncontrolling interest shareholders		(120,216	)		(2,830	)		(8,627	)
Decrease in noncontrolling interests related to deconsolidation of subsidiaries		(22,556	)		(20,497	)		(119,797	)
Decrease in noncontrolling interests related to disposition of subsidiaries		—			—			(3,488	)
Purchase of shares of Mitsubishi UFJ NICOS from noncontrolling interest shareholder (Note 2)		(15,390	)		—			—
Net income attributable to noncontrolling interests		25,836			18,960			12,760
Dividends paid to noncontrolling interests		(21,675	)		(15,853	)		(8,487	)
Other comprehensive income, net of taxes		1,320			21,209			11,993
Other—net		310			343			247
Balance at end of fiscal year	¥	675,633		¥	785,200		¥	728,029
Total equity	¥	15,645,815		¥	15,984,748		¥	15,744,516

Notes:

(1) The effect mainly resulted from the adoption of new accounting guidance on “Targeted Improvements to Accounting for Hedging Activities”. See Note 14 for more information.

(2) The effect resulted from the adoption of new accounting guidance on “Leases”.

(3) The effect resulted from the adoption of new accounting guidance on “Measurement of Credit Losses on Financial Instruments”.

See the accompanying notes to Consolidated Financial Statements.

F-15

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE FISCAL YEARS ENDED MARCH 31, 2018, 2019 AND 2020

(in millions)	2018			2019			2020
Cash flows from operating activities:
Net income before attribution of noncontrolling interests	¥	1,253,996		¥	737,605		¥	318,715
Adjustments to reconcile net income before attribution of noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization (Notes 5 and 6)		330,556			333,950			350,817
Impairment of goodwill (Note 6)		—			—			383,810
Impairment of intangible assets (Note 6)		21,900			118,108			3,732
Provision for (reversal of) credit losses (Note 4)		(240,847	)		34,330			321,713
Employee benefit income for severance indemnities and pension plans (Note 13)		(7,955	)		(19,839	)		(6,917	)
Investment securities (gains) losses—net		(286,903	)		252,307			532,248
Amortization of premiums on investment securities		118,863			78,509			65,078
Changes in financial instruments measured at fair value under fair value option, excluding trading account securities—net (Note 31)		(13,456	)		13,880			2,894
Foreign exchange (gains) losses—net		(208,398	)		565,304			544,763
Equity in earnings of equity method investees—net		(227,984	)		(209,732	)		(282,712	)
Provision (benefit) for deferred income tax expense		120,595			(47,796	)		(60,967	)
Decrease (increase) in trading account assets, excluding foreign exchange contracts		5,653,904			(2,695,035	)		(4,902,492	)
Increase (decrease) in trading account liabilities, excluding foreign exchange contracts		(6,433,948	)		1,370,846			2,217,808
Net decrease (increase) in collateral for derivative transactions		259,287			(79,338	)		(217,864	)
Net decrease (increase) in margin for listed derivative transactions		165,383			(87,075	)		(279,844	)
Increase in cash collateral for the use of Bank of Japan’s settlement infrastructure		(643,568	)		(60,462	)		(54,018	)
Other—net		(425,261	)		(77,228	)		(292,664	)
Net cash provided by (used in) operating activities		(563,836	)		228,334			(1,355,900	)
Cash flows from investing activities:
Proceeds from sales of Available-for-sale debt securities (including proceeds from debt securities under the fair value option) (Note 3)		30,995,426			31,283,601			60,731,107
Proceeds from maturities of Available-for-sale debt securities (including proceeds from debt securities under the fair value option) (Note 3)		40,011,298			26,448,801			24,335,639
Purchases of Available-for-sale debt securities (including purchases of debt securities under the fair value option) (Note 3)		(71,593,326	)		(62,309,072	)		(87,618,074	)
Proceeds from maturities of Held-to-maturity debt securities		1,085,603			560,646			708,068
Purchases of Held-to-maturity debt securities		(1,156,122	)		(1,192,989	)		(495,346	)
Proceeds from sales and redemption of Equity securities (including proceeds from equity securities under the fair value option)		2,377,333			2,722,948			3,871,908
Purchases of Equity securities (including purchases of equity securities under the fair value option)		(2,197,171	)		(2,770,356	)		(3,129,666	)
Purchase of common stock in Bank Danamon, an equity method investee of BK (Note 2)		—			(132,335	)		—
Acquisition of Bank Danamon, a subsidiary of BK, net of cash acquired (Note 2)		—			—			(243,597	)
Acquisition of FSI (formerly, Colonial First State Global Asset Management), subsidiaries of TB, net of cash acquired (Note 2)		—			—			(249,615	)
Acquisition of DVB Bank’s Aviation Finance Division, net of cash acquired (Note 2)		—			—			(555,250	)
Net decrease (increase) in loans		(169,478	)		330,198			(1,631,085	)
Net decrease (increase) in call loans, funds sold, and receivables under resale agreements and securities borrowing transactions		4,187,093			627,327			(13,714,288	)
Proceeds from sales of premises and equipment		12,211			26,191			64,400
Capital expenditures for premises and equipment		(159,003	)		(126,479	)		(123,804	)
Purchases of intangible assets		(239,755	)		(276,880	)		(308,081	)
Proceeds from sales and dispositions of investments in equity method investees		39,710			161,566			171,882
Proceeds from sales of consolidated VIEs and subsidiaries—net		122,962			64,395			168,970
Other—net		(72,765	)		(49,590	)		(68,611	)
Net cash provided by (used in) investing activities		3,244,016			(4,632,028	)		(18,085,443	)

F-16

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

FOR THE FISCAL YEARS ENDED MARCH 31, 2018, 2019 AND 2020

(in millions)	2018			2019			2020
Cash flows from financing activities:
Net increase in deposits		5,720,011			3,602,674			5,746,624
Net increase (decrease) in call money, funds purchased, and payables under repurchase agreements and securities lending transactions		3,963,120			(303,042	)		8,077,351
Net increase (decrease) in due to trust account and other short-term borrowings		(906,702	)		(768,649	)		9,944,171
Proceeds from issuance of long-term debt		6,671,031			5,020,636			4,999,531
Repayments of long-term debt		(5,485,894	)		(4,236,887	)		(4,983,073	)
Proceeds from sales of treasury stock		1,316			2,322			1,235
Payments for acquisition of treasury stock (Note 18)		(201,102	)		(159,962	)		(50,028	)
Payments for acquisition of shares of certain subsidiaries from noncontrolling interest shareholders		(318	)		—			—
Payments for acquisition of shares of Mitsubishi UFJ NICOS from noncontrolling interest shareholders (Note 2)		(50,000	)		—			—
Dividends paid		(240,514	)		(275,581	)		(303,728	)
Dividends paid by subsidiaries to noncontrolling interests		(21,675	)		(15,853	)		(8,487	)
Other—net		(87,067	)		197,673			358,922
Net cash provided by financing activities		9,362,206			3,063,331			23,782,518
Effect of exchange rate changes on cash and cash equivalents		(188,149	)		43,975			(362,652	)
Net increase (decrease) in cash and cash equivalents		11,854,237			(1,296,388	)		3,978,523
Cash and cash equivalents at beginning of fiscal year		64,019,219			75,873,456			74,577,068
Cash and cash equivalents:
Cash, due from banks and interest-earning deposits in other banks		75,858,049			74,571,260			78,549,712
Restricted cash included in other assets		15,407			5,808			5,879
Cash and cash equivalents at end of fiscal year	¥	75,873,456		¥	74,577,068		¥	78,555,591
Supplemental disclosure of cash flow information:
Cash paid during the fiscal year for:
Interest	¥	1,040,337		¥	1,488,136		¥	1,759,239
Income taxes, net of refunds		265,225			302,019			128,124
Non-cash investing and financing activities:
Assets acquired under finance lease arrangements (Note 7)		7,111			11,280			12,754
Assets acquired under operating lease arrangements (Note 7)		—			—			46,482
Available-for-sale debt securities transferred to Held-to-maturity debt securities		—			221,537			—
Marketable Equity Securities issued by Bank Danamon transferred to investments in subsidiaries and affiliates (Note 2)		—			98,934			—
Acquisition of Bank Danamon, a subsidiary of BK (Note 2):
Fair value of assets acquired, excluding cash and cash equivalents		—			—			1,811,160
Fair value of liabilities assumed		—			—			1,242,115
Fair value of noncontrolling interests		—			—			51,314
Acquisition of FSI (formerly, Colonial First State Global Asset Management), subsidiaries of TB (Note 2):
Fair value of assets acquired, excluding cash and cash equivalents		—			—			332,914
Fair value of liabilities assumed		—			—			68,519
Acquisition of DVB Bank’s Aviation Finance Division (Note 2):
Fair value of assets acquired		—			—			572,487
Fair value of liabilities assumed		—			—			2,599

See the accompanying notes to Consolidated Financial Statements.

F-17

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Mitsubishi UFJ Financial Group, Inc. (“MUFG”) is a holding company for MUFG Bank, Ltd. (formerly, The Bank of Tokyo-Mitsubishi UFJ, Ltd., “MUFG Bank” or “BK”), Mitsubishi UFJ Trust and Banking Corporation (“Mitsubishi UFJ Trust and Banking” or “TB”), Mitsubishi UFJ Securities Holdings Co., Ltd. (“Mitsubishi UFJ Securities Holdings” or “SCHD”), Mitsubishi UFJ NICOS Co., Ltd. (“Mitsubishi UFJ NICOS”), and other subsidiaries. Mitsubishi UFJ Securities Holdings is an intermediate holding company for Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (“Mitsubishi UFJ Morgan Stanley Securities”). Through its subsidiaries and affiliated companies, MUFG engages in a broad range of financial operations, including commercial banking, investment banking, trust banking and asset management services, securities businesses, and credit card businesses, and it provides related services to individual and corporate customers. See Note 29 for more information by business segment.

Basis of Financial Statements

The accompanying consolidated financial statements are presented in Japanese yen, the currency of the country in which MUFG is incorporated and principally operates. The accompanying consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”). In certain respects, the accompanying consolidated financial statements reflect adjustments which are not included in the consolidated financial statements issued by MUFG and certain of its subsidiaries in accordance with applicable statutory requirements and accounting practices in their respective countries of incorporation. The major adjustments include those relating to (1) investment securities, (2) derivative financial instruments, (3) allowance for credit losses, (4) income taxes, (5) consolidation, (6) premises and equipment, (7) transfer of financial assets, (8) accrued severance indemnities and pension liabilities, (9) goodwill and other intangible assets and (10) lease transactions.

Fiscal years of certain subsidiaries, which end on December 31, and MUFG’s fiscal year, which ends on March 31, have been treated as coterminous. For the fiscal years ended March 31, 2018, 2019 and 2020, the effect of recording intervening events for the three-month periods ended March 31 on MUFG’s proportionate equity in net income of subsidiaries with fiscal years ended on December 31, would have resulted in a decrease of ¥10.76 billion, an increase of ¥19.97 billion, and a decrease of ¥142 – ¥164 billion to net income attributable to Mitsubishi UFJ Financial Group, respectively. The decrease for the three-month period ended on March 31, 2020 was largely due to an additional allowance for loan losses caused by COVID-19 and goodwill impairment. See Notes 4 and 6 for more information. MUFG concluded that these intervening events do not represent substantial and permanent effects on its consolidated financial statements in any of the years presented.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to management judgment primarily relate to the allowance for credit losses, the valuation of deferred tax assets, the valuation of financial instruments, the accounting for goodwill and intangible assets, impairment of investment securities, the allowances for repayment of excess interest and accrued severance indemnities and pension liabilities.

F-18

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Summary of Significant Accounting Policies

Significant accounting policies applied in the accompanying consolidated financial statements are summarized below:

Consolidation—The accompanying consolidated financial statements include the accounts of MUFG, its subsidiaries and certain variable interest entities (“VIE”s) (together, the “MUFG Group”). In situations in which the MUFG Group has a controlling financial interest in other entities, including certain VIEs, such entities are consolidated and noncontrolling interests, if any, are recorded in Total equity. Intercompany transactions and balances have been eliminated. Investments in affiliated companies (companies over which the MUFG Group has the ability to exercise significant influence) are accounted for by the equity method of accounting and are reported in Other assets. The MUFG Group’s equity interest in the earnings of these equity investees and other-than-temporary impairment (“OTTI”) are reported in Equity in earnings of equity method investees-net. The MUFG Group recognizes an impairment loss on investments in equity method investees that is other-than-temporary. The MUFG Group determines whether loss on investments is other-than-temporary, through consideration of various factors, such as inability to recover the carrying amount of the investment, the inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment, the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the investees, and the intent and ability to retain its investment in the investees for a period of time sufficient to allow for any anticipated recovery in the fair value. The MUFG Group also evaluates additional factors, such as the condition and trend of the economic cycle, and trends in the general market.

The MUFG Group consolidates VIEs if it has the power to direct the activities of a VIE which most significantly impact the VIE’s economic performance and has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. To assess whether a VIE should be consolidated or not, the MUFG Group considers all factors, such as the purpose and design of the VIE, contractual arrangements, and the MUFG Group’s involvement in both the establishment of the VIE and day-to-day activities of the VIE. The MUFG Group considers a right to make the most significant decisions affecting a VIE to determine whether it is deemed to have the power to direct the activities of the VIE. Furthermore, the MUFG Group considers its economic interests in the VIE, including investments in debt or equity instruments issued by the VIE, liquidity and credit enhancement, and guarantees to determine whether such interests are potentially significant to the VIE or not.

Assets that the MUFG Group holds in an agency, fiduciary or trust capacity are not assets of the MUFG Group and, accordingly, are not included in the accompanying consolidated balance sheets.

Cash Flows—For the purposes of reporting cash flows, cash and cash equivalents consist of Cash and due from banks, Interest-earning deposits in other banks, and certain restricted cash included in Other assets. Restricted cash included in cash and cash equivalents represents cash or deposits subject to withdrawal or usage restrictions, and mainly consist of reserves on deposits with the Bank of Japan and similar reserves required for foreign offices and subsidiaries engaged in banking businesses in foreign countries. Cash flows from qualified hedging activities are classified in the same category as the items being hedged.

Translation of Foreign Currency Financial Statements and Foreign Currency Transactions—Financial statements of overseas entities are translated into Japanese yen using the respective fiscal year-end exchange rates for assets and liabilities. Income and expense items are translated at average rates of exchange for the respective fiscal years.

Foreign currency translation gains and losses related to the financial statements of overseas entities of the MUFG Group, net of related income tax effects, are credited or charged directly to Foreign currency translation

F-19

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

adjustments, a component of Accumulated other comprehensive income (“Accumulated OCI”). Tax effects of gains and losses on foreign currency translation of the financial statements of overseas entities are not recognized unless it is apparent that the temporary differences will reverse in the foreseeable future.

Foreign currency-denominated assets and liabilities are translated into the functional currencies of the individual entities included in consolidation at the respective fiscal year-end foreign exchange rates. Foreign currency-denominated income and expenses are translated using average rates of exchange for the respective fiscal years. Gains and losses from such translation are included in Foreign exchange gains (losses)—net, as appropriate.

Repurchase Agreements, Securities Lending and Other Secured Financing Transactions—Securities sold with agreements to repurchase (“repurchase agreements”), securities purchased with agreements to resell (“resale agreements”) and securities lending and borrowing transactions are accounted for as secured financing or lending transactions, if the transferor has not surrendered control over the securities. Repurchase agreements and resale agreements are generally carried at the amounts at which the securities will be subsequently sold or repurchased, and securities lending and borrowing transactions are generally carried at the amount of cash collateral advanced or received. If they meet the relevant conditions for the surrender of control, they are accounted for as sales of securities with related off-balance sheet forward repurchase commitments or purchases of securities with related off-balance sheet forward resale commitments. For the fiscal years ended March 31, 2018, 2019 and 2020, there were no such transactions accounted for as sales or purchases.

Collateral—For secured lending transactions, including resale agreements, securities borrowing transactions, commercial lending and derivative transactions, the MUFG Group, as a secured party, generally has the right to require the counterparties to provide collateral, including letters of credit, cash, securities and other financial assets. For most secured lending transactions, the MUFG Group maintains strict levels of collateralization governed by a daily mark-to-market analysis. Financial assets pledged as collateral are generally negotiable financial instruments and are permitted to be sold or repledged by secured parties. If the MUFG Group sells these financial assets received as collateral, it recognizes the proceeds from the sale and its obligation to return the collateral. For secured borrowing transactions, principally repurchase agreements and securities lending transactions and derivative transactions, where the secured party has the right to sell or repledge financial assets pledged as collateral, the MUFG Group separately discloses those financial assets pledged as collateral in the accompanying consolidated balance sheets.

Trading Account Securities—Securities and money market instruments held in anticipation of short-term market movements and for resale to customers are included in Trading account assets, and short trading positions of these instruments are included in Trading account liabilities. Trading positions are carried at fair value in the accompanying consolidated balance sheets and recorded on a trade date basis. Changes in the fair value of trading positions are recognized in Trading account profits (losses). The MUFG Group has elected the fair value option for certain foreign securities. See Note 31 for a further discussion of fair value option.

Investment Securities—Debt securities for which the MUFG Group has both the ability and positive intent to hold to maturity are classified as Held-to-maturity debt securities and are carried at amortized cost. Debt securities that the MUFG Group may not hold to maturity other than those classified as Trading account securities, are classified as Available-for-sale debt securities, and are carried at their fair values, with unrealized gains and losses reported on a net-of-tax basis within Accumulated OCI, net of taxes, which is a component of equity. For debt securities, an OTTI is recognized in earnings for a security if the MUFG Group has intent to sell such a debt security or if it is more likely than not the MUFG Group will be required to sell such a debt security before recovery of its amortized cost basis. If not, the credit component of an OTTI is recognized in earnings, but

F-20

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the noncredit component is recognized in Accumulated OCI. In determining other-than-temporary declines in fair value to be recognized as an impairment loss on debt securities, the MUFG Group generally considers factors such as the ability and positive intent to hold the investments for a period of time sufficient to allow for anticipated recovery in fair value, the financial condition of the issuer, the extent of decline in fair value, and the length of time that the decline in fair value below cost has existed.

Equity securities include marketable equity investment securities and nonmarketable equity investment securities. Marketable equity investment securities are measured at fair value with unrealized gains or losses reflected in net income. Nonmarketable equity investment securities are primarily measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes. Nonmarketable equity investment securities held by subsidiaries that are investment companies or brokers and dealers, are subject to the specialized industry accounting principles for investment companies and brokers and dealers. Securities of those subsidiaries are carried at their fair values.

Interest and dividends on investment securities are reported in Interest income. Dividends are recognized when the shareholder right to receive the dividend is established. Gains and losses on disposition of investment securities are computed using the average cost method and are recognized on the trade date.

Derivative Financial Instruments—The MUFG Group engages in derivative activities involving swaps, forwards, futures, options, and other types of derivative contracts. Derivatives are used in trading activities to generate trading revenues and fee income for its own account and to respond to customers’ financial needs. Derivatives are also used to manage counterparty credit risk and market risk exposures to fluctuations in interest and foreign exchange rates, equity and commodity prices.

Derivatives entered into for trading purposes are carried at fair value and are reported as Trading account assets or Trading account liabilities, as appropriate. The fair values of derivative contracts executed with the same counterparty under legally enforceable master netting agreements are presented on a gross basis. Changes in the fair value of such contracts are recognized currently in Foreign exchange gains (losses)—net with respect to foreign exchange contracts and in Trading account profits (losses)—net with respect to interest rate contracts and other types of contracts.

Embedded features that are not clearly and closely related to the host contracts and meet the definition of derivatives are separated from the host contracts and measured at fair value unless the contracts embedding the derivatives are measured at fair value in their entirety.

Derivatives are also used to manage exposures to fluctuations in interest and foreign exchange rates arising from mismatches of asset and liability positions. Certain of those derivatives are designated as hedging instruments and qualify for hedge accounting. The MUFG Group designates a derivative as a hedging instrument at the inception of each such hedge relationship, and it documents, for such individual hedging relationships, the risk management objective and strategy, including the item being hedged, the specific risk being hedged and the method used to assess the hedge effectiveness. In order for a hedging relationship to qualify for hedge accounting, the changes in the fair value of the derivative instruments must be highly effective in achieving offsetting changes in fair values or variable cash flows of the hedged items attributable to the risk being hedged. All qualifying hedging derivatives are valued at fair value and included in Other assets or Other liabilities, as appropriate. For fair value hedges, the changes in the fair value of a hedging instrument are recognized in the same income statement line as the hedged item. For cash flow hedges, the changes in the fair value of a hedging instrument are recognized in Accumulated OCI. Amounts realized on cash flow hedges related to variable rate loans are recognized in Net interest income in the period when the cash flow from the hedged item is realized.

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Any difference that arises from gains or losses on hedging derivatives offsetting corresponding gains or losses on the hedged items, and gains and losses on derivatives attributable to the risks excluded from the assessment of hedge effectiveness are recognized in earnings.

Loans—Loans originated by the MUFG Group (“originated loans”) are carried at the principal amount outstanding, adjusted for unearned income and deferred net nonrefundable loan fees and costs. Originated loans held and intended for dispositions or sale in secondary markets are transferred to the held-for-sale classification and carried at the lower of cost or estimated fair value generally on an individual loan basis. Loan origination fees, net of certain direct origination costs, are deferred and recognized over the contractual life of the loan as an adjustment to yield using a method that approximates the interest method. Interest income on loans that are not impaired is accrued and credited to interest income as it is earned. Unearned income and discounts or premiums on purchased loans are deferred and recognized over the remaining contractual terms of the loans using a method that approximates the interest method when such purchased loans are outside the scope of the guidance on loans and debt securities acquired with deteriorated credit quality as described below.

The MUFG Group classifies its loan portfolio into the following portfolio segments—Commercial, Residential, Card, MUFG Americas Holdings Corporation (“MUFG Americas Holdings ” or “MUAH”), Bank of Ayudhya Public Company Limited (“Krungsri”), and Other based on the grouping used by the MUFG Group to determine the allowance for credit losses. The MUFG Group further classifies the Commercial segment into classes based on initial measurement attributes, risk characteristics, and its method of monitoring and assessing credit risk.

Originated loans are considered impaired when, based on current information and events, it is probable that the MUFG Group will be unable to collect all the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Past due status is determined based on the contractual terms of the loan and the actual number of days since the last payment date, and is considered in determining impairment. Originated loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is generally evaluated on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.

Originated loans are generally placed on nonaccrual status when substantial doubt exists as to the full and timely collection of either principal or interest, specifically when principal or interest is contractually past due one month or more with respect to loans within all classes of the Commercial segment, three months or more with respect to loans within the Card, MUFG Americas Holdings, and Krungsri segments, and six months or more with respect to loans within the Residential segment. A nonaccrual loan may be restored to an accrual status when interest and principal payments become current and management expects that the borrower will make future contractual payments as scheduled. When a loan is placed on nonaccrual status, interest accrued but not received is generally reversed against interest income. Cash receipts on nonaccrual loans, for which the ultimate collectibility of principal is uncertain, are applied as principal reductions; otherwise, such collections are credited to income.

The MUFG Group modifies certain loans in conjunction with its loss-mitigation activities. Through these modifications, concessions are granted to a borrower who is experiencing financial difficulty, generally in order to minimize economic loss, to avoid foreclosure or repossession of collateral, and to ultimately maximize

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payments received from the borrower. The concessions granted vary by portfolio segment, by program, and by borrower-specific characteristics, and may include interest rate reductions, term extensions, payment deferrals, and partial principal forgiveness. Loan modifications that represent concessions made to borrowers who are experiencing financial difficulties are identified as troubled debt restructurings (“TDRs”).

Generally, accruing loans that are modified in a TDR remain as accruing loans subsequent to the modification, and nonaccrual loans remain as nonaccrual. However, if a nonaccrual loan has been modified as a TDR, the borrower is not delinquent under the modified terms, and demonstrates that its financial condition has improved, the MUFG Group may reclassify the loan to accrual status. This determination is generally performed at least once a year through a detailed internal credit rating review process. Once a nonaccrual loan is deemed to be a TDR, the MUFG Group will continue to designate the loan as a TDR even if the loan is reclassified to accrual status.

A loan that has been modified into a TDR is considered to be impaired until it matures, is repaid, or is otherwise liquidated, regardless of whether the borrower performs under the modified terms. Because loans modified in TDRs are considered to be impaired, these loans are measured for impairment using the MUFG Group’s established asset-specific allowance methodology, which considers the expected default rates for the modified loans. See “Allowance for Credit Losses” for a discussion for each portfolio segment.

In accordance with the guidance on loans and debt securities acquired with deteriorated credit quality, impaired loans acquired for which it is probable that the MUFG Group will be unable to collect all contractual receivables are initially recorded at the present value of amounts expected to be received. For these impaired loans, the related valuation allowances are not carried over or created initially. Accretable yield is limited to the excess of the investor’s estimate of undiscounted cash flows over the investor’s initial investment in the loan. Subsequent increases in cash flows expected to be collected are recognized prospectively through adjustment of the loan’s yield over its remaining life after reduction of any remaining allowance for credit losses for the loan established after its acquisition, if any, while any decrease in such cash flows below those initially expected at acquisition plus additional cash flows expected to be collected arising from changes in estimate after acquisition is recognized as an impairment.

Loan Securitization—The MUFG Group securitizes and services commercial, industrial, and residential loans in the normal course of business. The MUFG Group accounts for a transfer of loans in a securitization transaction as a sale if it meets relevant conditions for the surrender of control. Otherwise, the transfer is accounted for as a collateralized borrowing transaction. When a securitization is accounted for as a sale, the proceeds from a sale of financial assets consist of the cash and any other assets obtained, including beneficial interests and separately recognized servicing assets, in the transfer less any liabilities incurred, including separately recognized servicing liabilities. All proceeds and reductions of proceeds from a sale shall be initially measured at fair value.

Allowance for Credit Losses—The MUFG Group maintains an allowance for credit losses to absorb probable losses inherent in the loan portfolio. Actual credit losses (amounts deemed uncollectible, in whole or in part), net of recoveries, are generally determined based on detailed loan reviews and a credit assessment by management at each balance sheet date, and are deducted from the allowance for credit losses as net charge-offs. The MUFG Group generally applies its charge-off policy to all loans in its portfolio regardless of the type of borrower. Management believes that the provision for credit losses is adequate and the allowance is at the appropriate amount to absorb probable losses inherent in the loan portfolio. During the fiscal year ended March 31, 2020, the MUFG Group did not make any significant changes to the methodologies or policies used to determine its allowance for credit losses.

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Key elements relating to the policies and discipline used in determining the allowance for credit losses are credit classification and the related borrower categorization process. The categorization is based on conditions that may affect the ability of borrowers to service their debt, taking into consideration current financial information, historical payment experience, credit documentation, public information, analyses of relevant industry segments or existing economic conditions. In determining the appropriate level of the allowance, the MUFG Group evaluates the probable loss by collateral value, historical loss experience, probability of insolvency and category of loan based on its type and characteristics. The MUFG Group calculates the allowance for credit losses over the loss emergence period that is a time between a loss occurring event and the subsequent confirmation of a loss. The MUFG Group updates these conditions and probable loss on a regular basis and upon the occurrence of unexpected change in the economic environment.

The methodologies used to estimate the allowance and the charge-off policy for the major portfolio segments are as follows:

Commercial segment

In the Commercial segment, the methodology for assessing the appropriateness of the allowance consists of several key elements, which include the allocated allowance for loans individually evaluated for impairment, the formula allowance, and the allocated allowance for large groups of smaller-balance homogeneous loans.

The allocated allowance for loans individually evaluated for impairment represents the impairment allowance determined in accordance with the guidance on accounting by creditors for the impairment of a loan. The factors considered by management in determining impairment are the internal credit rating assigned to each borrower which represents the borrower’s creditworthiness determined based on payment status, the number of delinquencies, and the probability of collecting principal and interest payments when due. The impairment of a loan is measured based on the present value of expected future cash flows discounted at the loan’s original effective interest rate, or the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.

The formula allowance is applied to loans that are categorized as Normal or Close Watch, excluding loans identified as a TDR, based on the internal credit rating and historical loss factors which are based on the loss experience. See Note 4 for the information on loans to borrowers categorized based on the internal borrower rating. Estimated losses inherent in the loans at the balance sheet date are calculated by multiplying the default ratio by the nonrecoverable ratio (determined as a complement of the recovery ratio). The default ratio is determined by each internal credit rating, taking into account the historical number of defaults of borrowers within each internal credit rating divided by the total number of borrowers. The recovery ratio is mainly determined by the historical experience of collections against loans in default. The default ratio, the recovery ratio and other indicators are continually reviewed to determine the appropriate level of the allowance. Because the evaluation of inherent loss for these loans involves an uncertainty, subjectivity and judgment, the estimation of the formula allowance is back-tested by comparing the allowance with the actual results subsequent to the balance sheet date. The results of such back-testing are evaluated by management to determine whether the manner and level of the formula allowance needs to be changed in subsequent years. Since historical loss factors are based on the historical loss experience, the formula allowance may include a qualitative reserve in order to reflect the collectibility of the portfolio as of the balance sheet date by considering qualitative factors including, among others, national and local economic trends and conditions, industry conditions, and effects of changes in credit concentrations.

The allocated allowance for large groups of smaller-balance homogeneous loans is established through a process that begins with estimates of probable losses inherent in the portfolio. These estimates are based upon various analyses, including historical delinquency and historical loss experience.

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Loans that have been modified into a TDR are treated as impaired loans. For nonaccrual TDRs, the allowance for credit losses is provided for these loans using the discounted cash flow method, or based on the fair value of the collateral. For TDRs accounted for as accruing loans, the allowance for credit losses is determined by discounting the estimated future cash flows using the original effective interest rate of the loans prior to modification.

In relation to loans categorized as Legally/Virtually Bankrupt, the carrying amount of loans less estimated value of the collateral and guaranteed amount is generally considered uncollectible, and is charged off.

Residential segment

In the Residential segment, the loans are comprised of smaller-balance homogeneous loans that are pooled by their internal credit ratings-based on the number of delinquencies. The loans in this segment are generally secured by collateral. Collateral values are based on internal valuation sources, and the allowance is determined for unsecured amounts. The allowance for the nondelinquent group of loans is determined based on historical loss experience. For delinquent groups of loans, the MUFG Group determines the allowance based on the probability of insolvency by the number of actual delinquencies and historical loss experience.

Loans that have been modified into a TDR are treated as impaired loans. For nonaccrual TDRs, the allowance for credit losses is provided for these loans using the discounted cash flow method, or based on the fair value of the collateral. For TDRs accounted for as accruing loans, the allowance for credit losses is determined by discounting the estimated future cash flows using the original effective interest rate of the loans prior to modification.

In relation to loans that are in past due status over a certain period of time and deemed uncollectible, the carrying amount of loans less estimated value of the collateral and guaranteed amount is generally considered uncollectible and charged off.

Card segment

In the Card segment, the loans are smaller-balance homogeneous loans that are pooled by their internal credit rating based on the number of delinquencies. The allowance for loans in this segment is generally determined based on the probability of insolvency by the number of actual delinquencies and historical loss experience. For calculating the allocated allowance for loans specifically identified for evaluation, impaired loans are aggregated for the purpose of measuring impairment using historical loss factors.

Loans that have been modified into a TDR are treated as impaired loans, and the allowance for credit losses is determined using the discounted cash flow method whereby the estimated future cash flows are discounted using the original effective interest rate of the loans prior to modification.

In relation to loans that are in past due status over a certain period of time and deemed uncollectible, the amount of loans is generally fully charged off.

MUFG Americas Holdings segment

In the MUFG Americas Holdings segment, the methodology for assessing the appropriateness of the allowance consists of several key elements, which include the allocated allowance for loans individually evaluated for impairment, the formula allowance, the allocated allowance for large groups of smaller-balance homogeneous loans, and the unallocated allowance.

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The allocated allowance for loans individually evaluated for impairment is established for loans when management determines that the MUFG Group will be unable to collect all amounts due according to the contractual terms of the loan agreement, including interest payments. Impaired loans are carried at the lower of the recorded investment in the loan, the present value of expected future cash flows discounted at the loan’s effective rate, the loan’s observable market price, or the fair value of the collateral, if the loan is collateral dependent.

The formula allowance is calculated by applying historical loss factors to outstanding loans. Historical loss factors are based on the historical loss experience and may be adjusted for significant factors that, in management’s judgment, affect the collectibility of the portfolio as of the balance sheet date.

The allocated allowance for large groups of smaller-balance homogeneous loans is established for consumer loans as well as for smaller balance commercial loans. These loans are managed on a pool basis, and loss factors are based on expected net charge-off ranges.

The unallocated allowance represents an estimate of additional losses inherent in the loan portfolio and is composed of attribution factors, which are based upon management’s evaluation of various conditions that are not directly measured in the determination of the allocated allowance. The conditions used for consideration of the unallocated allowance at each balance sheet date include factors, such as existing general economic and business conditions affecting the key lending areas and products of the MUFG Group, credit quality trends and risk identification, collateral values, loan volumes, underwriting standards and concentrations, specific industry conditions, recent loss experience and the duration of the current business cycle. The MUFG Group reviews these conditions and has an internal discussion with senior credit officers on a quarterly basis.

Loans that have been modified into a TDR are treated as impaired loans. For nonaccrual TDRs, the allowance for credit losses is provided for these loans using the discounted cash flow method, or based on the fair value of the collateral. For TDRs accounted for as accruing loans, the allowance for credit losses is determined by using the discounted cash flow method whereby the estimated future cash flows are discounted using the original effective interest rate of the loans prior to modification.

Commercial loans are generally considered uncollectible based on an evaluation of the financial condition of a borrower as well as the value of any collateral and, when considered to be uncollectible, loans are charged off in whole or in part. Consumer loans are generally considered uncollectible based on past due status and the value of any collateral and, when considered to be uncollectible, loans are charged off in whole or in part.

Krungsri segment

In the Krungsri segment, the methodology for assessing the appropriateness of the allowance consists of several key elements, which include the allocated allowance for loans individually evaluated for impairment, the formula allowance, and the allocated allowance for large groups of smaller-balance homogeneous loans.

The allocated allowance for loans individually evaluated for impairment is established for loans when management determines that the MUFG Group will be unable to collect all amounts due according to the contractual terms of the loan agreement, including interest payments. Impaired loans are carried at the lower of the recorded investment in the loan, the present value of expected future cash flows discounted at the loan’s effective rate, the loan’s observable market price, or the fair value of the collateral, if the loan is collateral dependent.

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The formula allowance is calculated by applying historical loss factors to outstanding loans. Historical loss factors are based on the historical loss experience and may be adjusted for significant factors that, in management’s judgment, affect the collectibility of the portfolio as of the balance sheet date.

The allocated allowance for large groups of smaller-balance homogeneous loans is established for smaller balance loans such as housing loans, credit card loans, and personal loans. These loans are managed on a pool basis, and loss factors are based on expected net charge-off ranges.

Loans that have been modified into a TDR are treated as impaired loans. For nonaccrual TDRs, the allowance for credit losses is provided for these loans using the discounted cash flow method, or based on the fair value of the collateral. For TDRs accounted for as accruing loans, the allowance for credit losses is determined by using the discounted cash flow method whereby the estimated future cash flows are discounted using the original effective interest rate of the loans prior to modification.

Loans to customers are charged off when they are determined to be uncollectible considering the financial condition of a borrower.

Allowance for Off-Balance Sheet Credit Instruments—The MUFG Group maintains an allowance for credit losses on off-balance sheet credit instruments, including commitments to extend credit, guarantees, standby letters of credit and other financial instruments. The allowance is recorded as a liability in Other liabilities. The MUFG Group adopts the same methodology used in determining the allowance for credit losses on loans. Potential credit losses related to derivatives are considered in the fair value of the derivatives.

Premises and Equipment—Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is charged to operations over the estimated useful lives of the related assets. Leasehold improvements are depreciated over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. MUFG, MUFG Bank and Mitsubishi UFJ Trust and Banking apply the declining-balance method in depreciating their premises and equipment, while other subsidiaries mainly apply the straight-line method, at rates principally based on the following estimated useful lives:

	Years
Buildings		15 to 50
Equipment and furniture		2 to 20
Leasehold improvements		3 to 39

Maintenance, repairs and minor improvements are charged to operations as incurred. Major improvements are capitalized. Net gains or losses on dispositions of premises and equipment are included in Other non-interest income or expense, as appropriate.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount to future undiscounted net cash flows expected to be generated by the asset. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value. For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets are grouped with other assets and liabilities at the lowest level with independent and identifiable cash flows. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value less estimated cost to sell.

Asset retirement obligations related to restoration of certain leased properties upon lease termination are recorded in Other liabilities with a corresponding increase in leasehold improvements. The amounts represent the

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present value of expected future cash flows associated with returning such leased properties to their original condition. The difference between the gross and present value of expected future cash flows is accreted over the life of the related leases as a non-interest expense.

Goodwill—The MUFG Group recognizes goodwill, as of the acquisition date, measured as the excess of the purchase price over the fair value of the net assets acquired. Goodwill related to investments in equity method investees is included in Other assets as a part of the carrying amount of investments in equity method investees.

Goodwill arising from a business combination is not amortized but is tested at least annually for impairment. Goodwill is recorded at a designated reporting unit level for the purpose of assessing impairment.

A reporting unit is an operating segment, or an identified business unit one level below an operating segment. An impairment loss is recognized to the extent that the carrying amount of a reporting unit exceeds its fair value, but not exceeding the total amount of goodwill allocated to that reporting unit.

Intangible assets—Intangible assets consist of software, core deposit intangibles, customer relationships, trade names and other intangible assets. These are amortized over their estimated useful lives unless they have indefinite useful lives. Amortization of intangible assets is computed in a manner that best reflects the economic benefits of the intangible assets as follows:

	Useful lives (years)		Amortization method
Software		2 to 10	Straight-line
Core deposit intangibles		9 to 16	Straight-line
Customer relationships		3 to 27	Straight-line, Declining-balance
Trade names		4 to 40	Straight-line

Intangible assets having indefinite useful lives are not amortized but are subject to annual impairment tests. An impairment exists if the carrying value of an indefinite-lived intangible asset exceeds its fair value. For other intangible assets subject to amortization, an impairment is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible asset.

The MUFG Group capitalizes certain costs associated with the acquisition or development of internal-use software. Costs subject to capitalization are salaries and employee benefits for employees who are directly associated with and who devote time to the internal-use computer software project, to the extent of time spent directly on the project. Once the software is ready for its intended use, the MUFG Group begins to amortize capitalized costs on a straight-line basis.

Accrued Severance and Pension Liabilities—The MUFG Group has defined benefit pension plans and other postretirement benefit plans, including severance indemnities plans (“SIPs”). The liabilities related to these plans are computed and recognized based on actuarial computations. Net actuarial gains and losses that arise from differences between actual experience and assumptions are generally amortized over the average remaining service period of participating employees if it exceeds the corridor, which is defined as the greater of 10% of plan assets or the projected benefit obligation. Under the guidance related to employers’ accounting for defined benefit pension and other postretirement plans, the MUFG Group recognizes a net liability or asset to report the funded status of its defined benefit pension and other postretirement plans in the accompanying consolidated balance sheets and mainly recognizes changes in the funded status of defined benefit pension and other postretirement plans in the year in which the changes occur in Accumulated OCI. Based on actuarial computations of current and future employee benefits, the service cost component is charged to Salaries and

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employee benefits while other components of net pension benefit/cost are charged to Other non-interest expenses. The MUFG Group measures plan assets and benefit obligations as of the date of the consolidated balance sheets.

Long-Term Debt—Premiums, discounts and issuance costs of long-term debt are amortized based on the method that approximates the interest method over the term of the long-term debt.

Obligations under Guarantees—The MUFG Group provides customers with a variety of guarantees and similar arrangements, including standby letters of credit, financial and performance guarantees, credit protection, and liquidity facilities. The MUFG Group recognizes guarantee fee income over the guarantee period based on the contractual terms of the guarantee contracts. It is the MUFG Group’s business practice to receive a guarantee fee at the inception of the guarantee, which approximates market value of the guarantee and is initially recorded as a liability, which is then recognized as guarantee fee income over the guarantee period.

Allowance for Repayment of Excess Interest—The MUFG Group maintains an allowance for repayment of excess interest based on an analysis of past experience of reimbursement of excess interest, borrowers’ profile, recent trend of borrowers’ claims for reimbursement, and management’s future forecasts. The allowance is recorded as a liability in Other liabilities.

Fees and Commissions—The MUFG Group recognizes revenue from contracts with customers in the amount of consideration it expects to receive upon the transfer of control of a good or service. The timing of recognition is dependent on whether the MUFG Group satisfies a performance obligation by transferring control of the product or service to a customer over time or at a point in time.

The following is an explanation of the MUFG Group’s key revenue from contracts with customers and the timing of its recognition.

Fees and commissions on deposits consist of fees and commissions charged for transaction-based services such as usage of automated teller machines and withdrawal services, and for periodic account maintenance services. The MUFG Group’s performance obligation for transaction-based services is satisfied and the fees and commissions are recognized at the point in time when the MUFG Group’s performance under the terms of a contractual arrangement is completed, which is at the settlement of a transaction, while the MUFG Group’s performance obligation for maintenance services is satisfied and the fees and commissions are recognized over the course of each month.

Fees and commissions on remittances and transfers consist of fees and commissions charged for settlement transactions such as domestic fund remittances, including electronic banking transactions, and are recognized at the point in time when the MUFG Group’s performance under the terms of a contractual arrangement is completed, which is at the settlement of a transaction.

Fees and commissions on foreign trading business consist of fees and commissions charged for fund collection and trade-related financing services related to foreign trading business, and are recognized in the period in which the related service is provided. If they arise from foreign trading business activities under which the customer consumes the related services at a point in time (e.g. foreign exchange fees), such fees are recognized at the same point in time. If they arise from foreign trading business activities under which the customer consumes the related services equally over the period of service (e.g. commercial letters of credit), such fees are recognized over the same period.

Fees and commissions on credit card business consist of fees and commissions such as interchange income, royalty and other service charges from franchisees. Interchange income from the credit card business is

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recognized as processed transactions are settled through the associated payment networks, while royalty and other service charges related to the credit card business are recognized on a straight-line basis over the period of service.

Fees and commissions on security-related services primarily consist of fees and commissions for sales and transfers of securities including investment funds, underwriting, brokerage and advisory services, arrangement fees on securitizations, and agency services for the calculation and payment of dividends. Fees and commissions on security-related services are recognized in the period in which the related service is provided. If they arise from security-related services under which the customer consumes the related services at a point in time (e.g. sales and transfers of securities are executed at the customer’s direction; underwritings of debt and equity securities or securitizations are completed at the trade date; advice is provided to the clients; and dividends are calculated and then paid to investors), such fees are recognized at the same point in time. If they arise from security-related services under which the customer consumes the related services equally over the period of service (e.g. retainer fees on M&A advisory fees), such fees are recognized over the same period. The advisory fees which are paid upon meeting certain performance goals (e.g. success fees on M&A advisory fees) are recognized at the point in time when the performance goals are met.

Fees and commissions on administration and management services for investment funds primarily consist of fees and commissions earned from administrating and managing investment funds, including assets under management on behalf of clients. Such fees and commissions are recognized equally over the period of service at the amount calculated primarily based on the outstanding amount of each entrusted asset, the percentage of fees, and the extent of the service provided to administer the investment funds.

Trust fees consist primarily of fees earned by fiduciary asset management and administration services for corporate pension plans and investment funds, and are recognized on an accrual basis, generally based on the volume of trust assets under management and/or the operating performance for the accounting period of each trust account. With respect to the trust accounts with a guarantee of trust principal, trust fees are determined based on the profits earned by individual trust accounts during the trust accounting period, less deductions, including provision for reserves, impairment for individual investments and dividends paid to beneficiary certificate holders. The trust fees for these trust accounts are accrued based on the amounts expected to be earned during the accounting period of each trust account.

Guarantee fees consist of fees related to the guarantee business such as providing guarantees on residential mortgage loans and other loans, and are recognized over the contractual periods of the respective guarantees.

Insurance commissions consist of commissions earned from third-party insurance companies for marketing and selling insurance products and for the maintenance of insurance contracts. The former is recognized at the point in time which the associated service is fulfilled as the insurance contract is established by the insurance company, while the latter is recognized over the insurance period.

Fees and commissions on real estate business primarily consist of fees from real estate agent services, and are recognized in the period in which the related service is provided when assisting customers in the sales or purchase of real estate property.

Other fees and commissions include various fees and commissions earned on services to customers which have performance obligations that the MUFG Group completes in order to recognize revenue. The primary portion includes non-refundable financing related fees such as arrangement fees that are recognized when the service is provided.

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Income Taxes—The MUFG Group accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and deferred tax liabilities for the expected future tax consequences of events that have been included in the accompanying consolidated financial statements. Under this method, deferred tax assets and deferred tax liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and deferred tax liabilities is recognized in income in the period that includes the enactment date.

The MUFG Group records net deferred tax assets to the extent these assets will more likely than not be realized. In making such determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event the MUFG Group were to determine that it would be able to realize deferred tax assets in the future in excess of their net recorded amount, the MUFG Group would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.

Uncertain tax positions are recorded on the basis of a two-step process whereby (1) it is determined whether it is more likely than not that the tax position will be sustained on the basis of its technical merits, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the MUFG Group recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The MUFG Group recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Accrued interest and penalties are included within Other liabilities.

Free Distributions of Common Shares—As permitted by the Companies Act of Japan (the “Companies Act”), Japanese companies, upon approval by the Board of Directors, may make a free distribution of shares, in the form of a “stock split” as defined, to shareholders. In accordance with generally accepted accounting practice in Japan, such distribution does not give rise to any change in capital stock or capital surplus accounts. Common shares distributed are recorded as shares issued on the distribution date. See Note 18 for further information.

Earnings per Common Share—Basic earnings per share (“EPS”) excludes dilutive effects of potential common shares and is computed by dividing earnings applicable to common stock shareholders by the weighted average number of common shares outstanding for the period, while diluted EPS gives effect to all dilutive potential common shares that were outstanding during the period. See Note 22 for the computation of basic and diluted EPS.

Treasury Stock—The MUFG Group presents its treasury stock, including shares of MUFG owned by its subsidiaries and affiliated companies, as a reduction of equity on the accompanying consolidated balance sheets at cost and accounts for treasury stock transactions under an average cost method. Gains (losses) on sales of treasury stock are charged to capital surplus and unappropriated retained earnings.

Comprehensive Income—Comprehensive income includes net income before attribution to noncontrolling interests and other comprehensive income (“OCI”). All changes in unrealized gains and losses on investment securities, unrealized gains and losses on derivatives qualifying for cash flow hedges, defined benefit plans and foreign currency translation adjustments constitute OCI and are presented, with related income tax effects, in the accompanying consolidated statements of comprehensive income. OCI also includes changes in the instrument-specific credit risk on financial liabilities (“debt valuation adjustments” or “DVA”) accounted for under the fair value option.

Stock-Based Compensation—MUFG and certain of its subsidiaries have a stock compensation-type stock option plan (“Stock Option Plan”) for directors (excluding outside directors and directors serving as audit

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committee members), corporate executives, executive officers and senior fellows (collectively, “officers”). Compensation costs under the Stock Option Plan are recognized based on the grant date fair value of the stock option (“Stock Acquisition Rights”) over the period during officers are required to provide service in accordance with the terms of the plan. MUFG and certain of its subsidiaries also have performance-based stock compensation plan (“the Board Incentive Plan”). The awards granted under the Board Incentive Plan are classified as either liability for the part of award which are provided to officers in cash or equity for the part of award which are provided to officers in the common shares of MUFG. Compensation costs are recognized over the requisite service period for the entire awards. For awards classified as liability, compensation costs are measured based on the fair value calculated by the quoted price of common shares of MUFG at the date of fiscal year-end and remeasured at the end of each reporting period. Changes in quoted prices of common shares of MUFG between the date of grant and the settlement of awards are recognized in the period which the changes occur. For awards classified as equity, compensation costs are measured based on the grant date fair value by the quoted price of the common shares of MUFG.

Accounting Changes

Recognition and Measurement of Financial Assets and Financial Liabilities—In January 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance which requires equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income. However, for equity investments that do not have readily determinable fair values, the fair value may be measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer (“the measurement alternative”), and the impairment assessment is simplified by performing a qualitative assessment to identify impairments. For financial liabilities which were elected to measure at fair value in accordance with the fair value option, this guidance also requires an entity to present separately in other comprehensive income the portion of the changes in the fair value of financial liabilities resulting from a change in the instrument-specific credit risk. In addition, this guidance eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost, and clarifies, for disclosure purposes, the requirement for the use of an exit price notion in the determination of the fair value of financial instruments measured at amortized cost. This guidance also clarifies that an entity must evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is not permitted except for the amendments related to the accounting for financial liabilities under the fair value option. In February 2018, the FASB issued additional guidance to improve certain aspects of the new guidance. The MUFG Group adopted the guidance on April 1, 2018. Upon adoption, the MUFG Group recorded an increase in the beginning balance of retained earnings as of April 1, 2018 of ¥2,702 billion, with a corresponding decrease in Accumulated OCI, net of taxes. Other amendments required under the new guidance did not have a material impact on the MUFG Group’s financial position and results of operations. As a result of adopting this guidance, marketable equity investment securities are measured at fair value with unrealized gains or losses reflected in net income. Prior to adoption, such unrealized gains and losses were reflected in other comprehensive income. Nonmarketable equity investment securities previously accounted for under the cost method of accounting are now measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes.

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement—In August 2018, the FASB issued new guidance which modifies the disclosure requirements on fair value measurements. This guidance removes disclosure requirements for the amount of and reasons for transfers between Level 1 and

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Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and valuation processes for Level 3 fair value measurements. In addition, the guidance modifies disclosure requirements for investments in certain entities that calculate net asset value and modifies disclosure requirements related to measurement uncertainty. Lastly, the guidance adds disclosure requirements for changes in unrealized gains and losses for the period that are included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, and the guidance adds disclosure requirements related to the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of this guidance. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this guidance and delay adoption of the additional disclosures until their effective date. The MUFG Group early adopted removal disclosure requirements as of March 31, 2019 and will adopt other requirements of this guidance on or prior to the effective date. The guidance affected disclosures in the notes to the consolidated financial statements and did not affect its financial position and results of operations.

Leases—In February 2016, the FASB issued new guidance which requires that lessees recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The accounting applied by lessors is largely unchanged, but the accounting model for leveraged leases is not retained for leases that commence after the effective date of this guidance. This guidance also requires entities to provide qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

The MUFG Group adopted this guidance on April 1, 2019 and recorded ¥428 billion of right-of-use assets and ¥502 billion of lease liabilities on the MUFG Group’s consolidated balance sheet. The adoption resulted in a decrease to retained earnings of ¥15 billion. The adoption of this guidance was not material to the MUFG Group’s results of operations. Prior periods are presented under previous policies. Leases previously described as capital leases are now referred as finance leases. As allowed by the guidance, the MUFG Group elected not to reassess the following at transition: whether existing contracts are or contain leases, and for existing leases, lease classification and initial direct costs.

Premium Amortization on Purchased Callable Debt Securities—In March 2017, the FASB issued new guidance which shortens the amortization period for certain callable debt securities held at a premium, specifically requiring the premium to be amortized to the earliest call date. This guidance does not require an accounting change for securities held at a discount, and the discount continues to be amortized to maturity. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The MUFG Group adopted this guidance on April 1, 2019, and there was no material impact on its financial position and results of operations.

Targeted Improvements to Accounting for Hedging Activities—In August 2017, the FASB issued new guidance which better aligns an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, this guidance expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. In addition, this guidance includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. This guidance also modifies the requirement to disclose the effect on the income statement of fair value and cash flow hedges, eliminates the requirement to disclose the ineffective portion of the change in

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fair value of hedging instruments, and requires new tabular disclosures related to cumulative basis adjustments for fair value hedges. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of this guidance. The MUFG Group adopted this guidance on April 1, 2019, and there was no material impact on its financial position and results of operations. As permitted by this guidance, upon adoption the MUFG Group transferred Held-to-maturity debt securities with a carrying amount of ¥18,606 million to Available-for-sale debt securities.

Improvements to Nonemployee Share-Based Payment Accounting—In June 2018, the FASB issued new guidance which largely aligns the accounting for share-based payment awards issued to employees and nonemployees. Under this guidance, equity-classified share-based payment awards issued to nonemployees are measured at the grant date, instead of the previous requirement to measure the awards at the earlier of the date at which the performance commitment is reached or the date of performance completion. For awards issued to nonemployees with performance conditions, compensation cost associated with the awards is recognized when achievement of the performance condition is probable, instead of the previous requirement to recognize the costs based on the lowest aggregate fair value. This guidance also eliminates the previous requirement to reassess the classification for certain nonemployee awards upon vesting. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of the new revenue standard. The MUFG Group adopted this guidance on April 1, 2019, and there was no material impact on its financial position and results of operations.

Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes—In October 2018, the FASB issued new guidance which permits use of the Overnight Index Swap (“OIS”) rate based on Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes in addition to the interest rates on direct Treasury obligations of the U.S. government, the London Interbank Offered Rate (“LIBOR”), the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association Municipal Swap Rate. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period upon issuance of this guidance if an entity already has adopted the new hedge accounting standard. The MUFG Group adopted this guidance on April 1, 2019, and there was no material impact on its financial position and results of operations.

Simplifying the Test for Goodwill Impairment—In January 2017, the FASB issued new guidance which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. This guidance eliminates Step 2 and instead requires an entity to perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. This guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test, and instead requires the disclosure of the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. This guidance is effective for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The MUFG Group early adopted this guidance in connection with a quantitative impairment test of goodwill during the fiscal year ended March 31, 2020. Under this guidance, the quantitative impairment test is performed by comparing the carrying amount of a reporting unit with its fair value, and an impairment loss is recognized to the extent that the carrying amount of a reporting unit

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exceeds its fair value, but not exceeding the total amount of goodwill allocated to that reporting unit. See Note 6 for details of the goodwill impairment.

Reference Rate Reform—In March 2020, the FASB issued new guidance which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. This new guidance can be adopted as of March 12, 2020 through December 31, 2022. The MUFG Group adopted this new guidance in March 2020, and there was no material impact on its financial position, results of operations and cash flows. This guidance will significantly ease the accounting implications of the reference rate reform.

Codification Improvements—In July 2018, the FASB issued new guidance to clarify, correct errors in, or make minor improvements to various areas of the Codification. Some of the amendments in the guidance were effective immediately, while others were effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Among other changes, the amendment to Subtopic 962-325 in the guidance removes the stable value common collective trust fund from the illustrative example in paragraph 962-325-55-17 to avoid the interpretation that such an investment would never have a readily determinable fair value and, therefore, would always use the net asset value (“NAV”) per share practical expedient. Rather, the entity is required to evaluate whether a readily determinable fair value exists to determine whether those investments may qualify for the practical expedient to measure at net asset value in accordance with Topic 820. Upon the adoption of this guidance, some common collective funds which have a readily determinable fair value are reported within the fair value hierarchy as Level 2 while previously they were reported within the tables showing plan assets measured using NAV per share (or its equivalent) as a practical expedient. These common collective funds are redeemable at NAV, which is determined daily and is the readily determinable fair value. The price per share is quoted on a private market based on the value of the underlying investments. The amount of pension benefits and SIP investments impacted due to the amendment to Subtopic 962-325 was ¥112 billion and ¥136 billion as of March 31, 2019 and 2020, respectively. See Note 13 for the changes in notes.

Recently Issued Accounting Pronouncements

Measurement of Credit Losses on Financial Instruments—In June 2016, the FASB issued new guidance which replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. Under this guidance, the measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount of the financial asset (or a group of financial assets) measured at amortized cost basis. For available-for-sale debt securities, a credit loss is recorded through an allowance for credit losses and the amount of the allowance is limited to the amount by which fair value is below amortized cost. For purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense, only subsequent changes in the allowance are recorded as a credit loss expense, and interest income is recognized based on the effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirer’s assessment of credit losses at acquisition. This guidance also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance, and requires the entity to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination.

In April 2019 and November 2019, the FASB issued additional guidance to improve certain aspects of this guidance. This guidance is effective for fiscal years beginning after December 15, 2019, including interim

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periods within those fiscal years. The MUFG Group adopted the guidance on April 1, 2020. It will result in an increase in the allowance for credit losses and the allowance for off-balance sheet credit instruments of approximately ¥380 – ¥450 billion and a decrease in retained earnings of approximately ¥270 – ¥330 billion. The presentation of a range for the April 1, 2020 adoption impact is due to provisional estimation mainly in response to COVID-19 including macroeconomic variables under the circumstances and pending final review of the adjustment, which may impact the allowance for credit losses as of such date.

Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans—In August 2018, the FASB issued new guidance which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This guidance removes certain disclosure requirements, including amounts in Accumulated OCI expected to be recognized as components of net periodic benefit cost over the next fiscal year and the amount and timing of plan assets expected to be returned to the employer, clarifies disclosure requirements for defined benefit plans with projected or accumulated benefit obligations in excess of plan assets, and adds disclosure requirements for weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates as well as an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The MUFG Group does not expect that the adoption of this guidance will have a material impact on its disclosures.

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract—In August 2018, the FASB issued new guidance which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance on internal-use software to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. This guidance also requires the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, apply the existing impairment guidance on internal-use software to the capitalized implementation costs as if the costs were long-lived assets, and present the capitalized-implementation-cost-related items in the same line items in the financial statements as those relating to fees associated with the hosting element (service) of the arrangement. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The MUFG Group does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements and related disclosures.

2. BUSINESS DEVELOPMENTS

Mitsubishi UFJ NICOS Became a Wholly-Owned Subsidiary

On May 15, 2017, MUFG and its subsidiary Mitsubishi UFJ NICOS entered into a share exchange agreement for MUFG to acquire the remaining 15.02% ownership of Mitsubishi UFJ NICOS by agreeing, on October 2, 2017, to pay ¥50,000 million cash to the only holder of Mitsubishi UFJ NICOS common stock other than MUFG. The transaction was accounted for as a non-cancellable forward purchase contract. Accordingly, a liability of ¥50,000 million was recognized in Other liabilities on the accompanying consolidated balance sheet with a corresponding reduction in Noncontrolling interests of ¥15,390 million and Capital surplus of ¥34,751 million, and an increase in Accumulated OCI, net of taxes of ¥141 million. On October 2, 2017, MUFG settled Other liabilities of ¥50,000 million. The purpose of making a wholly-owned subsidiary is to effect a shift in posture enabling a more flexible response to changes in the business environment and the swift pursuit of group synergies.

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Acquisition of shares in Bank Danamon in Indonesia

On December 26, 2017, MUFG Bank entered into conditional share purchase agreements with Asia Financial (Indonesia) Pte. Ltd. (“AFI”) and other affiliated entities (the “Sellers”) to acquire their 73.8% equity interests in an Indonesian bank, PT Bank Danamon Indonesia, Tbk. (“Danamon”), subject to applicable regulatory approvals.

Danamon, which was established in 1956, is the fifth most profitable Indonesian commercial bank in terms of net income. Danamon provides banking and financial products and services to consumer, small and medium enterprise (“SME”) and corporate customers, with a network of around 900 offices in Indonesia.

MUFG Bank intends to establish an integrated and comprehensive services platform that serves as a gateway for clients wishing to make inroads into Indonesia’s growing economy as well as local companies seeking to expand into the region. This investment is also expected to strategically allow MUFG Bank to benefit from Danamon’s foothold in the developing local retail and SME segments to deepen its banking franchise in Indonesia.

This strategic investment by MUFG Bank was executed through three steps (the “Proposed Transaction”), and the completion of the Proposed Transaction resulted in MUFG Bank becoming the largest shareholder in Danamon and Danamon becoming a consolidated subsidiary of MUFG Bank.

In Step 1, MUFG Bank acquired an initial 19.9% equity interest in Danamon from the Sellers on December 29, 2017, based on a price of IDR 8,323 (approximately ¥70(1)) per share, for an investment amount of IDR 15,875 billion (approximately ¥133 billion(1)). The price was based on a price book-value ratio of 2.0 calculated on the basis of Danamon’s net assets as of September 30, 2017 with certain adjustments applied. AFI continues to be the majority shareholder in Danamon after closing of Step 1. MUFG Bank classified Danamon’s equity securities as Available-for-sale securities on the acquisition date.

In Step 2, MUFG Bank acquired an additional 20.1% equity interest in Danamon from the Sellers on August 3, 2018, based on a price of IDR 8,921 (approximately ¥69(2)) per share, for an investment amount of IDR 17,187 billion (approximately ¥132.3 billion(2)). The price was based on a price book-value ratio of 2.0 calculated on the basis of Danamon’s net assets as of June 30, 2018 with certain adjustments applied. As a result, equity interest in Danamon increased to 40%, and MUFG Bank started to apply the equity method of accounting for its investment in Danamon during the six months ended September 30, 2018.

In Step 3, MUFG Bank acquired an additional 54.0% equity interest in Danamon from AFI and other shareholders on April 29, 2019, based on a price of IDR 9,590 (approximately ¥77(3)) per share, for an investment amount of IDR 50 trillion (approximately ¥397 billion) in cash. As a result, equity interest in Danamon increased to 94.0%, and Danamon became a consolidated subsidiary of MUFG Bank. The MUFG Group recorded goodwill of ¥254,271 million, none of which is deductible for income tax purposes and intangible assets of ¥146,899 million. The MUFG Group also recorded noncontrolling interests of ¥51,314 million at fair value determined by a quoted market price as of the acquisition date. The equity interest in Danamon held by MUFG Bank immediately before the acquisition date was remeasured to the fair value of ¥271,830 million based on the quoted market price, resulting in recognition of profits of ¥41,218 million which is included in Gain on remeasurement of previously held equity method investment in the accompanying consolidated statements of income for the fiscal year ended March 31, 2020. During the fiscal year ended March 31, 2020, the MUFG Group incurred ¥869 million of acquisition-related costs. These expenses are included in Other non-interest expenses in the accompanying consolidated statements of income for the fiscal year ended March 31, 2020. The revenue and net loss of Danamon and its subsidiaries since the acquisition date were ¥119,331 million and

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¥4,553 million for the fiscal year ended March 31, 2020. In addition, MUFG Bank acquired an additional 92.1% equity interest in PT Bank Nusantara Parahyangan, Tbk. (“BNP”) from ACOM CO., LTD., an equity method investee of MUFG, and other shareholders, based on a price of IDR 4,088 (approximately ¥33(3)) per share, for an investment amount of IDR 3 trillion (approximately ¥24.1 billion). As a result, equity interest in BNP increased to 99.9%, and BNP became a consolidated subsidiary of MUFG Bank.

On May 1, 2019, MUFG Bank made BNP merged into Danamon, acquiring an additional equity interest in Danamon in exchange for its equity interest in BNP, which resulted in MUFG Bank holding 94.1% equity interest in Danamon.

Notes:

(1) Calculated based on the exchange rate of IDR1 = ¥0.0084

(2) Calculated based on the exchange rate of IDR1 = ¥0.0077

(3) Calculated based on the exchange rate of IDR1 = ¥0.0080

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed of Danamon and its subsidiaries as of the acquisition date:

	(in millions)
Loans	¥	1,086,638
Intangible assets(1)		146,899
Total assets		1,728,480
Deposits—Total deposits		915,075
Total liabilities		1,242,115

Note:

(1) Intangible assets with a weighted average amortization period of 13.2 years primarily include ¥79,552 million of relationships with agents with a weighted average amortization period of 13.1 years and ¥44,140 million of core deposit intangibles with a weighted average amortization period of 10.1 years.

Included in the table above are loans with fair values totaling ¥1,068,906 million, which were not subject to the guidance on loans and debt securities acquired with deteriorated credit quality. As of the acquisition date, the gross contractual amounts receivable for these loans totaled ¥1,082,422 million, of which ¥34,363 million is not expected to be collected.

Pro forma statements of income

The following unaudited pro forma statements of income present the result of operations for Danamon as if the acquisition of Danamon had occurred on April 1, 2018:

	Fiscal years ended March 31,
	2019		2020
	(in millions)
Statement of income data:
Net interest income	¥	130,540	¥	119,818
Non-interest income—Total		30,857		30,852
Net income attributable to Mitsubishi UFJ Financial Group		16,083		3,206

The unaudited pro forma statements of income include the pro forma adjustments to reflect the impact of amortizing certain acquisition accounting adjustments such as intangible assets subject to amortization of ¥11,445 million and ¥11,299 million for the fiscal years ended March 31, 2019 and 2020, respectively.

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Acquisition of Colonial First State Global Asset Management

On August 2, 2019, Mitsubishi UFJ Trust and Banking acquired 100% of the shares in each of the nine subsidiaries of Colonial First State Group Limited, for ¥312,225 million in cash, from Australian financial group Commonwealth Bank of Australia and its wholly-owned subsidiary, Colonial First State Group Limited, and thereby recorded goodwill of ¥177,065 million, none of which is deductible for income tax purposes and intangible assets of ¥105,973 million with a weighted average amortization period of 18.7 years primarily include ¥100,862 million of customer relationships with a weighted average amortization period of 18.0 years. These nine subsidiaries collectively, including their subsidiaries, had represented the global asset management business of Colonial First State Global Asset Management, and were renamed First Sentier Investors (“FSI”) on September 16, 2019.

The MUFG Group is seeking the opportunities to enhance its competitive edge as well as expanding its client base globally in asset management business. The acquisition of FSI is a milestone to strengthen its capability and that is the reason such goodwill was paid which is allocated to the segment of Asset Management & Investor Services Business Group. The MUFG Group will continue to respond to customer expectations by leveraging the advantages and brands of FSI as well as the MUFG Group’s original asset management arms, aiming to become an asset management service provider with a global presence.

The assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. During the fiscal year ended March 31, 2020, the MUFG Group incurred ¥3,775 million of acquisition-related costs. These expenses are included in Other non-interest expenses in the accompanying consolidated statements of income for the fiscal year ended March 31, 2020. Total assets acquired amounted to ¥197,867 million, including cash and bank deposits of ¥42,019 million and intangible assets of ¥105,973 million, and total liabilities assumed amounted to ¥68,519 million, including accrued bonuses of ¥18,769 million. The revenue and net loss of FSI and its subsidiaries since the acquisition date were ¥38,508 million and ¥734 million for the fiscal year ended March 31, 2020.

Pro forma statements of income

The following unaudited pro forma statements of income present the results of operations for FSI as if the acquisition of FSI had occurred on April 1, 2018:

	Fiscal years ended March 31,
	2019		2020
	(in millions)
Statement of income data:
Non-interest income—Total	¥	77,323	¥	78,475
Net income attributable to Mitsubishi UFJ Financial Group		16,051		6,047

The unaudited pro forma statements of income include the pro forma adjustments to reflect the impact of amortizing certain acquisition accounting adjustments relating to intangible assets subject to amortization of ¥6,622 million and ¥5,979 million for the fiscal years ended March 31, 2019 and 2020, respectively.

Acquisition of DVB Bank SE’s Aviation Finance Division

On March 1, 2019, MUFG Bank and its consolidated subsidiary, BOT Lease Co., Ltd. (“BOT Lease”), entered into an agreement with DVB Bank SE (“DVB”) to transfer DVB’s aviation finance division to MUFG Bank and BOT Lease.

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The purpose of the transaction is to improve the MUFG Group’s ability to offer bespoke solutions to its clients by enhancing its global corporate investment banking business platform in terms of higher returns, diversifying its portfolio, broadening its customer base, and securing experienced professionals.

On November 18, 2019, MUFG Bank acquired DVB’s most of aviation finance client lending portfolio, employees, and other part of the operation infrastructure for ¥555 billion in cash. MUFG Bank recorded goodwill of ¥32,591 million. In addition, DVB’s aviation investment management and asset management businesses will be transferred to a newly established subsidiary of BOT Lease, subject to applicable regulatory and other approvals and certain conditions.

The following table summarizes the estimated fair values of the assets acquired and liabilities as of the acquisition date:

	(in millions)
Loans	¥	515,933
Total assets		522,797
Total liabilities		138

Pro forma statements of income

The following unaudited pro forma statements of income present the result of operations for DVB’s aviation finance division as if the acquisition of DVB’s aviation finance division had occurred on April 1, 2018:

	Fiscal years ended March 31,
	2019		2020
	(in millions)
Statement of income data:
Net interest income	¥	4,825	¥	4,868
Non-interest income—Total		430		430
Net income attributable to Mitsubishi UFJ Financial Group		48		77

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3. INVESTMENT SECURITIES

The following tables present the amortized cost, gross unrealized gains and losses, and fair value of Available-for-sale debt securities and Held-to-maturity debt securities at March 31, 2019 and 2020:

At March 31, 2019:	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(in millions)
Available-for-sale debt securities:
Japanese national government and Japanese government agency bonds	¥	23,748,558	¥	330,115	¥	977		¥	24,077,696
Japanese prefectural and municipal bonds		2,203,978		22,593		5			2,226,566
Foreign government and official institution bonds		2,648,874		18,099		25,554			2,641,419
Corporate bonds		1,117,302		14,251		822			1,130,731
Residential mortgage-backed securities		1,635,220		1,469		21,338			1,615,351
Commercial mortgage-backed securities		132,996		310		2,351			130,955
Asset-backed securities		1,494,629		10,846		2,553			1,502,922
Other debt securities(1)		192,930		2,851		2,918			192,863
Total	¥	33,174,487	¥	400,534	¥	56,518		¥	33,518,503
Held-to-maturity debt securities:
Japanese national government and Japanese government agency bonds	¥	1,100,701	¥	41,619	¥	—		¥	1,142,320
Foreign government and official institution bonds		138,731		193		212			138,712
Residential mortgage-backed securities		910,990		1,209		21,202	(2)		890,997
Commercial mortgage-backed securities		160,267		1,903		2,032	(2)		160,138
Asset-backed securities		2,131,212		1,415		11,847			2,120,780
Total	¥	4,441,901	¥	46,339	¥	35,293		¥	4,452,947

Notes:

(1) Other debt securities in the table above mainly include ¥112,822 million of private placement debt conduit bonds.

(2) MUFG Americas Holdings reclassified residential mortgage-backed securities and commercial mortgage-backed securities from Available-for-sale debt securities to Held-to-maturity debt securities. As a result of the reclassification of residential mortgage-backed securities and commercial mortgage-backed securities, the unrealized losses before taxes at the date of reclassification remaining in Accumulated OCI in the accompanying consolidated balance sheets were ¥10,591 million and ¥4,667 million, respectively, at March 31, 2019 and are not included in the table above.

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At March 31, 2020:	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(in millions)
Available-for-sale debt securities:
Japanese national government and Japanese government agency bonds	¥	23,308,538	¥	185,302	¥	30,961		¥	23,462,879
Japanese prefectural and municipal bonds		2,938,743		16,279		2,202			2,952,820
Foreign government and official institution bonds		2,936,110		107,406		6,028			3,037,488
Corporate bonds		1,261,586		12,445		1,205			1,272,826
Residential mortgage-backed securities		1,460,641		3,083		4,331			1,459,393
Commercial mortgage-backed securities		379,234		6,110		3,089			382,255
Asset-backed securities		1,461,083		9,516		1,123			1,469,476
Other debt securities(1)		161,832		3,190		1,956			163,066
Total	¥	33,907,767	¥	343,331	¥	50,895		¥	34,200,203
Held-to-maturity debt securities:
Japanese national government and Japanese government agency bonds	¥	1,100,574	¥	29,856	¥	—		¥	1,130,430
Foreign government and official institution bonds		151,555		243		689			151,109
Residential mortgage-backed securities		737,242		10,478		3,012	(2)		744,708
Commercial mortgage-backed securities		146,039		2,993		317	(2)		148,715
Asset-backed securities		2,030,371		277		27,716			2,002,932
Total	¥	4,165,781	¥	43,847	¥	31,734		¥	4,177,894

Notes:

(1) Other debt securities in the table above mainly include ¥86,734 million of private placement debt conduit bonds.

(2) MUFG Americas Holdings reclassified residential mortgage-backed securities and commercial mortgage-backed securities from Available-for-sale debt securities to Held-to-maturity debt securities. As a result of the reclassification of residential mortgage-backed securities and commercial mortgage-backed securities, the unrealized losses before taxes at the date of reclassification remaining in Accumulated OCI in the accompanying consolidated balance sheets were ¥8,215 million and ¥3,178 million, respectively, at March 31, 2020 and are not included in the table above.

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Contractual Maturities

The amortized cost and fair values of Held-to-maturity debt securities and the fair values of Available-for-sale debt securities at March 31, 2020 by contractual maturity are shown below. Expected maturities may be shorter than contractual maturities because issuers of debt securities may have the right to call or prepay obligations with or without penalties. Debt securities not due at a single maturity date and securities embedded with call or prepayment options, such as mortgage-backed securities, are included in the table below based on their contractual maturities.

	Held-to-maturity debt securities				Available-for-sale debt securities
	Amortized cost		Fair value		Fair value
	(in millions)
Due in one year or less	¥	24,013	¥	24,056	¥	11,827,106
Due from one year to five years		1,202,901		1,235,096		10,833,597
Due from five years to ten years		591,471		587,205		5,794,878
Due after ten years		2,347,396		2,331,537		5,744,622
Total	¥	4,165,781	¥	4,177,894	¥	34,200,203

Realized Gains and Losses

For the fiscal year ended March 31, 2018, gross realized gains on sales of Available-for-sale debt securities and marketable equity securities were ¥330,508 million and gross realized losses on sales of Available-for-sale debt securities and marketable equity securities were ¥49,290 million.

For the fiscal years ended March 31, 2019 and 2020, gross realized gains on sales of Available-for-sale debt securities were ¥45,244 million and ¥151,015 million, respectively, and gross realized losses on sales of Available-for-sale debt securities were ¥16,541 million and ¥44,662 million, respectively.

Other-than-temporary Impairments of Investment Securities

For the fiscal year ended March 31, 2018, losses resulting from impairment of investment securities to reflect the decline in value considered to be other-than-temporary were ¥8,196 million, which were included in Investment securities gains (losses)—net in the accompanying consolidated statements of income. The losses of ¥8,196 million for the fiscal year ended March 31, 2018 included losses of ¥6,660 million from marketable equity securities, ¥114 million from Available-for-sale debt securities which mainly comprised of corporate bonds, and ¥1,422 million from nonmarketable equity securities.

For the fiscal years ended March 31, 2019 and 2020, losses resulting from impairment of investment securities to reflect the decline in value considered to be other-than-temporary were ¥606 million and ¥1,590 million, respectively, which were included in Investment securities gains (losses)—net in the accompanying consolidated statements of income. These losses were recorded from Available-for-sale debt securities which mainly comprised of corporate bonds for the fiscal years ended March 31, 2019 and 2020. Impairment of marketable equity securities is eliminated according to new guidance on recognition and measurement of financial assets and financial liabilities. The Available-for-sale securities (AFS category) is eliminated for equity securities and, therefore, OTTI review is not required for those securities.

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Gross Unrealized Losses and Fair Value

The following tables show the gross unrealized losses and fair value of Available-for-sale debt securities and Held-to-maturity debt securities at March 31, 2019 and 2020, by length of time that individual securities in each category have been in a continuous loss position:

	Less than 12 months				12 months or more				Total
At March 31, 2019:	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Number of securities
	(in millions, except number of securities)
Available-for-sale debt securities:
Japanese national government and Japanese government agency bonds	¥	4,149,302	¥	976	¥	5,599	¥	1	¥	4,154,901	¥	977		39
Japanese prefectural and municipal bonds		12,772		5		—		—		12,772		5		4
Foreign government and official institution bonds		397,718		1,125		1,160,671		24,429		1,558,389		25,554		179
Corporate bonds		163,615		776		79,758		46		243,373		822		92
Residential mortgage-backed securities		316,942		1,757		648,353		19,581		965,295		21,338		536
Commercial mortgage-backed securities		42,126		678		57,167		1,673		99,293		2,351		104
Asset-backed securities		164,738		2,553		—		—		164,738		2,553		87
Other debt securities		77,660		549		37,027		2,369		114,687		2,918		38
Total	¥	5,324,873	¥	8,419	¥	1,988,575	¥	48,099	¥	7,313,448	¥	56,518		1,079
Held-to-maturity debt securities:
Foreign government and official institution bonds	¥	—	¥	—	¥	55,084	¥	212	¥	55,084	¥	212		10
Residential mortgage-backed securities		74,180		1,199		798,165		20,003		872,345		21,202		457
Commercial mortgage-backed securities		3,154		37		155,011		1,995		158,165		2,032		32
Asset-backed securities		1,423,048		10,196		241,233		1,651		1,664,281		11,847		102
Total	¥	1,500,382	¥	11,432	¥	1,249,493	¥	23,861	¥	2,749,875	¥	35,293		601

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	Less than 12 months				12 months or more				Total
At March 31, 2020:	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Number of securities
	(in millions, except number of securities)
Available-for-sale debt securities:
Japanese national government and Japanese government agency bonds	¥	11,781,600	¥	30,961	¥	—	¥	—	¥	11,781,600	¥	30,961		202
Japanese prefectural and municipal bonds		935,540		2,202		—		—		935,540		2,202		340
Foreign government and official institution bonds		564,620		5,481		114,407		547		679,027		6,028		153
Corporate bonds		522,941		1,191		25,228		14		548,169		1,205		154
Residential mortgage-backed securities		114,057		530		388,064		3,801		502,121		4,331		402
Commercial mortgage-backed securities		182,887		3,087		1,304		2		184,191		3,089		39
Asset-backed securities		189,775		503		86,605		620		276,380		1,123		94
Other debt securities		53,070		132		30,657		1,824		83,727		1,956		24
Total	¥	14,344,490	¥	44,087	¥	646,265	¥	6,808	¥	14,990,755	¥	50,895		1,408
Held-to-maturity debt securities:
Foreign government and official institution bonds	¥	55,746	¥	689	¥	—	¥	—	¥	55,746	¥	689		9
Residential mortgage-backed securities		108,478		1,033		360,841		1,979		469,319		3,012		281
Commercial mortgage-backed securities		10,281		32		133,791		285		144,072		317		31
Asset-backed securities		637,201		8,536		1,259,720		19,180		1,896,921		27,716		77
Total	¥	811,706	¥	10,290	¥	1,754,352	¥	21,444	¥	2,566,058	¥	31,734		398

Evaluating Investment Securities for Other-than-temporary Impairments

The following describes the nature of the MUFG Group’s investments and the conclusions reached in determining whether the unrealized losses were temporary or other-than-temporary.

Corporate bonds

As of March 31, 2020, unrealized losses associated with corporate bonds were primarily related to private placement bonds issued by Japanese non-public companies. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining terms of the bonds as estimated using the MUFG Group’s cash flow projections. The key assumptions include probability of default based on credit ratings of the bond issuers and loss given default. The credit loss components recognized in earnings were ¥1,761 million and ¥1,535 million at March 31, 2019 and 2020, respectively.

Residential mortgage-backed securities

As of March 31, 2020, unrealized losses on these securities were primarily driven by securities guaranteed by a U.S. government agency or a government-sponsored agency which are collateralized by residential

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mortgage loans. Unrealized losses mainly resulted from changes in interest rates and not from changes in credit quality. The MUFG Group determined through analysis that no OTTI was identified on such securities as of March 31, 2020 and no impairment loss has been recorded because the strength of the issuers’ guarantees through direct obligations or support from the U.S. government is expected to be sufficient to recover the entire amortized cost basis of these securities.

Asset-backed securities

As of March 31, 2020, unrealized losses on these securities were primarily driven by certain collateralized loan obligations (“CLOs”), highly illiquid securities for which fair values are difficult to determine. Unrealized losses arise from widening credit spreads, deterioration of the credit quality of the underlying collateral, uncertainty regarding the valuation of such securities and the market’s view of the performance of the fund managers. When the fair value of a security is lower than its amortized cost or when any security is subject to a deterioration in credit rating, the MUFG Group undertakes a cash flow analysis of the underlying collateral to estimate the OTTI and confirms the intent and ability to hold these securities until recovery. Based on the analysis performed, no OTTI was identified as of March 31, 2020 and no impairment loss has been recorded.

Other debt securities

As of March 31, 2020, other debt securities primarily consist of private placement debt conduit bonds, which are not rated by external credit rating agencies. The unrealized losses on these bonds result from a higher return on capital expected by the secondary market compared with the return on capital required at the time of origination when the bonds were purchased. The MUFG Group estimates loss projections for each security by assessing the underlying collateral of each security. The MUFG Group estimates the portion of loss attributable to credit based on the expected cash flows of the underlying collateral using estimates of current key assumptions such as probability of default and loss severity. Cash flow analysis of the underlying collateral provides an estimate of OTTI, which is performed when the fair value of a security is lower than its amortized cost and potential impairment is identified. Based on the analysis, no OTTI losses were recorded in the accompanying consolidated statements of income.

Marketable equity securities included in Equity Securities

The MUFG Group determines whether unrealized losses on marketable equity securities are temporary based on its ability and positive intent to hold the investments for a period of time sufficient to allow for any anticipated recovery and the results of its review conducted to identify and evaluate investments that have indications of possible impairment. Impairment is evaluated considering various factors, and their relative significance varies from case to case. The MUFG Group’s review includes, but is not limited to, consideration of the following factors:

The length of time that the fair value of the investment has been below cost—The MUFG Group generally deems a continued decline of fair value below cost for six months or more to be other-than-temporary.

The extent to which the fair value of investments has been below cost as of the end of the reporting period—The MUFG Group’s investment portfolio is exposed to volatile equity prices affected by many factors including investors’ perspectives as to future economic prospects and the issuers’ performance. The MUFG Group generally deems the decline in fair value below cost of 20% or more as an indicator of an other-than-temporary decline in fair value.

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The financial condition and near-term prospects of the issuer—The MUFG Group considers the financial condition and near-term prospects of the issuer primarily based on the credit standing of the issuers as determined by its credit rating system.

At March 31, 2018, unrealized losses on marketable equity securities which have been in a continuous loss position are considered temporary based on the evaluation as described above.

OTTI of marketable equity securities is eliminated according to new guidance on recognition and measurement of financial assets and financial liabilities.

Equity Securities

The following table presents net realized losses on sales of equity securities, and net unrealized losses on equity securities still held at March 31, 2019 and 2020:

	Fiscal years ended March 31,
	2019			2020
	(in millions)
Net losses recognized during the period(1)	¥	(278,746	)	¥	(639,813	)
Less:
Net losses recognized during the period on equity securities sold during the period		(3,303	)		(37,541	)
Net unrealized losses recognized during the reporting period still held at the reporting date	¥	(275,443	)	¥	(602,272	)

Note:

(1) Included in Investment securities gains (losses)—net.

Measurement Alternative of Equity Securities

The following table presents the carrying value of nonmarketable equity securities held at March 31, 2019 and 2020:

	2019		2020
	(in millions)
Measurement alternative balance	¥	563,733	¥	534,882

The related adjustments for these securities for the fiscal years ended March 31, 2019 and 2020 were as follow:

	Fiscal years ended March 31,
	2019			2020
	(in millions)
Measurement alternative impairment losses(1)(4)	¥	(2,292	)	¥	(3,099	)
Measurement alternative downward changes for observable prices(1)(2)(3)(5)	¥	—		¥	(953	)
Measurement alternative upward changes for observable prices(1)(2)(3)(6)	¥	53,077		¥	6,223

Notes:

(1) Included in Investment securities gains (losses)—net.

(2) Under the measurement alternative, nonmarketable equity securities are carried at cost plus or minus changes resulting from observable prices in orderly transactions for the identical or a similar investment of the same issuer.

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(3) The MUFG Group applied measurement alternative downward or upward changes to certain nonmarketable equity securities, resulting from observable prices in orderly transactions, such as partial repurchase and transactions by other entities.

(4) The cumulative impairment losses at March 31, 2019 and 2020 were ¥2,292 million and ¥5,007 million, respectively.

(5) The cumulative downward changes for observable prices at March 31, 2019 and 2020 were nil and ¥953 million, respectively.

(6) The cumulative upward changes for observable prices at March 31, 2019 and 2020 were ¥53,077 million and ¥34,466 million, respectively.

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans at March 31, 2019 and 2020 by domicile and industry of the borrower are summarized below. Classification of loans by industry is based on the industry segment loan classifications as defined by the Bank of Japan.

	2019			2020
	(in millions)
Domestic:
Manufacturing	¥	11,153,996		¥	11,448,778
Construction		717,664			733,212
Real estate		11,706,419			12,054,671
Services		2,653,191			2,585,111
Wholesale and retail		7,643,397			7,504,561
Banks and other financial institutions(1)		5,213,020			5,161,093
Communication and information services		1,510,596			1,572,344
Other industries		8,756,483			8,673,871
Consumer		15,802,024			15,319,721
Total domestic		65,156,790			65,053,362
Foreign:
Governments and official institutions		841,695			726,347
Banks and other financial institutions(1)		11,641,373			11,788,225
Commercial and industrial		31,951,169			32,565,030
Other		7,597,502			8,404,062
Total foreign		52,031,739			53,483,664
Unearned income, unamortized premiums—net and deferred loan fees—net		(304,588	)		(350,287	)
Total(2)	¥	116,883,941		¥	118,186,739

Notes:

(1) Loans to so-called “non-bank finance companies” are generally included in the “Banks and other financial institutions” category. Non-bank finance companies are primarily engaged in consumer lending, factoring and credit card businesses.

(2) The above table includes loans held for sale of ¥291,794 million and ¥344,790 million at March 31, 2019 and 2020, respectively.

The MUFG Group classifies its loan portfolio into the following portfolio segments—Commercial, Residential, Card, MUFG Americas Holdings, Krungsri, and Other based on the grouping used by the MUFG Group to determine the allowance for credit losses. See Note 1 for further information.

Nonaccrual Loans

Originated loans are generally placed on nonaccrual status when substantial doubt exists as to the full and timely collection of either principal or interest, when principal or interest is contractually past due one month or

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more with respect to loans within all classes of the Commercial segment, three months or more with respect to loans within the Card, MUFG Americas Holdings, and Krungsri segments, and six months or more with respect to loans within the Residential segment. See Note 1 for further information.

The nonaccrual loans by class at March 31, 2019 and 2020 are shown below:

	2019		2020
	(in millions)
Commercial
Domestic	¥	272,777	¥	312,972
Manufacturing		65,896		93,776
Construction		9,813		8,484
Real estate		23,152		21,790
Services		26,188		51,195
Wholesale and retail		94,531		94,037
Banks and other financial institutions		898		994
Communication and information services		11,955		10,539
Other industries		25,406		20,234
Consumer		14,938		11,923
Foreign		111,002		127,001
Residential		68,499		63,998
Card		61,419		61,172
MUAH		46,549		35,840
Krungsri		127,424		149,732
Other		—		27,754
Total(1)	¥	687,670	¥	778,469

Note:

(1) The above table does not include loans held for sale of ¥12,702 million and ¥330 million at March 31, 2019 and 2020, respectively, and loans acquired with deteriorated credit quality of ¥6,284 million and ¥25,427 million at March 31, 2019 and 2020, respectively.

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Impaired Loans

The MUFG Group’s impaired loans primarily include nonaccrual loans and TDRs. The following table shows information about impaired loans by class at March 31, 2019 and 2020:

	Recorded Loan Balance
At March 31, 2019:	Requiring an Allowance for Credit Losses		Not Requiring an Allowance for Credit Losses(1)		Total(2)		Unpaid Principal Balance		Related Allowance for Credit Losses
	(in millions)
Commercial
Domestic	¥	560,474	¥	157,465	¥	717,939	¥	759,399	¥	227,004
Manufacturing		349,597		28,189		377,786		384,306		92,919
Construction		8,366		5,975		14,341		14,779		6,574
Real estate		20,848		29,961		50,809		55,943		5,704
Services		30,239		13,020		43,259		46,838		20,059
Wholesale and retail		118,253		45,620		163,873		175,714		84,503
Banks and other financial institutions		1,012		21		1,033		1,033		830
Communication and information services		8,794		6,929		15,723		16,587		6,817
Other industries		13,772		17,989		31,761		38,342		6,874
Consumer		9,593		9,761		19,354		25,857		2,724
Foreign		127,521		34,484		162,005		183,133		85,966
Loans acquired with deteriorated credit quality		8,136		—		8,136		14,990		5,450
Residential(4)		97,176		6,495		103,671		120,526		14,357
Card(4)		64,691		330		65,021		72,226		21,829
MUAH(4)		46,552		23,208		69,760		83,300		8,294
Krungsri(4)		57,066		26,193		83,259		90,377		28,254
Total(3)	¥	961,616	¥	248,175	¥	1,209,791	¥	1,323,951	¥	391,154

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	Recorded Loan Balance
At March 31, 2020:	Requiring an Allowance for Credit Losses		Not Requiring an Allowance for Credit Losses(1)		Total(2)		Unpaid Principal Balance		Related Allowance for Credit Losses
	(in millions)
Commercial
Domestic	¥	598,737	¥	147,890	¥	746,627	¥	784,298	¥	268,070
Manufacturing		375,716		32,057		407,773		414,091		119,070
Construction		6,609		5,261		11,870		12,023		5,026
Real estate		20,739		28,928		49,667		55,303		6,649
Services		55,293		13,114		68,407		72,708		40,987
Wholesale and retail		113,288		38,897		152,185		160,508		80,996
Banks and other financial institutions		1,069		39		1,108		1,262		855
Communication and information services		7,971		5,808		13,779		14,698		6,009
Other industries		10,558		16,449		27,007		33,229		6,434
Consumer		7,494		7,337		14,831		20,476		2,044
Foreign		141,897		56,464		198,361		220,283		96,009
Loans acquired with deteriorated credit quality		12,906		—		12,906		19,947		4,767
Residential(4)		88,075		4,822		92,897		107,629		12,770
Card(4)		65,240		280		65,520		72,714		19,799
MUAH(4)		33,884		33,835		67,719		84,737		5,977
Krungsri(4)		68,126		30,833		98,959		106,265		30,198
Other(4)		22,749		1,091		23,840		26,091		6,152
Total(3)	¥	1,031,614	¥	275,215	¥	1,306,829	¥	1,421,964	¥	443,742

Notes:

(1) These loans do not require an allowance for credit losses because the recorded loan balance equals, or does not exceed, the present value of expected future cash flows discounted at the loans’ original effective interest rate, loans’ observable market price, or the fair value of the collateral if the loan is a collateral-dependent loan.

(2) Included in impaired loans at March 31, 2019 and 2020 are accrual TDRs as follows: ¥497,013 million and ¥505,681 million—Commercial; ¥34,449 million and ¥28,450 million—Residential; ¥26,183 million and ¥25,492 million—Card; ¥33,155 million and ¥42,910 million—MUFG Americas Holdings; ¥26,851 million and ¥35,226 million—Krungsri; and nil and ¥8,401 million—Other, respectively.

(3) In addition to impaired loans presented in the above table, there were impaired loans held for sale of ¥12,702 million and ¥330 million at March 31, 2019 and 2020, respectively.

(4) Impaired Loans for Residential, Card, MUAH, Krungsri and Other segments in the above table include loans acquired with deteriorated credit quality.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table shows information regarding the average recorded loan balance and recognized interest income on impaired loans for the fiscal years ended March 31, 2018, 2019 and 2020:

	2018				2019				2020
	Average Recorded Loan Balance		Recognized Interest Income		Average Recorded Loan Balance		Recognized Interest Income		Average Recorded Loan Balance			Recognized Interest Income
	(in millions)
Commercial
Domestic	¥	918,093	¥	9,441	¥	766,847	¥	12,383	¥	726,794		¥	8,722
Manufacturing		472,081		3,787		387,725		6,057		387,470			4,085
Construction		19,465		281		15,721		291		13,093			218
Real estate		74,087		1,146		57,850		1,069		48,740			731
Services		59,916		794		48,945		1,044		58,704			759
Wholesale and retail		186,356		2,347		171,687		2,848		157,751			2,195
Banks and other financial institutions		1,729		8		1,330		8		1,094			6
Communication and information services		25,461		388		22,478		491		14,804			322
Other industries		50,377		215		39,178		234		28,345			170
Consumer		28,621		475		21,933		341		16,793			236
Foreign		209,297		4,244		159,999		3,127		174,831			3,013
Loans acquired with deteriorated credit quality		8,591		492		7,814		182		9,395			74
Residential		119,409		1,563		107,165		1,620		98,238			1,252
Card		69,831		1,993		66,187		1,614		65,270			1,241
MUAH		83,504		1,993		71,162		2,292		82,832			2,801
Krungsri		75,370		3,899		83,165		4,995		91,577			5,274
Other		—		—		—		—		11,854			494
Total	¥	1,484,095	¥	23,625	¥	1,262,339	¥	26,213		1,260,791	¥	¥	22,871

Interest income on nonaccrual loans for all classes was recognized on a cash basis when ultimate collectibility of principal was certain. Otherwise, cash receipts were applied as principal reductions. Interest income on accruing impaired loans, including TDRs, was recognized on an accrual basis to the extent that the collectibility of interest income was reasonably certain based on management’s assessment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table shows a roll-forward of accrual TDRs and other impaired loans (including nonaccrual TDRs) for the fiscal years ended March 31, 2018, 2019 and 2020:

	2018			2019			2020
	(in millions)
Accrual TDRs:
Balance at beginning of fiscal year	¥	819,819		¥	670,255		¥	617,651
Additions (new accrual TDR status)(1)		144,368			71,033			171,740
Transfers to other impaired loans (including nonaccrual TDRs)		(25,122	)		(19,053	)		(39,646	)
Loans sold		(39,378	)		(26	)		(11,220	)
Principal payments and other		(229,432	)		(104,558	)		(92,365	)
Balance at end of fiscal year(1)	¥	670,255		¥	617,651			¥ 646,160
Other impaired loans (including nonaccrual TDRs):
Balance at beginning of fiscal year	¥	896,031		¥	660,868		¥	592,140
Additions (new other impaired loans (including nonaccrual TDRs) status)(1)(2)		281,275			222,003			373,091
Charge-off		(98,355	)		(55,309	)		(52,935	)
Transfers to accrual TDRs		(43,858	)		(22,110	)		(45,310	)
Loans sold		(31,581	)		(26,022	)		(29,928	)
Principal payments and other		(342,644	)		(187,290	)		(176,389	)
Balance at end of fiscal year(1)	¥	660,868		¥	592,140			¥ 660,669

Notes:

(1) For the fiscal year ended March 31, 2018, lease receivables of ¥1,809 million and ¥113 million in the Krungsri segment, which were accrual TDRs and nonaccrual TDRs, respectively, are excluded from the additions of accrual TDRs and other impaired loans, respectively, and the related ending balances of such TDRs amounting to ¥4,282 million and ¥1,286 million, are also excluded from the balance of accrual TDRs and other impaired loans, respectively, as of March 31, 2018. For the fiscal year ended March 31, 2019, lease receivables of ¥2,947 million and ¥2,088 million in the Krungsri segment, which were accrual TDRs and nonaccrual TDRs, respectively, are excluded from the additions of accrual TDRs and other impaired loans, respectively, and the related ending balances of such TDRs amounting to ¥5,060 million and ¥3,361 million, are also excluded from the balance of accrual TDRs and other impaired loans, respectively, as of March 31, 2019. For the fiscal year ended March 31, 2020, lease receivables of ¥3,647 million and ¥465 million in the Krungsri segment, and ¥68 million and nil in the Other segment, which were accrual TDRs and nonaccrual TDRs, respectively, are excluded from the additions of accrual TDRs and other impaired loans, respectively, and the related ending balances of such TDRs amounting to ¥6,946 million and ¥3,810 million in the Krungsri segment, and ¥66 million and nil in the Other segment are also excluded from the balance of accrual TDRs and other impaired loans, respectively, as of March 31, 2020.

(2) Included in the additions of other impaired loans for the fiscal years ended March 31, 2018, 2019 and 2020 are nonaccrual TDRs as follows: ¥12,002 million, ¥13,493 million and ¥14,685 million—Card; ¥12,799 million, ¥12,738 million and ¥15,135 million—MUFG Americas Holdings; ¥12,280 million, ¥10,519 million and ¥9,828 million—Krungsri; and nil, nil and ¥1,031 million—Other, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Troubled Debt Restructurings

The following table summarizes the MUFG Group’s TDRs by class for the fiscal years ended March 31, 2018, 2019 and 2020:

	2018				2019				2020
	Troubled Debt Restructurings
	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
	(in millions)
Commercial(1)(3)
Domestic	¥	70,380	¥	69,021	¥	36,693	¥	36,693	¥	61,735	¥	61,735
Manufacturing		35,954		35,954		11,654		11,654		27,435		27,435
Construction		1,020		1,020		703		703		289		289
Real estate		1,269		1,269		948		948		2,714		2,714
Services		4,139		4,139		2,141		2,141		6,487		6,487
Wholesale and retail		16,280		14,921		19,315		19,315		20,813		20,813
Banks and other financial institutions		246		246		—		—		—		—
Communication and information services		9,643		9,643		268		268		376		376
Other industries		761		761		472		472		3,279		3,279
Consumer		1,068		1,068		1,192		1,192		342		342
Foreign		25,522		25,522		5,692		5,692		39,827		39,827
Loans acquired with deteriorated credit quality		—		—		50		50		10,786		10,786
Residential(1)(3)		9,763		9,763		7,379		7,379		5,137		5,137
Card(2)(3)		17,436		16,912		19,685		18,837		22,625		21,561
MUAH(2)(3)		40,578		38,224		19,837		19,837		33,782		33,564
Krungsri(2)(3)		24,015		23,929		24,392		24,330		31,238		31,209
Other(2)(3)		—		—		—		—		12,781		12,780
Total	¥	187,694	¥	183,371	¥	113,728	¥	112,818	¥	217,911	¥	216,599

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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	2018		2019		2020
	Troubled Debt Restructurings That Subsequently defaulted
	Recorded Investment
	(in millions)
Commercial(1)(3)
Domestic	¥	4,067	¥	11,002	¥	8,857
Manufacturing		839		312		3,094
Construction		—		89		6
Real estate		10		—		73
Services		822		473		43
Wholesale and retail		2,231		1,713		5,421
Banks and other financial institutions		—		—		—
Communication and information services		140		8,365		9
Other industries		—		50		123
Consumer		25		—		88
Foreign		—		—		2,337
Loans acquired with deteriorated credit quality		—		—		—
Residential(1)(3)		159		362		31
Card(2)(3)		4,191		3,442		3,320
MUAH(2)(3)		2,565		349		4,656
Krungsri(2)(3)		4,789		7,926		7,305
Other(2)(3)		—		—		15
Total	¥	15,771	¥	23,081	¥	26,521

Notes:

(1) TDRs for the Commercial and Residential segments include accruing loans, and do not include nonaccrual loans.

(2) TDRs for the Card, MUFG Americas Holdings, Krungsri and Other segments include accrual and nonaccrual loans.

(3) For the fiscal year ended March 31, 2018, extension of the stated maturity date of loans was the primary concession type in the Commercial, Residential and Krungsri segments, reduction in the stated rate was the primary concession type in the Card segment and payment deferrals were the primary concession type in the MUFG Americas Holdings segment. For the fiscal year ended March 31, 2019, extension of the stated maturity date of loans was the primary concession type in the Commercial, Residential and Krungsri segments, reduction in the stated rate was the primary concession type in the Card segment and forbearance was the primary concession type in the MUFG Americas Holdings segment. For the fiscal year ended March 31, 2020, extension of the stated maturity date of loans was the primary concession type in the Commercial, Residential, MUFG Americas Holdings and Krungsri segments and reduction in the stated rate was the primary concession type in the Card and Other segments.

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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes outstanding recorded investment balances of TDRs by class at March 31, 2019 and 2020:

	2019		2020
	(in millions)
Commercial(1)
Domestic	¥	445,312	¥	433,783
Manufacturing		311,890		313,996
Construction		4,591		3,435
Real estate		27,657		27,877
Services		17,135		17,287
Wholesale and retail		69,350		58,148
Banks and other financial institutions		135		113
Communication and information services		3,780		3,244
Other industries		6,357		6,775
Consumer		4,417		2,908
Foreign		51,701		71,898
Residential(1)		34,449		28,450
Card(2)		65,021		65,520
MUAH(2)		48,128		62,151
Krungsri(2)		62,980		76,831
Other(2)		—		9,525
Total	¥	707,591	¥	748,158

Notes:

(1) TDRs for the Commercial and Residential segments include accruing loans, and do not include nonaccrual loans.

(2) TDRs for the Card, MUFG Americas Holdings, Krungsri and Other segments include accrual and nonaccrual loans. Included in the outstanding recorded investment balances as of March 31, 2019 and 2020 are nonaccrual TDRs as follows: ¥38,838 million and ¥40,028 million—Card; ¥14,973 million and ¥19,241 million—MUFG Americas Holdings; ¥31,069 million and ¥34,659 million—Krungsri; and nil and ¥1,058 million—Other, respectively.

A modification of terms of a loan under a TDR mainly involves: (i) a reduction in the stated interest rate applicable to the loan, (ii) an extension of the stated maturity date of the loan, (iii) a partial forgiveness of the principal of the loan, or (iv) a combination of all of these. Those loans are also considered impaired loans, and hence the allowance for credit losses is separately established for each loan. As a result, the amount of allowance for credit losses increases in many cases upon classification as a TDR loan. The amount of pre-modification outstanding recorded investment and post-modification outstanding recorded investment may differ due to write-offs made as part of the concession. The impact of write-offs associated with TDRs on the MUFG Group’s results of operations for the fiscal years ended March 31, 2018, 2019 and 2020 was not material.

TDRs for the Commercial and Residential segments in the above tables include accruing loans, and do not include nonaccrual loans. Once a loan is classified as a nonaccrual loan, a modification would have little likelihood of resulting in the recovery of the loan in view of the severity of the financial difficulty of the borrower. Therefore, even if a nonaccrual loan is modified, the loan continues to be classified as a nonaccrual loan. The vast majority of modifications to nonaccrual loans are temporary extensions of the maturity dates, typically for periods up to 90 days, and continually made as the borrower is unable to repay or refinance the loan at the extended maturity. Accordingly, the impact of such TDRs on the outstanding recorded investment is immaterial, and the vast majority of nonaccrual TDRs have subsequently defaulted.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

TDRs that subsequently defaulted in the Commercial and Residential segments in the above tables include those accruing loans that became past due one month or more within the Commercial segment and six months or more within the Residential segment, and those accruing loans reclassified to nonaccrual loans due to financial difficulties even without delinquencies. This is because classification as a nonaccrual loan is regarded as default under the MUFG Group’s credit policy. Also, the MUFG Group defines default as payment default for the purpose of the disclosure.

In regards to the Card, MUFG Americas Holdings, Krungsri and Other segments, the TDRs in the above tables represent nonaccrual and accruing loans, and the defaulted loans in the above table represent nonaccruing and accruing loans that became past due one month or more within the Card segment, 60 days or more within the MUFG Americas Holdings segment, and six months or more within the Krungsri segment.

Historical payment defaults are one of the factors considered when projecting future cash flows in determining the allowance for credit losses for each segment.

The MUFG Group provided commitments to extend credit to customers with TDRs. The amounts of such commitments were ¥169,819 million and ¥90,097 million at March 31, 2019 and 2020, respectively. See Note 24 for further discussion of commitments to extend credit.

Credit Quality Indicator

Credit quality indicators of loans by class at March 31, 2019 and 2020 are shown below:

At March 31, 2019:	Normal		Close Watch		Likely to become Bankrupt or Legally/Virtually Bankrupt		Total(1)
	(in millions)
Commercial
Domestic	¥	49,391,991	¥	1,242,075	¥	217,745	¥	50,851,811
Manufacturing		10,819,594		279,801		47,968		11,147,363
Construction		672,152		37,236		7,857		717,245
Real estate		11,403,613		222,791		22,515		11,648,919
Services		2,436,489		174,784		19,953		2,631,226
Wholesale and retail		7,240,801		329,249		68,736		7,638,786
Banks and other financial institutions		5,199,889		7,654		898		5,208,441
Communication and information services		1,465,652		34,542		10,172		1,510,366
Other industries		8,610,464		119,581		24,947		8,754,992
Consumer		1,543,337		36,437		14,699		1,594,473
Foreign		35,418,267		562,854		112,103		36,093,224
Loans acquired with deteriorated credit quality		11,622		10,833		3,790		26,245
Total	¥	84,821,880	¥	1,815,762	¥	333,638	¥	86,971,280

	Accrual		Nonaccrual		Total(1)
	(in millions)
Residential	¥	13,661,794	¥	66,290	¥	13,728,084
Card	¥	516,983	¥	61,599	¥	578,582

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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Credit Quality Based on the Number of Delinquencies				Credit Quality Based on Internal Credit Ratings
	Accrual		Nonaccrual		Pass		Special Mention		Classified		Total(1)(2)
	(in millions)
MUAH	¥	4,752,021	¥	15,540	¥	4,699,698	¥	51,948	¥	88,356	¥	9,607,563

	Normal		Special Mention		Substandard or Doubtful or Doubtful of Loss		Total(1)
	(in millions)
Krungsri	¥	5,682,245	¥	199,070	¥	129,222	¥	6,010,537

At March 31, 2020:	Normal		Close Watch		Likely to become Bankrupt or Legally/Virtually Bankrupt		Total(1)
	(in millions)
Commercial
Domestic	¥	49,695,889	¥	1,186,044	¥	220,245	¥	51,102,178
Manufacturing		10,997,241		317,018		58,615		11,372,874
Construction		696,491		28,350		6,927		731,768
Real estate		11,790,467		190,972		20,080		12,001,519
Services		2,390,210		158,851		21,802		2,570,863
Wholesale and retail		7,124,098		301,965		71,778		7,497,841
Banks and other financial institutions		5,146,320		13,237		926		5,160,483
Communication and information services		1,530,887		32,366		8,880		1,572,133
Other industries		8,540,144		112,813		19,292		8,672,249
Consumer		1,480,031		30,472		11,945		1,522,448
Foreign		34,719,041		636,523		128,073		35,483,637
Loans acquired with deteriorated credit quality		8,255		9,739		18,978		36,972
Total	¥	84,423,185	¥	1,832,306	¥	367,296	¥	86,622,787

	Accrual		Nonaccrual		Total(1)
	(in millions)
Residential	¥	13,256,744	¥	61,746	¥	13,318,490
Card	¥	504,357	¥	61,286	¥	565,643

	Credit Quality Based on the Number of Delinquencies				Credit Quality Based on Internal Credit Ratings
	Accrual		Nonaccrual		Pass		Special Mention		Classified		Total(1)(2)
	(in millions)
MUAH	¥	4,590,805	¥	15,119	¥	4,877,863	¥	87,648	¥	84,033	¥	9,655,468

	Normal		Special Mention		Substandard or Doubtful or Doubtful of Loss		Total(1)
	(in millions)
Krungsri	¥	6,513,615	¥	246,328	¥	151,647	¥	6,911,590

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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Accrual		Nonaccrual		Total(1)
	(in millions)
Other	¥	1,086,517	¥	31,376	¥	1,117,893

Notes:

(1) Total loans in the above table do not include loans held for sale, and represent balances without adjustments in relation to unearned income, unamortized premiums and deferred loan fees.

(2) Total loans of MUFG Americas Holdings do not include FDIC covered loans which are not individually rated totaling ¥689 million and ¥365 million as of March 31, 2019 and 2020, respectively. The MUFG Group will be reimbursed for a substantial portion of any future losses on FDIC covered loans under the terms of the FDIC loss share agreements.

The MUFG Group classifies loans into risk categories based on relevant information about the ability of borrowers to service their debt, including, but not limited to, historical and current financial information, historical and current payment experience, credit documentation, public and non-public information about borrowers and current economic trends as deemed appropriate to each segment.

The primary credit quality indicator for loans within all classes of the Commercial segment is the internal credit rating assigned to each borrower based on the MUFG Group’s internal borrower ratings of 1 through 15, with the rating of 1 assigned to a borrower with the highest quality of credit. When assigning a credit rating to a borrower, the MUFG Group evaluates the borrower’s expected debt-service capability based on various information, including financial and operating information of the borrower as well as information on the industry in which the borrower operates, and the borrower’s business profile, management and compliance system. In evaluating a borrower’s debt-service capability, the MUFG Group also conducts an assessment of the level of earnings and an analysis of the borrower’s net worth. Based on the internal borrower rating, loans within the Commercial segment are categorized as Normal (internal borrower ratings of 1 through 9), Close Watch (internal borrower ratings of 10 through 12), and Likely to become Bankrupt or Legally/Virtually Bankrupt (internal borrower ratings of 13 through 15).

Loans to borrowers categorized as Normal represent those that are not deemed to have collectibility issues.

Loans to borrowers categorized as Close Watch represent those that require close monitoring as the borrower has begun to exhibit elements of potential concern with respect to its business performance and financial condition, the borrower has begun to exhibit elements of serious concern with respect to its business performance and financial condition, including business problems requiring long-term solutions, or the borrower’s loans are TDRs or loans contractually past due 90 days or more for special reasons.

Loans to borrowers categorized as Likely to become Bankrupt or Legally/Virtually Bankrupt represent those that have a higher probability of default than those categorized as Close Watch due to serious debt repayment problems with poor progress in achieving restructuring plans, the borrower being considered virtually bankrupt with no prospects for an improvement in business operations, or the borrower being legally bankrupt with no prospects for continued business operations because of non-payment, suspension of business, voluntary liquidation or filing for legal liquidation.

The accrual status is a primary credit quality indicator for loans within the Residential segment, the Card segment, the Other segment and consumer loans within the MUFG Americas Holdings segment. The accrual status of these loans is determined based on the number of delinquent payments. See Note 1 for further details of categorization of Accrual and Nonaccrual.

Commercial loans within the MUFG Americas Holdings segment are categorized as either pass or criticized based on the internal credit rating assigned to each borrower. Criticized credits are those that are internally risk

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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

graded as Special Mention, Substandard or Doubtful. Special Mention credits are potentially weak, as the borrower has begun to exhibit deteriorating trends, which, if not corrected, may jeopardize repayment of the loan and result in further downgrade. Classified credits are those that are internally risk graded as Substandard or Doubtful. Substandard credits have well-defined weaknesses, which, if not corrected, could jeopardize the full satisfaction of the debt. A credit classified as Doubtful has critical weaknesses that make full collection improbable on the basis of currently existing facts and conditions.

Loans within the Krungsri segment are categorized as Normal, Special Mention, Substandard, Doubtful, and Doubtful of Loss primarily based on their delinquency status. Loans categorized as Special Mention generally represent those that have the overdue principal or interest payments for a cumulative period exceeding one month commencing from the contractual due date. Loans categorized as Substandard, Doubtful or Doubtful of Loss generally represent those that have the overdue principal or interest payments for a cumulative period exceeding three months commencing from the contractual due date.

For the Commercial, Residential and Card segments, credit quality indicators are based on information as of March 31. For the MUFG Americas Holdings, Krungsri and Other segments, credit quality indicators are generally based on information as of December 31.

Past Due Analysis

Ages of past due loans by class at March 31, 2019 and 2020 are shown below:

At March 31, 2019:	1-3 months Past Due		Greater Than 3 months		Total Past Due		Current		Total Loans(1)		Recorded Investment> 90 Days and Accruing
	(in millions)
Commercial
Domestic	¥	11,551	¥	30,648	¥	42,199	¥	50,809,612	¥	50,851,811	¥	6,900
Manufacturing		1,597		3,036		4,633		11,142,730		11,147,363		—
Construction		218		60		278		716,967		717,245		1
Real estate		2,034		4,256		6,290		11,642,629		11,648,919		2,524
Services		778		569		1,347		2,629,879		2,631,226		1
Wholesale and retail		2,791		2,390		5,181		7,633,605		7,638,786		62
Banks and other financial institutions		—		21		21		5,208,420		5,208,441		—
Communication and information services		411		758		1,169		1,509,197		1,510,366		—
Other industries		365		13,037		13,402		8,741,590		8,754,992		—
Consumer		3,357		6,521		9,878		1,584,595		1,594,473		4,312
Foreign		10,881		19,993		30,874		36,062,350		36,093,224		236
Residential		62,686		16,615		79,301		13,641,449		13,720,750		6,584
Card		17,203		30,568		47,771		527,421		575,192		—
MUAH		28,696		10,827		39,523		9,557,501		9,597,024		2,287
Krungsri		126,313		106,777		233,090		5,771,541		6,004,631		—
Total	¥	257,330	¥	215,428	¥	472,758	¥	116,369,874	¥	116,842,632	¥	16,007

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At March 31, 2020:	1-3 months Past Due		Greater Than 3 months		Total Past Due		Current		Total Loans(1)		Recorded Investment> 90 Days and Accruing
	(in millions)
Commercial
Domestic	¥	9,215	¥	26,971	¥	36,186	¥	51,065,992	¥	51,102,178	¥	4,720
Manufacturing		820		2,762		3,582		11,369,292		11,372,874		620
Construction		143		100		243		731,525		731,768		—
Real estate		880		3,300		4,180		11,997,339		12,001,519		1,181
Services		812		908		1,720		2,569,143		2,570,863		5
Wholesale and retail		2,598		2,603		5,201		7,492,640		7,497,841		19
Banks and other financial institutions		—		54		54		5,160,429		5,160,483		—
Communication and information services		336		57		393		1,571,740		1,572,133		—
Other industries		171		12,889		13,060		8,659,189		8,672,249		97
Consumer		3,455		4,298		7,753		1,514,695		1,522,448		2,798
Foreign		9,927		23,548		33,475		35,450,162		35,483,637		164
Residential		48,404		15,443		63,847		13,248,278		13,312,125		6,288
Card		14,735		29,997		44,732		518,008		562,740		—
MUAH		31,052		14,435		45,487		9,603,339		9,648,826		2,101
Krungsri		160,253		129,186		289,439		6,616,104		6,905,543		—
Other		16,442		24,348		40,790		1,069,186		1,109,976		—
Total	¥	290,028	¥	263,928	¥	553,956	¥	117,571,069	¥	118,125,025	¥	13,273

Note:

(1) Total loans in the above table do not include loans held for sale and loans acquired with deteriorated credit quality and represent balances without adjustments in relation to unearned income, unamortized premiums and deferred loan fees.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Allowance for Credit Losses

Changes in the allowance for credit losses by portfolio segment for the fiscal years ended March 31, 2018, 2019 and 2020 are shown below:

Fiscal year ended March 31, 2018:	Commercial			Residential			Card		MUAH			Krungsri		Total
	(in millions)
Allowance for credit losses:
Balance at beginning of fiscal year	¥	900,686		¥	67,336		¥	30,165	¥	73,733		¥	110,268	¥	1,182,188
Provision for (reversal of) credit losses		(297,401	)		(22,291	)		23,422		(9,309	)		64,732		(240,847	)
Charge-offs		134,807			3,838			22,696		14,701			56,067		232,109
Recoveries		24,913			1,339			1,228		6,140			17,490		51,110
Net charge-offs		109,894			2,499			21,468		8,561			38,577		180,999
Other(1)		(2,293	)		—			—		(2,098	)		8,173		3,782
Balance at end of fiscal year	¥	491,098		¥	42,546		¥	32,119	¥	53,765		¥	144,596	¥	764,124

Fiscal year ended March 31, 2019:	Commercial			Residential			Card		MUAH			Krungsri			Total
	(in millions)
Allowance for credit losses:
Balance at beginning of fiscal year	¥	491,098		¥	42,546		¥	32,119	¥	53,765		¥	144,596		¥	764,124
Provision for (reversal of) credit losses		(43,850	)		(4,480	)		23,809		9,277			49,574			34,330
Charge-offs		76,664			274			24,310		13,224			59,569			174,041
Recoveries		17,565			834			932		3,733			21,053			44,117
Net charge-offs		59,099			(560	)		23,378		9,491			38,516			129,924
Other(1)		1,466			—			—		(970	)		(10,842	)		(10,346	)
Balance at end of fiscal year	¥	389,615		¥	38,626		¥	32,550	¥	52,581		¥	144,812		¥	658,184

Fiscal year ended March 31, 2020:	Commercial			Residential			Card		MUAH			Krungsri		Other		Total
	(in millions)
Allowance for credit losses:
Balance at beginning of fiscal year	¥	389,615		¥	38,626		¥	32,550	¥	52,581		¥	144,812	¥	—	¥	658,184
Provision for (reversal of) credit losses		153,782			(1,028	)		26,542		30,825			70,023		41,569		321,713
Charge-offs		85,326			3,227			25,149		27,934			77,907		23,592		243,135
Recoveries		26,427			375			1,237		4,173			23,170		8,476		63,858
Net charge-offs		58,899			2,852			23,912		23,761			54,737		15,116		179,277
Other(1)		(2,223	)		—			—		(650	)		9,528		2,265		8,920
Balance at end of fiscal year	¥	482,275		¥	34,746		¥	35,180	¥	58,995		¥	169,626	¥	28,718	¥	809,540

Note:

(1) Other is principally comprised of gains or losses from foreign exchange translation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Allowance for credit losses and recorded investment in loans by portfolio segment at March 31, 2019 and 2020 are shown below:

At March 31, 2019:	Commercial		Residential		Card		MUAH		Krungsri		Total
	(in millions)
Allowance for credit losses:
Individually evaluated for impairment	¥	312,970	¥	14,175	¥	21,829	¥	8,294	¥	28,254	¥	385,522
Collectively evaluated for impairment		63,366		23,413		10,708		44,282		116,529		258,298
Loans acquired with deteriorated credit quality(2)		13,279		1,038		13		5		29		14,364
Total	¥	389,615	¥	38,626	¥	32,550	¥	52,581	¥	144,812	¥	658,184
Loans:
Individually evaluated for impairment	¥	879,944	¥	102,948	¥	64,752	¥	69,760	¥	83,259	¥	1,200,663
Collectively evaluated for impairment		86,065,091		13,617,802		510,440		9,527,264		5,921,372		115,641,969
Loans acquired with deteriorated credit quality(2)		26,245		7,334		3,390		11,228		5,906		54,103
Total(1)	¥	86,971,280	¥	13,728,084	¥	578,582	¥	9,608,252	¥	6,010,537	¥	116,896,735

At March 31, 2020:	Commercial		Residential		Card		MUAH		Krungsri		Other		Total
	(in millions)
Allowance for credit losses:
Individually evaluated for impairment	¥	364,079	¥	12,651	¥	19,799	¥	5,977	¥	30,198	¥	5,073	¥	437,777
Collectively evaluated for impairment		108,100		21,130		15,369		53,013		139,401		22,566		359,579
Loans acquired with deteriorated credit quality(2)		10,096		965		12		5		27		1,079		12,184
Total	¥	482,275	¥	34,746	¥	35,180	¥	58,995	¥	169,626	¥	28,718	¥	809,540
Loans:
Individually evaluated for impairment	¥	944,988	¥	92,448	¥	65,292	¥	67,719	¥	98,959	¥	17,512	¥	1,286,918
Collectively evaluated for impairment		85,640,827		13,219,677		497,448		9,581,107		6,806,584		1,092,464		116,838,107
Loans acquired with deteriorated credit quality(2)		36,972		6,365		2,903		7,007		6,047		7,917		67,211
Total(1)	¥	86,622,787	¥	13,318,490	¥	565,643	¥	9,655,833	¥	6,911,590	¥	1,117,893	¥	118,192,236

Notes:

(1) Total loans in the above table do not include loans held for sale, and represent balances without adjustments in relation to unearned income, unamortized premiums and deferred loan fees.

(2) Loans acquired with deteriorated credit quality in the above table include impaired loans which are individually evaluated for impairment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Nonperforming loans were actively disposed of by sales during recent years. The allocated allowance for credit losses for such loans was removed from the allowance for credit losses and transferred to the valuation allowance for loans held for sale upon a decision to sell. Net charge-offs in the above table include a decrease from charge-offs in the allowance for credit losses amounting to ¥12.2 billion and ¥19.4 billion for the fiscal years ended March 31, 2018 and 2020, respectively, and an increase from recoveries in the allowance for credit losses amounting to ¥15.1 billion for the fiscal year ended March 31, 2019 due to loan disposal activity.

The MUFG Group sold ¥1,409 billion, ¥1,769 billion and ¥2,136 billion of loans within the Commercial segment during the fiscal years ended March 31, 2018, 2019 and 2020, respectively.

The allowance for credit losses on the consolidated balance sheets for the year-ended March 31, 2020 included a qualitative reserve for loan losses of ¥46 billion on a pre-tax basis, specific to the Commercial segment, as a result of the estimated impact that COVID-19 had on borrowers’ credit risk which has been incurred but did not appear on the individual borrower’s financials. The estimate included assumptions regarding which borrowers (certain industries and regions) have suffered significant impacts on their performance as a result of COVID-19. Assumptions about the severity and duration of COVID-19 were also used to estimate the impact of COVID-19 on the borrowers.

The MUFG Group consolidates certain subsidiaries based on financial information for the year ended December 31 as this date and MUFG’s fiscal year which ends on March 31 have been treated as coterminous. For the fiscal year ended March 31, 2020, the effect of recording a provision for credit losses and a provision for off-balance sheet credit instruments as an intervening event primarily due to economic environment triggered by COVID-19 for the three-month period ended March 31 2020 would have been approximately ¥84 billion and would have resulted in a decrease of ¥58 billion to net income attributable to Mitsubishi UFJ Financial Group. This amount was estimated using the expected credit losses method in accordance with Measurement of Credit Losses on Financial Instruments (see “Recently Issued Accounting Pronouncements” in Note 1). This intervening event occurring during the three-month period ended March 31, 2020, if recorded, would not have had a substantial and permanent effects on consolidated total assets, net income or total equity as of March 31, 2020, and therefore, the intervening event was not recognized for the fiscal year ended March 31, 2020.

Lease Receivables

As part of its financing activities, the MUFG Group enters into leasing arrangements with customers. The MUFG Group’s leasing operations are conducted through leasing subsidiaries and consist principally of direct financing leases involving various types of data processing equipment, office equipment and transportation equipment.

As of March 31, 2019, the components of the investment in direct financing leases were as follows:

	2019
	(in millions)
Minimum lease payments receivable	¥	1,922,339
Estimated residual values of leased property		27,468
Less—unearned income		(299,283	)
Net investment in direct financing leases	¥	1,650,524

See Note 7 Lease Transactions for the components of the investment in direct financing leases as of March 31, 2020. 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. PREMISES AND EQUIPMENT

Premises and equipment at March 31, 2019 and 2020 consisted of the following:

	2019		2020
	(in millions)
Land	¥	362,742	¥	380,477
Buildings		829,606		782,367
Equipment and furniture		648,598		623,676
Leasehold improvements		305,281		310,957
Construction in progress		34,002		35,594
Total		2,180,229		2,133,071
Less accumulated depreciation		1,206,629		1,203,542
Premises and equipment-net	¥	973,600	¥	929,529

For the fiscal years ended March 31, 2018, 2019 and 2020, the MUFG Group recognized ¥39,358 million, ¥31,345 million and ¥16,575 million, respectively, of impairment losses for long-lived assets, primarily real estate which was either formerly used for its banking operations and is no longer used or real estate that is being used where recovery of the carrying amount is doubtful. In addition, ¥213 million, ¥411 million and ¥194 million of impairment losses were recognized for real estate held for sale for the fiscal years ended March 31, 2018, 2019 and 2020, respectively. These losses are included in Other non-interest expenses. In computing the amount of impairment losses, fair value was determined primarily based on market prices, if available, or the estimated price based on an appraisal.

Impairment losses for the fiscal year ended March 31, 2018 included ¥34,016 million of losses on long-lived assets used for MUFG Bank’s operations. In relation to a restructuring of operating divisions of MUFG Bank, which is a transformation of Corporate Banking Business Group and Retail Banking Business Group into Retail & Commercial Banking Business Group and Japanese Corporate & Investment Banking Business Group, based on an MUFG Re-Imagining Strategy published on May 15, 2017, and the new medium-term business plan, MUFG Bank reevaluated the profitability of some of its domestic operating assets. As a result of the reevaluation, it was determined that carrying amounts of these operating assets were unlikely to be recovered, and the impairment losses were recorded.

Impairment losses for the fiscal year ended March 31, 2019 included ¥21,096 million losses on long-lived assets, including land, buildings, and equipment and furniture, which were held by certain consumer finance subsidiary. See Note 6 for the details of these impairments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The table below presents the movement in the carrying amount of goodwill by business segment during the fiscal years ended March 31, 2019 and 2020:

	Global Corporate & Investment Banking Business Group			Global Commercial Banking Business Group			Asset Management & Investor Services Business Group			Global Markets Business Group		Total
				(in millions)
Balance at March 31, 2018:
Goodwill(2)(3)	¥	107,237		¥	496,191		¥	27,724		¥	2,300	¥	633,452
Accumulated impairment losses(2)		—			(177,750	)		(14,368	)		—		(192,118	)
		107,237			318,441			13,356			2,300		441,334
Foreign currency translation adjustments and other		(1,898	)		(5,308	)		(237	)		—		(7,443	)
Balance at March 31, 2019:
Goodwill		105,339			490,883			27,487			2,300		626,009
Accumulated impairment losses		—			(177,750	)		(14,368	)		—		(192,118	)
		105,339			313,133			13,119			2,300		433,891
Goodwill acquired during the fiscal year(1)		34,553			260,639			178,308			—		473,500
Impairment loss		(32,868	)		(350,942	)		—			—		(383,810	)
Foreign currency translation adjustments and other		(1,354	)		(12,877	)		8,276			—		(5,955	)
Balance at March 31, 2020:
Goodwill		138,538			738,645			214,071			2,300		1,093,554
Accumulated impairment losses		(32,868	)		(528,692	)		(14,368	)		—		(575,928	)
	¥	105,670		¥	209,953		¥	199,703		¥	2,300	¥	517,626

Notes:

(1) See Note 2 for the goodwill acquired in connection with acquisitions.

(2) Effective April 1, 2018, the MUFG Group reorganized its business groups. Goodwill originally recognized for Retail Banking Business Group, Corporate Banking Business Group, Trust Assets Business Group and Global Business Group other than MUAH and Krungsri was ¥1,900,019 million, which has been fully impaired before April 1, 2017. As these impairment losses recorded in past before the reorganization of the segment and are irrelevant to the annual impairment test under the new segment, the accumulated impaired loss is not allocated to new business segments after the reorganization of business group.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(3) The balance as of March, 31 2018 reflected the organization change in 2018 appropriately and was erroneously disclosed. Such amount has been restated from the amount previously reported as follows:

	Global Corporate & Investment Banking Business Group					Global Commercial Banking Business Group
	As previously reported		As restated			As previously reported			As restated
	(in millions)
Balance at March 31, 2018:
Goodwill	¥	—	¥	107,237		¥	603,428		¥	496,191
Foreign currency translation adjustments and other		—		(1,898	)		(7,206	)		(5,308	)
Balance at March 31, 2019:
Goodwill		—		105,339			596,222			490,883

U.S. GAAP requires to test goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired, using a process that compares the carrying amount of a reporting unit with its fair value. An impairment loss is recognized to the extent that the carrying amount of a reporting unit exceeds its fair value, but not exceeding the total amount of goodwill allocated to that reporting unit.

For the fiscal years ended March 31, 2018 and 2019, there were no impairment losses recognized. For the fiscal year ended March 31, 2020, the MUFG Group recognized ¥241,356 million of an impairment of goodwill relating to Danamon reporting unit within the Global Commercial Banking Business Group Segment, which is included in impairment of goodwill in the accompanying consolidated statements of income. In determining the acquisition price of Bank Danamon, the results of multiple valuation techniques were considered with an expectation to benefit from Danamon’s foothold in the developing local retail and SME segments to deepen its banking franchise in Indonesia. After the acquisition of Danamon by MUFG Bank, Danamon’s market capitalization decreased. As a result, the fair value of the reporting unit as an exit price was measured on June 30, 2019 for the quantitative goodwill impairment test, and led to impairment of goodwill as the fair value had fallen below the carrying amount of the reporting unit, including goodwill, reflecting a reduction in stock price as well as changes in the inputs to the valuation techniques in comparison to those considered in determining the acquisition price such as discount rate. The measurement of the fair value of the reporting unit was primarily based on a market approach, and was also corroborated by multiple valuation techniques.

For the fiscal year ended March 31, 2020, the MUFG Group recognized ¥62,157 million of impairment of goodwill relating to Krungsri reporting unit within the Global Commercial Banking Business Group segment. The global economic slowdown led to slowing economic growth in Thailand and the decline of Krungsri’s stock price. As a result, the fair value of the reporting unit was measured on December 31, 2019 for the quantitative goodwill impairment test, and led to impairment of goodwill as the fair value had fallen below the carrying amount of the reporting unit. The measurement of the fair value of the reporting unit was primarily based on a market approach, and was also corroborated by multiple valuation techniques.

For the fiscal year ended March 31, 2020, the MUFG Group recognized ¥80,297 million in impairment of goodwill relating to MUAH reporting unit within the Global Commercial Banking Business Group segment and Global Corporate & Investment Banking Business Group segment. Due to the decline in interest rates and slower growth than previously forecasted, cash flow projections for reporting units were lowered. The combination of these events led management to believe that the fair values of certain reporting units were below carrying value. As a result, the fair value of the reporting unit was measured on December 31, 2019 for the quantitative goodwill

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

impairment test, and led to impairment of goodwill with the fair value fallen below the carrying amount of the reporting unit. The MUFG Group estimated the fair value of its reporting units using a combination of the income and the market approaches. The income approach estimates the fair value of the reporting units by discounting management’s projections of each reporting unit’s cash flows, including a terminal value to estimate the fair value of cash flows beyond the final year of projected results, using a discount rate derived from the Capital Asset Pricing Model. The market approach incorporates comparable public company price to tangible book value and price to earnings multiples.

The MUFG Group consolidates certain subsidiaries, including MUAH, based on financial information for the year ended December 31 as this date and MUFG’s fiscal year which ends on March 31 have been treated as coterminous.

For the fiscal year ended March 31, 2020, the effect of recording a goodwill impairment intervening event due to economic environment triggered by COVID-19 for the three-month period ended March 31 2020 on MUFG’s GCB segment related to MUAH would have been approximately ¥80 - ¥110 billion and would have resulted in a decrease of ¥80 - ¥110 billion to net income attributable to Mitsubishi UFJ Financial Group. This intervening event occurring during the three-month period ended March 31, 2020, if recorded, would not have had a substantial and permanent effects on consolidated total assets, net income or total equity as of March 31, 2020, and therefore, the intervening event was not recognized for the fiscal year ended March 31, 2020.

Other Intangible Assets

The table below presents the gross carrying amount, accumulated amortization and net carrying amount, in total and by major class of other intangible assets at March 31, 2019 and 2020:

	2019						2020
	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
	(in millions)
Intangible assets subject to amortization:
Software	¥	2,703,413	¥	2,029,775	¥	673,638	¥	2,852,273	¥	2,096,635	¥	755,638
Customer relationships		387,936		246,526		141,410		567,886		264,636		303,250
Core deposit intangibles		126,796		88,643		38,153		174,802		100,022		74,780
Trade names		77,204		34,283		42,921		94,748		38,055		56,693
Other		9,601		4,220		5,381		17,374		5,769		11,605
Total	¥	3,304,950	¥	2,403,447		901,503	¥	3,707,083	¥	2,505,117		1,201,966
Intangible assets not subject to amortization:
Other(1)						25,693						37,560
Total					¥	927,196					¥	1,239,526

Note:

(1) Intangible assets not subject to amortization includes ¥17,431 million and ¥29,641 million of mortgage servicing rights accounted for at fair value at March 31, 2019 and 2020, respectively.

Intangible assets subject to amortization acquired during the fiscal year ended March 31, 2019 amounted to ¥262,700 million, which primarily consisted of ¥262,408 million of software. The weighted average amortization periods for these assets are 6 years. There is no significant residual value estimated for these assets. Intangible

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

assets not subject to amortization acquired during the fiscal year ended March 31, 2019 amounted to ¥11,172 million.

Intangible assets subject to amortization acquired during the fiscal year ended March 31, 2020 amounted to ¥538,925 million, which primarily consisted of ¥291,821 million of software, ¥44,140 million of core deposit intangibles, ¥180,414 million of customer relationships and ¥16,402 million of trade names. The weighted average amortization periods for these assets are 5 years, 10 years, 17 years and 23 years, respectively. There is no significant residual value estimated for these assets. Intangible assets not subject to amortization acquired during the fiscal year ended March 31, 2020 amounted to ¥23,804 million.

For the fiscal years ended March 31, 2018, 2019 and 2020, the MUFG Group recognized ¥21,900 million, ¥118,108 million and ¥3,732 million, respectively, of impairment losses for intangible assets whose carrying amounts exceeded their fair value. In computing the amount of impairment losses, fair value was determined primarily based on the present value of expected future cash flows, the estimated value based on appraisals, or market prices.

The impairment loss for the fiscal year ended March 31, 2018 included a loss of ¥11,121 million relating to the foreign subsidiary’s customer relationships under the Trust Asset Business Group segment. The intangible assets were valued based on discounted expected future cash flows. The estimated future cash flows of the above customer relationships were revised downward due to a decrease in acquired customer base. Accordingly, the MUFG group revaluated the intangible assets and recognized impairment losses.

The impairment loss for the fiscal year ended March 31, 2019 included a loss of ¥137,186 million relating to software held by certain consumer finance subsidiary under the Retail & Commercial Banking Business Group segment. The consumer finance subsidiary determined to fundamentally review its current system integration plan, comprehensively taking into account the scale, complexity and the degree of difficulty for the system development to respond rapid changes in payments market in an appropriate manner, at the meeting of the Board of Directors on March 25, 2019. The consumer finance subsidiary considered software under development unlikely to have cost reduction effect and remain in use in the future, and reevaluated the profitability of existing software in relation to its system integration plan. As a result, it was determined that carrying amounts of both system software under development and long lived assets group of credit business, including existing system software, land, buildings, and equipment and furniture exceeded their fair values, and ¥87,596 million and ¥28,494 million of impairment losses were recognized on system software under development and existing software, respectively. In computing the amount of impairment losses, the fair value was primarily estimated using an income approach. The income approach is based on the present value of expected cash flows, which represents market participant perspective. In addition to the impairments on software, ¥21,096 million of impairment losses on long-lived assets, including land, buildings, and equipment and furniture, were recognized. 

The estimated aggregate amortization expense for intangible assets for the next five fiscal years is as follows:

	(in millions)
Fiscal year ending March 31:
2021	¥	263,056
2022		228,137
2023		188,358
2024		150,702
2025		108,504

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7. LEASE TRANSACTIONS

Lease transaction as a lessee

Right-of-use assets of finance leases, which are principally related to data processing equipment and included in Premises and equipment in the accompanying consolidated balance sheets, amounted to ¥18,497 million at March 31, 2020. Lease liabilities of these finance leases, which are included in Long-term debt in the accompanying consolidated balance sheets, amounted to ¥25,186 million at March 31, 2020.

Right-of-use assets of operating leases, which are principally related to office space and equipment are included in Other assets in the accompanying consolidated balance sheets, amounted to ¥393,435 million at March 31, 2020. Lease liabilities of these operating leases, which are included in Other liabilities in the accompanying consolidated balance sheets, amounted to ¥482,813 million at March 31, 2020.

The discount rates used in determining the present value of leases are the MUFG Group’s incremental borrowing rate, developed based upon each lease’s term and currency of payment. The lease term includes options to extend or terminate the lease when it is reasonably certain that the MUFG Group will exercise that option. The MUFG Group has elected to exclude leases with original terms of less than one year from the operating lease right-of-use assets and lease liabilities. The MUFG Group’s lease arrangements that have not yet commenced as of March 31, 2020 are not material. Variable lease costs did not have a material impact on the MUFG Group’s results of operations.

The following table presents profit or loss of lease transactions as a lessee for the fiscal year ended March 31, 2020:

	2020
	(in millions)
Finance lease cost:
Amortization of right-of-use assets	¥	5,455
Interest on lease liabilities		460
Operating lease cost		99,939

The following table presents information of lease transactions as a lessee for the fiscal year ended March 31, 2020:

	2020
	(in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	¥	482
Operating cash flows from operating leases		106,103
Financing cash flows from finance leases		7,090
Right-of-use assets obtained in exchange for new finance lease liabilities		12,754
Right-of-use assets obtained in exchange for new operating lease liabilities		46,482
Weighted-average remaining lease term:
Finance leases		4.4 years
Operating leases		9.5 years
Weighted-average discount rate:
Finance leases		0.99	%
Operating leases		1.16	%

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Maturities of lease liabilities as of March 31, 2020 are as follows:

	Finance leases			Operating leases
	(in millions)
2021	¥	7,835		¥	107,270
2022		6,794			80,460
2023		4,755			57,057
2024		3,073			40,902
2025		1,304			35,827
2026 and thereafter		2,655			195,540
Total undiscounted cash flows		26,416			517,056
Difference between undiscounted and discounted cash flows		(1,230	)		(34,243	)
Amount on balance sheet	¥	25,186		¥	482,813

Lease transactions as a lessor

As part of its financing activities, the MUFG Group enters into leasing arrangements with customers. The MUFG Group’s leasing operations are conducted through leasing subsidiaries and consist principally of various types of data processing equipment, office equipment and transportation equipment. Direct financing leases are presented in loans. In certain case, the MUFG Group requests lessees to deposit in advance an amount nearly equal or equal to the residual value of leased assets.

The following table presents profit or loss of lease transactions as a lessor for the fiscal year ended March 31, 2020:

	2020
	(in millions)
Direct financing leases:
Finance income on net investment	¥	119,010
Operating leases:
Lease income		7,856
Total	¥	126,866

Finance income on net investment is included in Interest income—Loans, including fees in the consolidated statements of income. Lease income from operating lease transactions is included in Other non-interest income in the consolidated statements of income.

The following table presents the components of direct financing lease transactions as of March 31, 2020.

	2020
	(in millions)
Lease receivables (undiscounted)	¥	2,193,360
Adjustments:
Discounted unguaranteed residual value		15,515
Initial direct cost on direct financing leases		29,562
Deferred selling profit		(364,206	)
Net investment in direct financing leases	¥	1,874,231

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The following table presents maturity of the lease payment receivables of direct financing lease transactions as of March 31, 2020:

	Lease receivables
	(in millions)
2021	¥	567,342
2022		485,810
2023		382,135
2024		295,263
2025		207,067
2026 and thereafter		255,743
Total undiscounted cash flows		2,193,360
Difference between undiscounted cash flows and the lease receivables recognized on balance sheet		(319,129	)
Amount on balance sheet	¥	1,874,231

8. INCOME TAXES

Income before Income Tax Expense

Income before income tax expense by jurisdiction for the fiscal years ended March 31, 2018, 2019 and 2020 was as follows:

	2018		2019		2020
	(in millions)
Domestic income	¥	803,057	¥	228,018	¥	89,440
Foreign income		858,762		642,824		343,780
Total	¥	1,661,819	¥	870,842	¥	433,220

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Income Tax Expense (Benefit)

The detail of current and deferred income tax expense (benefit) for the fiscal years ended March 31, 2018, 2019 and 2020 was as follows:

	2018			2019			2020
	(in millions)
Current:
Domestic	¥	180,109		¥	57,303		¥	28,128
Foreign		107,119			123,730			147,344
Total		287,228			181,033			175,472
Deferred:
Domestic		116,873			(32,746	)		(18,949	)
Foreign		3,722			(15,050	)		(42,018	)
Total		120,595			(47,796	)		(60,967	)
Income tax expense		407,823			133,237			114,505
Income tax expense (benefit) reported in Accumulated OCI relating to:
Investment securities		120,588			15,590			(29,747	)
Debt valuation adjustments		(960	)		4,293			23,908
Derivatives qualifying for cash flow hedges		(4,421	)		(1,845	)		4,012
Defined benefit plans		50,774			(38,229	)		(57,685	)
Foreign currency translation adjustments		(34,527	)		15,148			(20,693	)
Total		131,454			(5,043	)		(80,205	)
Total	¥	539,277		¥	128,194		¥	34,300

The MUFG Group files tax returns on a consolidated basis for corporate income taxes within Japan. A consolidated basis for corporate income taxes results in the reporting of taxable income or loss based upon the combined profits or losses of the parent company and its wholly-owned domestic subsidiaries.

In the United States of America, on December 22, 2017, the Tax Cuts & Jobs Act was signed into law reducing the federal corporate income tax rate from 35% to 21% effective January 1, 2018. As a result of the reduction in the corporate income tax rate, the MUFG Group revalued its net deferred tax liabilities at March 31, 2018, resulting in a one-time tax benefit of ¥10,395 million.

Reconciliation of Effective Income Tax Rate

Income taxes in Japan applicable to the MUFG Group are imposed by the national, prefectural and municipal governments, and in the aggregate resulted in a normal effective statutory rate of approximately 30.6%, 30.6%, and 30.6% for the fiscal years ended March 31, 2018, 2019 and 2020, respectively. Foreign subsidiaries are subject to income taxes of the countries in which they operate.

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A reconciliation of the effective income tax rates reflected in the accompanying consolidated statements of income to the combined normal effective statutory tax rates for the fiscal years ended March 31, 2018, 2019 and 2020 is as follows:

	2018			2019			2020
Combined normal effective statutory tax rate		30.6	%		30.6	%		30.6	%
Nondeductible expenses		0.2			0.5			1.2
Impairment of goodwill		—			—			26.1
Foreign tax credit and payments		(1.7	)		(3.3	)		(9.2	)
Lower tax rates applicable to income of subsidiaries		(0.4	)		(2.5	)		(3.2	)
Change in valuation allowance		(3.0	)		(1.4	)		7.9
Realization of previously unrecognized tax effects of subsidiaries		—			—			(19.8	)(1)
Nontaxable dividends received		(2.0	)		(9.1	)		(15.6	)
Undistributed earnings of subsidiaries		0.7			0.6			3.6
Tax and interest expense for uncertainty in income taxes		0.0			0.6			0.0
Noncontrolling interest income (loss)		0.1			0.2			(0.1	)
Effect of changes in tax laws		(0.6	)		0.0			—
Expiration of loss carryforward		0.4			0.1			1.9
Other—net		0.2			(1.0	)		3.0
Effective income tax rate		24.5	%		15.3	%		26.4	%

Note:

(1) In October 2019, a wholly owned subsidiary of the MUFG Group was sold. The sale resulted in the realization of tax benefits that were not previously recognized as deferred tax assets, resulting in a ¥85,588 million reduction of income tax expense and a 19.8% reduction in the effective tax rate for the fiscal year ended March 31, 2020.

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Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities are computed for each tax jurisdiction using currently enacted tax rates applicable to periods when the temporary differences are expected to reverse. The tax effects of the items comprising the MUFG Group’s net deferred tax assets at March 31, 2019 and 2020 were as follows:

	2019			2020
	(in millions)
Deferred tax assets:
Allowance for credit losses	¥	301,222		¥	317,770
Operating loss carryforwards		177,143			94,326
Loans		691			2,022
Accrued liabilities and other		236,363			277,807
Premises and equipment, including sale-and-leaseback transactions		158,144			150,116
Derivative financial instruments		101,118			96,761
Defined benefit plans		5,238			57,836
Obligations under operating leases		—			133,812
Valuation allowance		(218,191	)		(151,530	)
Total deferred tax assets		761,728			978,920
Deferred tax liabilities:
Investment securities (including trading account assets at fair value under the fair value option)		911,483			788,614
Intangible assets		38,772			87,063
Lease transactions		65,115			54,349
Investments in subsidiaries and affiliates(1)		217,429			279,583
Right-of-use assets of operating leases		—			106,995
Other(1)		63,272			90,653
Total deferred tax liabilities		1,296,071			1,407,257
Net deferred tax assets (liabilities)	¥	(534,343	)	¥	(428,337	)

Note:

(1) Certain reclassifications have been made to prior period to conform to the current presentation.

The valuation allowance was provided primarily against deferred tax assets recorded at MUFG and its subsidiaries with operating loss carryforwards. The valuation allowance is determined to reduce the measurement of deferred tax assets not expected to be realized. Management considers all available evidence, both positive and negative, to determine whether the valuation allowance is necessary based on the weight of that evidence. Management determines the amount of the valuation allowance based on future reversals of existing taxable temporary differences and future taxable income exclusive of reversing temporary differences. Future taxable income is developed from forecasted operating results, based on recent historical trends and approved business plans, the eligible carryforward periods and other relevant factors.

For certain subsidiaries where strong negative evidence exists, such as the existence of significant amounts of operating loss carryforwards, cumulative losses and the expiration of unused operating loss carryforwards in recent years, a valuation allowance was recognized against the deferred tax assets as of March 31, 2019 and 2020 to the extent that it is more likely than not that they will not be realized.

For the fiscal year ended March 31, 2018, the MUFG Group released a valuation allowance of ¥53,360 million which was mainly due to the commencement of a certain subsidiary’s application of the

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consolidated corporate-tax system. Management believes that the net operating loss carryforwards related to Japanese corporate taxes will be fully utilized by the application of the consolidated corporate-tax system.

Furthermore, under the Japanese tax law, 95% of a dividend received from a foreign company in which a domestic company has held generally at least 25% of the outstanding shares for a continuous period of  six months or more ending on the date on which the dividend is declared can be excluded from the domestic company’s taxable income. Therefore, if undistributed earnings of certain foreign subsidiaries are repatriated through dividends, only 5% of the amount of dividends will be included in taxable income.

Operating Loss and Tax Credit Carryforwards

At March 31, 2020, the MUFG Group had operating loss carryforwards for corporate tax of ¥228,637 million and tax credit carryforwards of ¥72,360 million for tax purposes. Such carryforwards, if not utilized, are scheduled to expire as follows:

	Operating loss carryforwards		Tax credit carryforwards
	(in millions)
Fiscal year ending March 31:
2021	¥	11,024	¥	12,534
2022		16,306		6,137
2023		5,867		219
2024		5,524		185
2025		81,967		168
2026		51,271		130
2027 and thereafter		25,770		47,943
No definite expiration date		30,908		5,044
Total	¥	228,637	¥	72,360

Uncertainty in Income Tax

The following is a roll-forward of the MUFG Group’s unrecognized tax benefits for the fiscal years ended March 31, 2018, 2019 and 2020:

	2018			2019			2020
	(in millions)
Balance at beginning of fiscal year	¥	7,851		¥	12,917		¥	19,160
Gross amount of increases for current year’s tax positions		427			313			399
Gross amount of increases for prior years’ tax positions		6,642			8,836			212
Gross amount of decreases for prior years’ tax positions		(455	)		(1,090	)		—
Net amount of changes relating to settlements with tax authorities		(1,074	)		—			(81	)
Decreases due to lapse of applicable statutes of limitations		(253	)		(1,540	)		(297	)
Foreign exchange translation and other		(221	)		(276	)		(144	)
Balance at end of fiscal year	¥	12,917		¥	19,160		¥	19,249

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The MUFG Group classifies interest and penalties, if applicable, related to income taxes as Income tax expense. Accrued interest and penalties (not included in the “unrecognized tax benefits” above) are a component of Other liabilities. The following is a roll-forward of the interest and penalties recognized in the accompanying consolidated financial statements for the fiscal years ended March 31, 2018, 2019 and 2020:

	2018			2019			2020
	(in millions)
Balance at beginning of fiscal year	¥	4,054		¥	4,564		¥	3,056
Total interest and penalties in the consolidated statements of income		694			(1,655	)		(398	)
Total cash settlements, foreign exchange translation and other		(184	)		147			(46	)
Balance at end of fiscal year	¥	4,564		¥	3,056		¥	2,612

The MUFG Group is subject to ongoing tax examinations by the tax authorities of the various jurisdictions in which it operates. The following are the major tax jurisdictions in which the MUFG Group operates and the status of years under audit or open to examination:

Jurisdiction	Tax years
Japan		2019 and forward
United States—Federal		2016 and forward
United States—California		2015 and forward
Thailand		2012 and forward
Indonesia		2017 and forward

The MUFG Group is currently under continuous examinations by the tax authorities in various domestic and foreign jurisdictions and many of these examinations are resolved every year. The unrecognized tax benefits will decrease since resolved items will be removed from the balance regardless of whether their resolution results in payment or recognition. It is reasonably possible that the unrecognized tax benefits will decrease by approximately ¥2.4 billion during the next twelve months.

9. PLEDGED ASSETS AND COLLATERAL

Pledged Assets

At March 31, 2020, assets mortgaged, pledged, or otherwise subject to lien were as follows:

	2020
	(in millions)
Trading account securities	¥	10,264,854
Investment securities		14,096,841
Loans		13,354,396
Other		34,590
Total	¥	37,750,681

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The above pledged assets were classified by type of liabilities to which they related as follows:

	2020
	(in millions)
Deposits	¥	134,704
Payables under repurchase agreements and securities lending transactions		15,286,574
Other short-term borrowings and long-term debt		22,312,888
Other		16,515
Total	¥	37,750,681

At March 31, 2020, certain investment securities, principally Japanese national government and Japanese government agency bonds, loans, and other assets with a combined carrying value of ¥18,254,788 million were pledged for acting as a collection agent of public funds, for settlement of exchange at the Bank of Japan and Japanese Banks’ Payment Clearing Network, for derivative transactions and for certain other purposes.

The MUFG Group engages in on-balance sheet securitizations. These securitizations of mortgage and apartment loans, which do not qualify for sales treatment, are accounted for as secured borrowings. The amount of loans in the table above represents the carrying amount of these transactions with the carrying amount of the associated liabilities included in Other short-term borrowings and Long-term debt.

Under Japanese law, Japanese banks are required to maintain certain reserves on deposit with the Bank of Japan based on the amount of deposit balances and certain other factors. There are similar reserve deposit requirements for foreign offices and subsidiaries engaged in banking businesses in foreign countries. At March 31, 2019 and 2020 the reserve funds required to be maintained by the MUFG Group, which are included in Cash and due from banks and Interest-earning deposits in other banks, were ¥2,568,340 million and ¥2,606,464 million, respectively.

Collateral

The MUFG Group accepts and provides financial assets as collateral for transactions, principally commercial loans, repurchase agreements and securities lending transactions, call money, and derivatives. Financial assets eligible for such collateral include, among others, marketable equity securities, trade and notes receivable and CDs.

Secured parties, including creditors and counterparties to certain transactions with the MUFG Group, may sell or repledge financial assets provided as collateral. Certain contracts, however, may not be specific about the secured party’s right to sell or repledge collateral under the applicable statutes and, therefore, whether or not the secured party is permitted to sell or repledge collateral would differ depending on the interpretations of specific provisions of the existing statutes, contract or certain market practices.

If the MUFG Group determines, based on available information, that a financial asset provided as collateral might not be sold or repledged by the secured parties, such collateral is not separately reported in the accompanying consolidated balance sheets. If a secured party is permitted to sell or repledge financial assets provided as collateral by contract or custom under the existing statutes, the MUFG Group reports such pledged financial assets separately on the face of the accompanying consolidated balance sheets. At March 31, 2020, the MUFG Group pledged ¥36,223 billion of assets that may not be sold or repledged by the secured parties.

Certain banking subsidiaries accept collateral for commercial loans and certain banking transactions under a standardized agreement with customers, which provides that these banking subsidiaries may require the

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customers to provide collateral or guarantees with respect to the loans and other banking transactions. Financial assets pledged as collateral are generally negotiable and transferable instruments, and such negotiability and transferability are authorized by applicable legislation. In principle, Japanese legislation permits these banking subsidiaries to repledge financial assets accepted as collateral unless otherwise prohibited by contract or relevant statutes. Nevertheless, the MUFG Group did not sell or repledge nor does it plan to sell or repledge such collateral accepted in connection with commercial loans before a debtor’s default or other credit events specified in the agreements as it is not customary within the banking industry in Japan to dispose of collateral before a debtor’s default and other specified credit events. Derivative agreements commonly used in the marketplace do not prohibit a secured party’s disposition of financial assets received as collateral, and in resale agreements and securities borrowing transactions, securities accepted as collateral may be sold or repledged by the secured parties. At March 31, 2019 and 2020, the fair value of the collateral accepted by the MUFG Group that is permitted to be sold or repledged was ¥22,927 billion and ¥38,858 billion, respectively, of which ¥16,514 billion and ¥32,095 billion, respectively, was sold or repledged.

At March 31, 2019 and 2020, the cash collateral pledged for derivative transactions, which is included in Other assets, was ¥1,276,897 million and ¥1,696,108 million, respectively, and the cash collateral received for derivative transactions, which is included in Other liabilities, was ¥844,234 million and ¥1,125,305 million, respectively.

10. DEPOSITS

The balances of time deposits, including CDs, issued in amounts of ¥10 million (approximately U.S.$93 thousand at the Federal Reserve Bank of New York’s noon buying rate on March 31, 2020) or more with respect to domestic deposits and issued in amounts of U.S.$100,000 or more with respect to foreign deposits were ¥25,899,780 million and ¥23,858,381 million, respectively, at March 31, 2019, and ¥23,957,076 million and ¥23,329,855 million, respectively, at March 31, 2020.

The maturity information at March 31, 2020 for domestic and foreign time deposits, including CDs, is summarized as follows:

	Domestic		Foreign
	(in millions)
Due in one year or less	¥	31,655,230	¥	23,574,644
Due after one year through two years		4,522,580		722,461
Due after two years through three years		2,430,995		275,303
Due after three years through four years		546,578		112,962
Due after four years through five years		654,135		17,950
Due after five years		799,180		32,726
Total	¥	40,608,698	¥	24,736,046

11. CALL MONEY AND FUNDS PURCHASED

A summary of funds transactions for the fiscal years ended March 31, 2019 and 2020 is as follows:

	2019			2020
	(in millions, except percentages and days)
Outstanding at end of fiscal year:
Amount	¥	2,450,320		¥	3,668,922
Principal range of maturities		1 day to 30 days			1 day to 30 days
Weighted average interest rate		0.12	%		0.04	%

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12. DUE TO TRUST ACCOUNT, SHORT-TERM BORROWINGS AND LONG-TERM DEBT

Mitsubishi UFJ Trust and Banking holds assets on behalf of its customers in an agent, fiduciary or trust capacity. Such trust account assets are not the MUFG Group’s proprietary assets and are managed and accounted for separately.

However, excess cash funds of individual trust accounts are often placed with Mitsubishi UFJ Trust and Banking which manages the funds together with its own funds in its proprietary account. Due to trust account reflects a temporary placement of the excess funds from individual trust accounts and, in view of the MUFG Group’s funding, due to trust account is similar to short-term funding, including demand deposits and other overnight funds purchased. The balance changes in response to the day-to-day changes in the excess funds placed by the trust accounts. A summary of due to trust account transactions at March 31, 2019 and 2020 is as follows:

	2019			2020
	(in millions, except percentages)
Amount outstanding at end of fiscal year	¥	2,735,952		¥	3,377,747
Weighted average interest rate on outstanding balance at end of fiscal year		0.00	%		0.00	%

At March 31, 2019 and 2020, the MUFG Group had unused lines of credit for financing amounting to ¥5,525,069 million and ¥7,519,582 million, respectively. The amounts principally consist of pooled collateral which are used to cover shortages in the Bank of Japan account and to meet liquidity needs. The MUFG Group may borrow from the Bank of Japan on demand up to the total amount of collateral eligible for credit extension.

Other short-term borrowings at March 31, 2019 and 2020 were comprised of the following:

	2019			2020
	(in millions, except percentages)
Domestic offices:
Commercial paper	¥	1,033,568		¥	1,160,758
Borrowings from the Bank of Japan		241,070			9,800,800
Borrowings from other financial institutions		227,482			191,453
Other		122,166			170,044
Total domestic offices		1,624,286			11,323,055
Foreign offices:
Commercial paper		3,929,636			3,836,459
Borrowings from other financial institutions		967,901			631,502
Short-term debentures		68,492			24,009
Other		141,803			241,168
Total foreign offices		5,107,832			4,733,138
Total		6,732,118			16,056,193
Less unamortized discount		1,045			711
Other short-term borrowings—net	¥	6,731,073		¥	16,055,482
Weighted average interest rate on outstanding balance at end of fiscal year		1.97	%		0.67	%

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Long-term debt (with original maturities of more than one year) at March 31, 2019 and 2020 was comprised of the following:

	2019		2020
	(in millions)
MUFG:
Obligations under finance leases	¥	1,725	¥	6,552
Unsubordinated debt(1):
Fixed rate bonds, payable in US dollars, due 2021-2039, principally 2.19%-4.29%		2,949,022		3,864,822
Fixed rate bonds, payable in Euro, due 2021-2033, principally 0.34%-1.75%		301,124		408,825
Fixed rate bonds, payable in other currencies, due 2024-2029, principally 2.08%-4.05%(2)		21,257		28,382
Floating rate bonds, payable in US dollars, due 2021-2023, principally 1.70%-3.46%		765,188		734,254
Floating rate bonds, payable in Euro, due 2023, principally 0.13%		43,596		41,843
Floating rate bonds, payable in other currencies, due 2024, principally 2.17%(2)		—		26,436
Total		4,080,187		5,104,562
Subordinated debt(1):
Fixed rate bonds, payable in Japanese yen, due 2024-2030, principally 0.37%-1.39%		618,925		685,663
Adjustable rate bonds, payable in Japanese yen, due 2025-2030, principally 0.29%-0.63%		890,359		1,043,336
Adjustable rate bonds, payable in Japanese yen, no stated maturity, principally 0.82%-3.52%		1,706,695		1,756,087
Adjustable rate borrowings, payable in Japanese yen, due 2025-2029, principally 0.30%-0.50%		32,500		47,500
Adjustable rate borrowings, payable in Japanese yen, no stated maturity, principally 0.85%-1.17%		45,960		66,649
Floating rate bonds, payable in Japanese yen, no stated maturity, principally 3.02%		3,500		3,500
Floating rate borrowings, payable in Japanese yen, due 2025-2028, principally 0.57%-0.79%		86,000		86,000
Total		3,383,939		3,688,735
Total		7,465,851		8,799,849
MUFG Bank:
Obligations under finance leases	¥	7,704	¥	5,636
Obligation under sale-and-leaseback transactions		40,732		—
Unsubordinated debt(1):
Fixed rate bonds, payable in Japanese yen, due 2020-2027, principally 0.36%-2.57%		234,500		141,700
Fixed rate bonds, payable in US dollars, due 2020-2050, principally 0.00%-4.70%		1,284,812		1,104,504
Fixed rate bonds, payable in Euro, due 2022-2037, principally 0.88%-2.06%		112,687		108,252
Fixed rate bonds, payable in other currencies, due 2021-2047, principally 0.00%-5.30%(2)		19,084		17,620
Fixed rate borrowings, payable in Japanese yen, due 2020-2028, principally 0.00%-0.25%		10,786,372		10,440,217
Fixed rate borrowings, payable in US dollars, due 2030, principally 2.93%		—		8,367
Fixed rate borrowings, payable in other currencies, due 2030, principally 2.93%(2)		9,483		—
Adjustable rate bonds, payable in US dollars, due 2030, principally 3.00%		1,110		—
Floating rate borrowings, payable in US dollars, due 2020-2031, principally 0.79%-2.38%		1,008,949		897,170
Floating rate borrowings, payable in Euro, due 2021-2030, principally 0.00%-0.20%		15,382		102,123
Floating rate borrowings, payable in other currencies, due 2028, principally 3.23%(2)		5,240		—
Total		13,477,619		12,819,953
Subordinated debt(1):
Fixed rate bonds, payable in Japanese yen, due 2020-2031, principally 1.31%-2.91%		513,420		490,590
Fixed rate borrowings, payable in Japanese yen, due 2022-2035, principally 0.26%-2.24%		73,400		73,400
Adjustable rate borrowings, payable in Japanese yen, due 2025-2028, principally 0.38%-1.04%		20,000		12,000
Adjustable rate borrowings, payable in Japanese yen, no stated maturity, principally 2.67%-3.52%		355,000		13,500
Floating rate borrowings, payable in Japanese yen, due 2027, principally 0.14%		15,000		15,000
Total		976,820		604,490
Obligations under loan securitization transaction accounted for as secured borrowings due 2020-2080, principally 0.12%-6.14%		639,037		791,139
Total		15,141,912		14,221,218

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	2019			2020
	(in millions)
Other subsidiaries:
Obligations under finance leases	¥	13,107		¥	12,998
UnSubordinated debt(1):
Fixed rate borrowings, bonds and notes, payable in Japanese yen, due 2020-2050, principally 0.00%-20.00%		1,291,537			940,691
Fixed rate borrowings, bonds and notes, payable in US dollars, due 2020-2037, principally 0.00%-26.00%		1,385,936			1,106,465
Fixed rate borrowings, bonds and notes, payable in Euro, due 2020-2026, principally 0.00%-1.61%		2,479			2,965
Fixed rate borrowings, bonds and notes, payable in Thai baht, due 2020-2026, principally 0.00%-7.15%		334,586			387,799
Fixed rate borrowings, bonds and notes, payable in other currencies, due 2020-2037, principally 0.00%-15.33%(2)		219,781			360,558
Floating/Adjustable rate borrowings, bonds and notes, payable in Japanese yen, due 2020-2050, principally 0.00%-7.70%		1,425,387			1,259,427
Floating rate borrowings, bonds and notes, payable in US dollars, due 2020-2028, principally 0.00%-16.00%		244,253			378,217
Floating rate bonds and notes, payable in Euro, due 2020-2022, principally 0.00%		—			835
Floating/Adjustable rate borrowings, bonds and notes, payable in other currencies, due 2020-2024, principally 0.00%-7.30%(2)		6,241			6,804
Total		4,910,200			4,443,761
Subordinated debt(1):
Fixed rate borrowings, bonds and notes, payable in Japanese yen, due 2020-2030, principally 1.14%-2.61%		269,373			223,095
Fixed rate bonds and notes, payable in US dollars, due 2022-2027, principally 7.50%-9.90%		1,409			737
Fixed rate bonds and notes, payable in Thai baht, due 2020-2029, principally 3.40%-3.90%		143,212			220,756
Fixed rate bonds and notes, payable in other currencies, due 2021, principally 0.00%(2)		7,347			7,179
Adjustable rate borrowings, bonds and notes, payable in Japanese yen, no stated maturity, principally 2.83%		4,500			—
Floating rate borrowings, payable in Japanese yen, due 2021, principally 0.73%		41,000			2,000
Floating rate bonds and notes, payable in US dollars, due 2020-2036, principally 3.59%-10.92%		5,172			4,575
Total		472,013			458,342
Obligations under loan securitization transaction accounted for as secured borrowings due 2021-2024, principally 0.25%-2.25%		2,813			6,453
Total		5,398,133			4,921,554
Total		28,005,896			27,942,621
Debt Isuance Cost	¥	(15,353	)	¥	(15,858	)
Total	¥	27,990,543		¥	27,926,763

Notes:

(1) Adjustable rate debts are debts where interest rates are reset in accordance with the terms of the debt agreements, and floating rate debts are debts where interest rates are repriced in accordance with movements of markets indices.

(2) Minor currencies, such as Australian dollar, British pound, Indonesian rupiah, Brazilian real, Russian ruble etc., excluding Japanese yen, US dollars, Euro and Thai baht, have been summarized into the “Other currencies” classification.

The MUFG Group uses derivative financial instruments to manage its interest rate and currency exposures for certain debts. The derivative financial instruments include swaps, forwards, options and other types of derivatives. As a result of these derivative instruments, the effective rates reflected in the table above may differ

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from the coupon rates. The interest rates for the adjustable and floating rate debt shown in the above table are those in effect at March 31, 2019 and 2020.

Certain debt agreements permit the MUFG Group to redeem the related debt, in whole or in part, prior to maturity at the option of the issuer on terms specified in the respective agreements.

The following is a summary of maturities of long-term debt subsequent to March 31, 2020:

	MUFG		BK		Other subsidiaries		Total
	(in millions)
Fiscal year ending March 31:
2021	¥	303,428	¥	8,550,560	¥	1,270,513	¥	10,124,501
2022		778,600		2,165,072		919,608		3,863,280
2023		876,475		637,647		1,059,402		2,573,524
2024		731,255		1,072,061		411,279		2,214,595
2025		719,364		292,304		267,980		1,279,648
2026 and thereafter		5,390,727		1,503,574		992,772		7,887,073
Total	¥	8,799,849	¥	14,221,218	¥	4,921,554	¥	27,942,621

New Issuances of Bonds for Basel III

For the fiscal year ended March 31, 2020, the MUFG Group issued to institutional investors in Japan ¥273,000 million aggregate principal amount of unsecured perpetual subordinated Additional Tier 1 notes. These notes are subject to the MUFG Group’s discretion to cease interest payments and a write-down of the principal upon the occurrence of certain events, including when the MUFG Group’s Common Equity Tier 1 ratio declines below 5.125%, when the MUFG Group is deemed to be at risk of becoming non-viable or when the MUFG Group becomes subject to bankruptcy proceedings.

For the fiscal year ended March 31, 2020, the MUFG Group issued $10,340 million (approximately ¥1,125,302 million), €1,000 million (approximately ¥119,550 million), AUD 500 million (approximately ¥33,045 million) and HK$232 million (approximately ¥3,257 million) of bonds with an intent to count towards Total Loss-Absorbing Capacity (“TLAC”) to global institutional investors to meet the TLAC requirement under the standards issued by the Financial Stability Board (“FSB”). Under the FSB’s TLAC standard, the MUFG Group is required to hold TLAC debt in an amount not less than 16% of risk-weighted assets and 6% of the applicable Basel III leverage ratio denominator by January 1, 2019, and not less than 18% of risk-weighted assets and 6.75% of the applicable Basel III leverage ratio denominator by January 1, 2022.

13. SEVERANCE INDEMNITIES AND PENSION PLANS

Defined Benefit Pension Plans

The MUFG Group has funded non-contributory defined benefit pension plans, which cover substantially all of its employees and mainly provide for lifetime annuity payments commencing at age 65 (“pension benefits”) based on eligible compensation at the time of severance, rank, years of service and other factors.

MUFG Bank and certain domestic subsidiaries, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Securities Holdings, Mitsubishi UFJ NICOS and some subsidiaries of MUFG have non-contributory Corporate Defined Benefit Pension plans which provide benefits to all their domestic employees.

The MUFG Group also offers qualified and nonqualified defined benefit pension plans in foreign offices and subsidiaries for their employees. The qualified plans are non-contributory defined pension plans, which

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provide benefits upon retirement based on years of service and average compensation and cover substantially all of the employees of such foreign offices and subsidiaries. With respect to the offices and subsidiaries in the United States of America, the qualified plans are funded on a current basis in compliance with the requirement of the Employee Retirement Income Security Act of the United States of America. The nonqualified plans are non-contributory defined benefit pension plans, under which certain employees earn pay and interest credits on compensation amounts above the maximum stipulated by applicable laws under the qualified plans.

Severance Indemnities Plans

The MUFG Group has SIPs under which their employees in Japan, other than those who are directors, are entitled, under most circumstances, upon mandatory retirement at normal retirement age or earlier termination of employment, to lump-sum severance indemnities based on eligible compensation at the time of severance, rank, years of service and other factors. Under SIPs, benefit payments in the form of a lump-sum cash payment with no option to receive annuity payments, upon mandatory retirement at normal retirement age or earlier termination of employment, are provided. When a benefit is paid in a single payment to a benefit payee under the plans, the payment represents final relief of the obligation.

Other Postretirement Plans

The MUFG Group’s foreign offices and subsidiaries, primarily in the United States of America, provide their employees with certain postretirement medical and life insurance benefits (“other benefits”).

Net periodic cost of pension benefits and other benefits for the fiscal years ended March 31, 2018, 2019 and 2020 include the following components:

	Domestic subsidiaries									Foreign offices and subsidiaries
	2018			2019			2020			2018						2019						2020
	Pension benefits and SIP			Pension benefits and SIP			Pension benefits and SIP			Pension benefits			Other benefits			Pension benefits			Other benefits			Pension benefits			Other benefits
	(in millions)
Service cost—benefits earned during the fiscal year	¥	47,064		¥	48,352		¥	49,194		¥	10,169		¥	676		¥	12,395		¥	525		¥	14,406		¥	366
Interest cost on projected benefit obligation		14,383			13,504			10,969			15,359			1,079			14,958			1,046			17,370			1,159
Expected return on plan assets		(68,432	)		(74,270	)		(74,744	)		(32,110	)		(2,122	)		(33,266	)		(2,314	)		(31,382	)		(1,882	)
Amortization of net actuarial loss		7,309			731			5,641			8,847			1,124			9,993			707			8,685			1,162
Amortization of prior service cost		(1,094	)		(1,210	)		(1,204	)		(3,090	)		(2,775	)		(3,039	)		(2,020	)		(2,633	)		(1,881	)
Loss (gain) on settlements and curtailment		(4,394	)		(5,980	)		(2,366	)		52			—			49			—			223			—
Net periodic benefit cost (income)	¥	(5,164	)	¥	(18,873	)	¥	(12,510	)	¥	(773	)	¥	(2,018	)	¥	1,090		¥	(2,056	)	¥	6,669		¥	(1,076	)

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The following table summarizes the assumptions used in computing the present value of the projected benefit obligations and the net periodic benefit cost:

	Domestic subsidiaries									Foreign offices and subsidiaries
	2018			2019			2020			2018						2019						2020
	Pension benefits and SIP			Pension benefits and SIP			Pension benefits and SIP			Pension benefits			Other benefits			Pension benefits			Other benefits			Pension benefits			Other benefits
Weighted-average assumptions used:
Discount rates in determining expense		0.82	%		0.76	%		0.61	%		3.52	%		3.61	%		3.19	%		3.27	%		3.80	%		3.87	%
Discount rates in determining benefit obligation		0.76			0.61			0.63			3.38			3.43			3.87			3.99			3.05			2.96
Rates of increase in future compensation level for determining expense		3.23			3.21			3.21			4.65			—			4.65			—			5.01			—
Rates of increase in future compensation level for determining benefit obligation		3.21			3.21			3.46			4.65			—			5.01			—			5.12			—
Expected rates of return on plan assets		2.87			2.83			2.89			6.71			7.50			6.70			7.50			6.25			7.00

The following tables present the assumed health care cost trend rates for foreign offices and subsidiaries, which are used to measure the expected cost of benefits for the next year, and the effect of a one-percentage-point change in the assumed health care cost trend rate:

	MUAH						Other than MUAH
	2019(1)			2020(1)			2019(1)			2020(1)
Initial trend rate		4.44	%		4.14	%		7.00	%		6.50	%
Ultimate trend rate		3.94	%		3.77	%		4.50	%		4.50	%
Year the rate reaches the ultimate trend rate		2027			2027			2027			2027
	MUAH						Other than MUAH
	One-percentage- point increase			One-percentage- point decrease			One-percentage- point increase			One-percentage- point decrease
	(in millions)
Effect on total of service and interest cost components	¥	152		¥	(128	)	¥	42		¥	(33	)
Effect on postretirement benefit obligation		2,823			(2,394	)		838			(665	)

Note:

(1) Fiscal years of MUFG Americas Holdings and foreign subsidiaries end on December 31. Therefore, the above tables present the rates and amounts at December 31, 2018 and 2019, respectively.

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The following table sets forth the combined funded status and amounts recognized in the accompanying consolidated balance sheets at March 31, 2019 and 2020:

	Domestic subsidiaries						Foreign offices and subsidiaries
	2019			2020			2019						2020
	Non-contributory pension benefits and SIP			Non-contributory pension benefits and SIP			Pension benefits			Other benefits			Pension benefits			Other benefits
	(in millions)
Change in benefit obligation:
Benefit obligation at beginning of fiscal year	¥	1,821,794		¥	1,841,884		¥	502,056		¥	34,347		¥	469,080		¥	31,510
Service cost		48,352			49,194			12,395			525			14,406			366
Interest cost		13,504			10,969			14,958			1,046			17,370			1,159
Plan participants’ contributions		—			—			37			452			28			455
Acquisitions/ Divestitures		(160	)		(94	)		(17	)		—			13,000			—
Amendments		—			—			64			—			3,721			—
Actuarial loss (gain)		43,527			(3,053	)		(28,466	)		(2,354	)		58,831			1,648
Benefits paid		(66,539	)		(66,771	)		(19,894	)		(2,221	)		(21,120	)		(2,326	)
Lump-sum payment		(18,594	)		(24,224	)		(1,750	)		—			(2,284	)		—
Translation adjustments and other		—			—			(10,303	)		(285	)		(6,019	)		(429	)
Benefit obligation at end of fiscal year		1,841,884			1,807,905			469,080			31,510			547,013			32,383
Change in plan assets:
Fair value of plan assets at beginning of fiscal year		2,603,329			2,594,788			542,646			32,466			493,495			28,258
Actual return on plan assets		13,664			(123,802	)		(21,353	)		(1,948	)		92,087			5,695
Employer contributions		44,427			28,653			3,117			102			2,887			186
Acquisitions/ Divestitures		(93	)		(21	)		—			—			791			—
Plan participants’ contributions		—			—			37			452			28			455
Benefits paid		(66,539	)		(66,771	)		(19,894	)		(2,221	)		(21,120	)		(2,326	)
Translation adjustments and other		—			—			(11,058	)		(593	)		(8,660	)		(349	)
Fair value of plan assets at end of fiscal year		2,594,788			2,432,847			493,495			28,258			559,508			31,919
Amounts recognized in the consolidated balance sheets:
Prepaid benefit cost	¥	770,564		¥	643,520		¥	67,821		¥	1,372		¥	81,301		¥	4,378
Accrued benefit cost		(17,660	)		(18,577	)		(43,406	)		(4,624	)		(68,806	)		(4,842	)
Net amount recognized	¥	752,904		¥	624,943		¥	24,415		¥	(3,252	)	¥	12,495		¥	(464	)

The aggregated accumulated benefit obligations of these plans at March 31, 2019 and 2020 were as follows:

	Domestic subsidiaries				Foreign offices and subsidiaries
	2019		2020		2019		2020
	(in millions)
Aggregated accumulated benefit obligations	¥	1,800,992	¥	1,773,042	¥	457,048	¥	523,078

The projected benefit obligations, accumulated benefit obligations and fair value of plan assets for the plans with accumulated benefit obligations in excess of plan assets at March 31, 2019 and 2020 were as follows:

	Domestic subsidiaries				Foreign offices and subsidiaries
	2019		2020		2019		2020
	(in millions)
Projected benefit obligations	¥	23,108	¥	26,442	¥	63,273	¥	89,829
Accumulated benefit obligations		23,108		26,442		52,249		67,609
Fair value of plan assets		5,629		7,980		19,866		21,014

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MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Securities Holdings, Mitsubishi UFJ NICOS and other subsidiaries paid special lump-sum termination benefits which are not a part of pension plans to certain early-terminated employees. The amounts charged to operations for such early termination benefits for the fiscal years ended March 31, 2018, 2019 and 2020 were ¥10,153 million, ¥9,325 million and ¥13,883 million, respectively.

The following table presents the amounts recognized in Accumulated OCI of the MUFG Group at March 31, 2019 and 2020:

	Domestic subsidiaries						Foreign offices and subsidiaries
	2019			2020			2019						2020
	Pension benefits and SIP			Pension benefits and SIP			Pension benefits			Other benefits			Pension benefits			Other benefits
	(in millions)
Net actuarial loss	¥	245,037		¥	437,254		¥	126,238		¥	8,628		¥	114,167		¥	5,164
Prior service cost		(5,459	)		(4,255	)		(14,536	)		(4,263	)		(7,875	)		(2,304	)
Gross amount recognized in Accumulated OCI		239,578			432,999			111,702			4,365			106,292			2,860
Taxes		(115,816	)		(174,915	)		(29,875	)		(1,282	)		(27,974	)		(874	)
Net amount recognized in Accumulated OCI	¥	123,762		¥	258,084		¥	81,827		¥	3,083		¥	78,318		¥	1,986

The following table presents OCI for the fiscal years ended March 31, 2019 and 2020:

	Domestic subsidiaries						Foreign offices and subsidiaries
	2019			2020			2019						2020
	Pension benefits and SIP			Pension benefits and SIP			Pension benefits			Other benefits			Pension benefits			Other benefits
	(in millions)
Net actuarial loss (gain) arising during the year	¥	104,132		¥	195,492		¥	26,155		¥	1,908		¥	(1,732	)	¥	(2,166	)
Prior service cost arising during the year		—			—			65			—			3,722			—
Losses (gains) due to amortization:
Net actuarial loss		(731	)		(5,641	)		(9,993	)		(707	)		(8,685	)		(1,162	)
Prior service cost		1,210			1,204			3,039			2,020			2,633			1,881
Curtailment and settlement		5,980			2,366			(49	)		—			(223	)		—
Foreign currency translation adjustments		—			—			(1,399	)		(68	)		(1,125	)		(58	)
Total changes in Accumulated OCI	¥	110,591		¥	193,421		¥	17,818		¥	3,153		¥	(5,410	)	¥	(1,505	)

Investment policies

MUFG’s investment policy for plan assets is based on an asset liability matching strategy which is intended to maintain adequate liquidity for benefit payments and to achieve a stable increase in the plan assets in the medium and long-term through proper risk control and return maximization. As a general rule, investment policies for plan assets are reviewed periodically for some plans and in the following situations for all plans:

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(1) large fluctuations in pension plan liabilities caused by modifications to pension plans, or (2) changes in the market environment. The plan assets allocation strategies are the principal determinant in achieving expected investment returns on the plan assets. Actual asset allocations may fluctuate within acceptable ranges due to market value variability. Plan assets are managed by a combination of internal and external asset management companies and are rebalanced when market fluctuations cause an asset category to fall outside of its strategic asset allocation range. Performance of each plan asset category is compared against established indices and similar plan asset groups to evaluate whether the risk associated with the portfolio is appropriate for the level of return.

The weighted-average target asset allocation of plan assets for the pension benefits and other benefits at March 31, 2020 was as follows:

	Domestic subsidiaries			Foreign offices and subsidiaries
Asset category	Pension benefits and SIP			Pension benefits			Other benefits
Japanese equity securities		35.9	%		0.4	%		—	%
Japanese debt securities		33.6			—			—
Non-Japanese equity securities		15.0			49.2			70.0
Non-Japanese debt securities		10.4			38.3			30.0
Real estate		1.4			10.4			—
Short-term assets		3.7			1.7			—
Total		100.0	%		100.0	%		100.0	%

Basis and procedure for estimating long-term return of each asset category

MUFG’s expected long-term rate of return on plan assets for domestic defined benefit pension plans and SIPs is based on a building-block methodology, which calculates the total long-term rate of return of the plan assets by aggregating the weighted rate of return derived from both long-term historical performance and forward-looking return expectations from each asset category.

MUFG has determined the expected long-term rate of return for each asset category as follows:

• Japanese equity securities: the rate for Japanese debt securities plus a premium for the risk associated with Japanese equity securities

• Japanese debt securities: economic growth rate of Japan

• Non-Japanese equity securities: the rate for non-Japanese debt securities plus a premium for the risk associated with non-Japanese equity securities

• Non-Japanese debt securities: global economic growth rate

Foreign offices and subsidiaries periodically reconsider the expected long-term rate of return for their plan assets. They evaluate the investment return volatility of different asset categories and compare the liability structure of their pension and other benefits to those of other companies, while considering their funding policy to maintain a funded status sufficient to meet participants’ benefit obligations, and reduce long-term funding requirements and pension costs. Based on this information, foreign offices and subsidiaries update the expected long-term rate of return.

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Estimated future benefit payments

The following table presents benefit payments expected to be paid, which include the effect of expected future service for the fiscal years indicated:

	Domestic subsidiaries		Foreign offices and subsidiaries
	Pension benefits     and SIP		Pension   benefits		Other   benefits
	(in millions)
Fiscal year ending March 31:
2021	¥	83,009	¥	21,368	¥	2,023
2022		82,073		22,901		2,075
2023		82,115		23,747		2,111
2024		81,988		24,893		2,125
2025		81,902		25,614		2,089
Thereafter (2026-2030)		397,860		165,065		9,040

Fair value measurement of the plan assets

The following is a description of the valuation methodologies used for plan assets measured at fair value as well as the classification of the plan assets pursuant to the fair value hierarchy described in Note 31.

Government bonds and other debt securities

When quoted prices are available in an active market, the MUFG Group adopts the quoted prices to measure the fair value of securities and such securities are classified in Level 1 of the fair value hierarchy. Level 1 securities include Japanese government bonds, most non-Japanese government bonds and certain corporate bonds. When quoted prices are available but not traded actively, such securities are classified in Level 2 of the fair value hierarchy. When quoted prices are not available, the MUFG Group generally estimates fair values by using non-binding prices obtained from independent pricing vendors. Such securities are generally classified in Level 2 of the fair value hierarchy. Level 2 securities include certain non-Japanese government bonds, official institution bonds and corporate bonds. When there is lack of liquidity for securities or significant inputs adopted to the fair value measurements are unobservable, such securities are classified in Level 3 of the fair value hierarchy. Such Level 3 securities mainly consist of non-Japanese corporate bonds.

Marketable equity securities

When quoted prices are available in an active market, the MUFG Group adopts the quoted prices to measure the fair value of marketable equity securities and such securities are classified in Level 1 of the fair value hierarchy. When quoted prices are available but not traded actively, such securities are classified in Level 2 of the fair value hierarchy.

Japanese pooled funds

Japanese pooled funds are investment fund vehicles designed for Japanese pension plan investments under Japanese pension trust fund regulations. Based upon the nature of the funds’ investments, Japanese pooled funds are categorized into four major fund types: Japanese marketable equity securities type, Japanese debt securities type, Non-Japanese marketable equity securities type and Non-Japanese debt securities type. The other types of

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funds invest in short-term financial instruments or loans receivable. Japanese pooled funds are generally readily redeemable at their net asset values. The fair values of Japanese pooled funds are measured at their net asset values per share (or its equivalent) as a practical expedient.

Other investment funds

Other investment funds include mutual funds, private investments funds, common collective funds, private equity funds and real estate funds. The listed investment funds or mutual funds are valued at quoted prices and classified in Level 1 or Level 2 of the fair value hierarchy. When there is no available market quotation, the fair values are generally determined at net asset values per share (or its equivalent) as a practical expedient. Other investment funds classified in Level 3 of the fair value hierarchy consist of certain real estate funds whose fair values are not measured at their net asset values but by using significant unobservable inputs and there is inherent lack of the funds’ liquidity.

Japanese general accounts of life insurance companies

These instruments are contracts with life insurance companies that guarantee return of a certain level of fixed income, which are mainly invested in assets with low market risk such as Japanese debt securities. They are measured at conversion value and classified in Level 2 of the fair value hierarchy.

Other investments

Other investments mainly consist of call loans and the rest consist of miscellaneous accounts such as deposits with banks and short-term investments. These instruments are generally classified in Level 1 or Level 2 of the fair value hierarchy depending on observability of the inputs to measure their fair values.

The following table presents the fair value of each major category of plan assets as of March 31, 2019 and 2020:

Pension benefits and SIP Investments:

At March 31, 2019	Domestic subsidiaries								Foreign offices and subsidiaries
Assets category	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
Japanese government bonds	¥	146,060	¥	—	¥	—	¥	146,060	¥	—	¥	—	¥	—	¥	—
Non-Japanese government bonds		8,570		656		—		9,226		38,687		4,615		—		43,302
Other debt securities		109		3,698		1,030		4,837		—		100,462		—		100,462
Japanese marketable equity securities		855,353		—		—		855,353		—		—		—		—
Non-Japanese marketable equity securities		64,957		234		—		65,191		20,569		652		—		21,221
Other investment funds		—		—		—		—		73,286		9,044		—		82,330	(2)
Japanese general account of life insurance companies(1)		—		222,460		—		222,460		—		—		—		—
Other investments		917		18,626		—		19,543		18		4,415		188		4,621
Total	¥	1,075,966	¥	245,674	¥	1,030	¥	1,322,670	¥	132,560	¥	119,188	¥	188	¥	251,936

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At March 31, 2020	Domestic subsidiaries								Foreign offices and subsidiaries
Assets category	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
Japanese government bonds	¥	147,926	¥	—	¥	—	¥	147,926	¥	—	¥	—	¥	—	¥	—
Non-Japanese government bonds		—		—		—		—		42,135		5,185		—		47,320
Other debt securities		7,014		12,113		325		19,452		—		105,096		—		105,096
Japanese marketable equity securities		690,741		—		—		690,741		—		—		—		—
Non-Japanese marketable equity securities		47,655		235		—		47,890		26,981		616		—		27,597
Other investment funds		—		—		—		—		81,803		150,121		—		231,924	(2)
Japanese general account of life insurance companies(1)		—		217,898		—		217,898		—		—		—		—
Other investments		6,547		32,150		—		38,697		480		1,937		250		2,667
Total	¥	899,883	¥	262,396	¥	325	¥	1,162,604	¥	151,399	¥	262,955	¥	250	¥	414,604

Notes:

(1) “Japanese general accounts of life insurance companies” is a contract with life insurance companies that guarantees a return of approximately 1.24% from April 1, 2018 to March 31, 2019 and 1.24% from April 1, 2019 to March 31, 2020.

(2) Other investment funds of the foreign offices and subsidiaries include mutual funds and common collective funds of ¥68,556 million and nil, respectively, which were held by MUFG Americas Holdings at December 31, 2018 and ¥81,768 million and ¥119,307 million, respectively, at December 31, 2019. Based on guidance contained in Codification Improvements, issued by FASB in July 2018, some of common collective funds are reported within the fair value hierarchy as Level 2, which were previously included in the tables presenting fair values of certain investments valued at net asset value per share (or its equivalent) as a practical expedient. The amount of Pension benefits and SIP Investments impacted by the change in reporting was ¥136,316 million as of March 31, 2020. See Note 1 for more information.

The following table presents fair values of certain investments valued at net asset value per share (or its equivalent) as a practical expedient that were excluded from the above table as of March 31, 2019 and 2020:

	Domestic subsidiaries						Foreign offices and subsidiaries
Assets category	2019			2020			2019			2020
	(in millions)
Japanese pooled funds:
Japanese marketable equity securities	¥	109,915		¥	125,218		¥	—		¥	—
Japanese debt securities		184,121			212,727			—			—
Non-Japanese marketable equity securities		162,901			146,796			—			—
Non-Japanese debt securities		155,792			169,978			—			—
Other		134,306			100,798			—			—
Total pooled funds		747,035			755,517			—			—
Other investment funds		525,083	(1)		514,726	(1)		241,559	(2)		144,904	(2)
Total	¥	1,272,118		¥	1,270,243		¥	241,559		¥	144,904

Notes:

(1) Other investment funds of the domestic subsidiaries include mutual funds and real estate funds of ¥500,850 million and ¥12,058 million, respectively, at March 31, 2019 and ¥486,496 million and ¥13,891 million, respectively, at March 31, 2020.

(2) Other investment funds of the foreign offices and subsidiaries include mutual funds, real estate funds and common collective funds of ¥53,775 million, ¥46,818 million and ¥140,728 million, respectively, at March 31, 2019 and ¥56,125 million, ¥54,474 million and ¥34,098 million, respectively, at March 31, 2020. Based on guidance contained in Codification Improvements, issued by FASB in July 2018, some of common collective funds are reported within the fair value hierarchy as Level 2, which were previously included in the

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

tables presenting fair values of certain investments valued at net asset value per share (or its equivalent) as a practical expedient. The amount of Pension benefits and SIP Investments impacted by the change in reporting was ¥136,316 million as of March 31, 2020. See Note 1 for more information.

Other debt securities and Japanese debt securities in the above Pension benefits and SIP tables include ¥1,224 million (0.04% of plan assets) of debt securities issued by the MUFG Group at March 31, 2019 and ¥942 million (0.03% of plan assets) at March 31, 2020, respectively. Japanese marketable equity securities in the above Pension benefits and SIP tables include ¥5,414 million (0.18% of plan assets) of common stock issued by the MUFG Group at March 31, 2019 and ¥5,843 million (0.20% of plan assets) at March 31, 2020, respectively.

14. OTHER ASSETS AND LIABILITIES

Major components of other assets and liabilities at March 31, 2019 and 2020 were as follows:

	2019		2020
	(in millions)
Other assets:
Accounts receivable:
Receivables from brokers, dealers and customers for securities transactions	¥	1,141,075	¥	1,191,690
Other		1,394,794		1,212,511
Investments in equity method investees		2,487,389		2,421,154
Prepaid benefit cost (Note 13)		839,757		729,199
Cash collateral pledged for derivative transactions (Note 9)		1,276,897		1,696,108
Cash collateral for the use of Bank of Japan’s settlement infrastructure		911,528		965,546
Accrued interest(1)		359,648		308,448
Deferred tax assets (Note 8)(1)		89,719		113,031
Right-of-use assets of operating leases (Note 7)		—		393,435
Other		2,990,462		4,077,577
Total	¥	11,491,269	¥	13,108,699
Other liabilities:
Accounts payable:
Payables to brokers, dealers and customers for securities transactions	¥	1,289,672	¥	1,078,653
Other		1,308,733		1,251,260
Obligations to return securities received as collateral (Notes 15, 16 and 31)(1)		3,087,026		4,806,171
Accrued interest(1)		214,735		187,096
Deferred tax liabilities (Note 8)		624,062		541,368
Allowance for off-balance sheet credit instruments		119,307		56,995
Accrued benefit cost (Note 13)		65,690		92,225
Guarantees and indemnifications		45,346		39,601
Cash collateral received for derivative transactions (Note 9)		844,234		1,125,305
Obligations under operating leases (Note 7)		—		482,813
Accrued and other liabilities		3,061,462		3,562,359
Total	¥	10,660,267	¥	13,223,846

Note:

(1) Certain reclassifications have been made to prior period to confirm to the current presentation.

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Investments in equity method investees include marketable equity securities carried at ¥1,936,468 million and ¥1,809,161 million at March 31, 2019 and 2020, respectively. Corresponding aggregated market values were ¥2,702,838 million and ¥1,987,008 million, respectively. Marketable equity securities include Morgan Stanley’s common stock carried at ¥1,326,339 million and ¥1,411,131 million at March 31, 2019 and 2020, respectively. As of March 31, 2020, the MUFG Group held approximately 23.93% of its common stock. Investments in equity method investees also include investments in Morgan Stanley MUFG Securities, Co., Ltd. at ¥178,679 million and ¥185,255 million at March 31, 2019 and 2020, respectively.

The MUFG Group periodically evaluates whether a loss in value of investments in equity method investees is other-than-temporary. As a result of evaluations, the MUFG Group recognized other-than-temporary declines in the value of an investment and recorded impairment losses related to certain affiliated companies of ¥29,442 million, ¥51,645 million and ¥21,672 million for the fiscal years ended March 31, 2018, 2019 and 2020 respectively. The impairment losses are included in Equity in earnings of equity method investees—net in the accompanying consolidated statements of income.

Summarized Financial Information of the MUFG Group’s Equity Method Investees

Summarized financial information of Morgan Stanley, the largest portion of the MUFG Group’s equity method investees, as of March 31, 2019 and 2020, and for each of the three years ended March 31, 2020 is as follows:

	2019		2020
	(in billions)
Trading assets	¥	29,392	¥	29,484
Securities purchased under agreements to resell		10,718		11,405
Securities borrowed		15,416		7,868
Total assets		97,223		103,149
Deposits		19,948		25,601
Customer and other payables		21,431		21,556
Borrowings		21,165		21,206
Total liabilities		88,134		93,656
Noncontrolling interests		130		149

	2018		2019		2020
	(in billions)
Net revenues	¥	4,354	¥	4,365	¥	4,415
Total non-interest expenses		3,133		3,170		3,275
Income from continuing operations before income taxes		1,221		1,195		1,140
Net income applicable to Morgan Stanley		759		944		903

Morgan Stanley early adopted the new accounting guidance on “Targeted Improvements to Accounting for Hedging Activities” on January 1, 2018. This resulted in recording a cumulative catch-up adjustment by Morgan Stanley, decreasing the MUFG Group’s proportionate share of Retained earnings as reflected on the MUFG Group’s consolidated statement of equity.

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Summarized financial information of the MUFG Group’s equity method investees, other than Morgan Stanley as of March 31, 2019 and 2020, and for each of the three years ended March 31, 2020 is as follows:

	2019		2020
	(in billions)
Net loans	¥	15,772	¥	15,190
Total assets		28,910		29,255
Deposits		9,103		8,898
Total liabilities		23,423		24,025
Noncontrolling interests		1,135		1,005

	2018		2019		2020
	(in billions)
Total interest income	¥	901	¥	1,036	¥	1,093
Total interest expense		329		430		419
Net interest income		572		606		674
Provision for credit losses		136		157		171
Income before income tax expense		337		205		366
Net income		229		135		285

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15. OFFSETTING OF DERIVATIVES, REPURCHASE AGREEMENTS, AND SECURITIES LENDING TRANSACTIONS

The following tables present, as of March 31, 2019 and 2020, the gross and net amounts of derivatives, resale and repurchase agreements, and securities borrowing and lending transactions, including the related gross amounts subject to an enforceable master netting arrangement or similar agreement not offset in the consolidated balance sheets. The MUFG Group primarily enters into International Swaps and Derivatives Association master netting agreements, master repurchase agreements and master securities lending agreements or similar agreements for derivative contracts, resale and repurchase agreements, and securities borrowing and lending transactions. In the event of default on or termination of any one contract, these agreements provide the contracting parties with the right to net a counterparty’s rights and obligations and to liquidate and setoff collateral against any net amount owed by the counterparty. Generally, as the MUFG Group has elected to present such amounts on a gross basis, the amounts subject to these agreements are included in “Gross amounts not offset in the consolidated balance sheet” column in the tabular disclosure below. For certain transactions where a legal opinion with respect to the enforceability of netting has not been sought or obtained, the related amounts are not subject to enforceable master netting agreements and not included in “Gross amounts not offset in the consolidated balance sheet” column in the tabular disclosure below.

At March 31, 2019	Gross amounts of recognized assets/liabilities		Gross amounts offset in the consolidated balance sheet			Net amounts presented in the consolidated balance sheet		Gross amounts not offset in the consolidated balance sheet						Net amounts
								Financial instruments			Cash collateral received/pledged
	(in billions)
Financial assets:
Derivative assets	¥	13,205	¥	—		¥	13,205	¥	(10,752	)	¥	(590	)	¥	1,863
Receivables under resale agreements		13,885		(2,910	)		10,975		(9,793	)		(20	)		1,162
Receivables under securities borrowing transactions		2,759		—			2,759		(2,693	)		—			66
Total	¥	29,849	¥	(2,910	)	¥	26,939	¥	(23,238	)	¥	(610	)	¥	3,091
Financial liabilities:
Derivative liabilities	¥	12,710	¥	—		¥	12,710	¥	(10,671	)	¥	(933	)	¥	1,106
Payables under repurchase agreements		28,125		(2,900	)		25,225		(24,930	)		(15	)		280
Payables under securities lending transactions		913		—			913		(880	)		—			33
Obligations to return securities received as collateral		3,087		—			3,087		(1,244	)		—			1,843
Total	¥	44,835	¥	(2,900	)	¥	41,935	¥	(37,725	)	¥	(948	)	¥	3,262

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At March 31, 2020	Gross amounts of recognized assets/liabilities		Gross amounts offset in the consolidated balance sheet			Net amounts presented in the consolidated balance sheet		Gross amounts not offset in the consolidated balance sheet						Net amounts
								Financial instruments			Cash collateral received/pledged
	(in billions)
Financial assets:
Derivative assets	¥	14,958	¥	—		¥	14,958	¥	(11,282	)	¥	(874	)	¥	2,802
Receivables under resale agreements		25,884		(1,888	)		23,996		(23,195	)		(21	)		780
Receivables under securities borrowing transactions		3,444		—			3,444		(3,336	)		—			108
Total	¥	44,286	¥	(1,888	)	¥	42,398	¥	(37,813	)	¥	(895	)	¥	3,690
Financial liabilities:
Derivative liabilities	¥	14,034	¥	—		¥	14,034	¥	(11,296	)	¥	(1,140	)	¥	1,598
Payables under repurchase agreements		33,733		(1,883	)		31,850		(31,569	)		(34	)		247
Payables under securities lending transactions		1,017		—			1,017		(986	)		—			31
Obligations to return securities received as collateral		4,806		—			4,806		(1,966	)		—			2,840
Total	¥	53,590	¥	(1,883	)	¥	51,707	¥	(45,817	)	¥	(1,174	)	¥	4,716

16. REPURCHASE AGREEMENTS, AND SECURITIES LENDING TRANSACTIONS ACCOUNTED FOR AS SECURED BORROWINGS

The following tables present gross obligations for payables under repurchase agreements, payables under securities lending transactions and obligations to return securities received as collateral by remaining contractual maturity and class of collateral pledged at March 31, 2019 and 2020. Potential risks associated with these arrangements primarily relate to market and liquidity risks. To manage risks associated with market exposure, the MUFG Group generally revalues the collateral underlying its repurchase agreements and securities lending transactions on a daily basis and monitors the value of the underlying securities, consisting of primarily high-quality securities such as Japanese national government and Japanese government agency bonds, and foreign government and official institution bonds. In the event the market value of such securities falls below the related agreements at contract amounts plus accrued interest, the MUFG Group may be required to deposit additional collateral when appropriate. To address liquidity risks, the MUFG Group conducts stress tests to ensure the adequate level of liquidity is maintained in the event of a decline in the fair value of any collateral pledged.

	March 31, 2019
	Remaining Contractual Maturity
	Overnight and open		30 days or less		31-90 days		Over 90 days		Total
	(in billions)
Payables under repurchase agreements	¥	3,892	¥	18,586	¥	2,824	¥	2,823	¥	28,125
Payables under securities lending transactions		913		—		—		—		913
Obligations to return securities received as collateral		2,572		396		117		2		3,087
Total	¥	7,377	¥	18,982	¥	2,941	¥	2,825	¥	32,125

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	March 31, 2020
	Remaining Contractual Maturity
	Overnight and open		30 days or less		31-90 days		Over 90 days		Total
	(in billions)
Payables under repurchase agreements	¥	9,685	¥	16,608	¥	4,496	¥	2,944	¥	33,733
Payables under securities lending transactions		934		64		19		—		1,017
Obligations to return securities received as collateral		3,856		599		276		75		4,806
Total	¥	14,475	¥	17,271	¥	4,791	¥	3,019	¥	39,556

Secured borrowing by the class of collateral pledged at March 31, 2019 and 2020 was as follows:

	March 31, 2019
	Payables under repurchase agreements		Payables under securities lending transactions		Obligations to return securities received as collateral		Total
	(in billions)
Japanese national government and Japanese government agency bonds	¥	8,306	¥	21	¥	856	¥	9,183
Foreign government and official institution bonds		14,291		—		1,286		15,577
Corporate bonds		705		—		172		877
Residential mortgage-backed securities		4,369		—		—		4,369
Other debt securities		238		—		—		238
Marketable equity securities		200		892		772		1,864
Other		16		—		1		17
Total	¥	28,125	¥	913	¥	3,087	¥	32,125
	March 31, 2020
	Payables under repurchase agreements		Payables under securities lending transactions		Obligations to return securities received as collateral		Total
	(in billions)
Japanese national government and Japanese government agency bonds	¥	10,687	¥	38	¥	2,241	¥	12,966
Foreign government and official institution bonds		17,326		57		873		18,256
Corporate bonds		784		—		183		967
Residential mortgage-backed securities		4,248		—		10		4,258
Other debt securities		157		—		2		159
Marketable equity securities		506		914		1,497		2,917
Other		25		8		—		33
Total	¥	33,733	¥	1,017	¥	4,806	¥	39,556

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

17. PREFERRED STOCK

Pursuant to the Articles of Incorporation, MUFG had been authorized to issue 400,000,000 shares of Class 5 Preferred Stock, 200,000,000 shares of Class 6 Preferred Stock, and 200,000,000 shares of Class 7 Preferred Stock without par value as of March 31, 2020.

All classes of preferred stock are non-voting and have preference over common stock for the payment of dividends and the distribution of assets in the event of a liquidation or dissolution of MUFG. They are all non-cumulative and non-participating with respect to dividend payments. Shareholders of all classes of preferred stock have the right to receive a liquidation distribution at ¥2,500 and do not have the right to participate in any further liquidation distributions.

As of March 31, 2018, 2019 and 2020, there was no preferred stock outstanding and the entire amount of Capital stock on the consolidated balance sheets consisted of only common stock.

18. COMMON STOCK AND CAPITAL SURPLUS

The changes in the number of issued shares of common stock during the fiscal years ended March 31, 2018, 2019 and 2020 were as follows:

	2018			2019			2020
	(shares)
Balance at beginning of fiscal year		14,168,853,820			13,900,028,020			13,667,770,520
Retirement of shares of common stock		(268,825,800	)		(232,257,500	)		(85,775,400	)
Balance at end of fiscal year		13,900,028,020			13,667,770,520			13,581,995,120

Under the Companies Act, issuances of common stock, including conversions of bonds and notes, are required to be credited to the common stock account for at least 50% of the proceeds and to the legal capital surplus account (“legal capital surplus”) for the remaining amounts.

The Companies Act permits Japanese companies, upon approval by the Board of Directors, to issue shares in the form of a “stock split,” as defined in the Companies Act. Also, prior to April 1, 1991, Japanese companies were permitted to issue free share distributions. MUFG Bank and Mitsubishi UFJ Trust and Banking from time to time made free share distributions. These free distributions usually ranged from 5% to 10% of outstanding common stock and publicly-owned corporations in the United States issuing shares in similar transactions would be required to account for them as stock dividends as of the shareholders’ record date by reducing retained earnings and increasing the appropriate capital accounts by an amount equal to the fair value of the shares issued. The application of such U.S. accounting practices to the cumulative free distributions made by MUFG Bank and Mitsubishi UFJ Trust and Banking at March 31, 2020, would have increased capital accounts by ¥1,910,106 million with a corresponding decrease in unappropriated retained earnings.

The Companies Act permits that common stock, legal reserve, additional paid-in capital, and other capital surplus and retained earnings can be transferred among these accounts under certain conditions upon the approval of a shareholders’ meeting. The Companies Act limits the increase of paid-in capital in case disposition of treasury stock and issuance of common stock are performed at the same time.

As for Capital surplus, the fee retained by MUFG’s subsidiary as underwriting compensation, net of stock issuance expense, was included in the total Capital surplus balance.

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Treasury Stock

The Companies Act permits Japanese companies to effect purchases of their own shares pursuant to a resolution by the shareholders at an annual general meeting until the conclusion of the following ordinary general meeting of shareholders, and to hold such shares as their treasury stock indefinitely regardless of purpose. However, the Companies Act requires the amount of treasury stock purchased should be within the amount of retained earnings available for dividends. Disposition of treasury stock is subject to the approval of the Board of Directors and is to follow the procedures similar to a public offering of shares for subscription.

From May 16, 2017 to June 21, 2017 MUFG repurchased 141,158,900 shares of MUFG’s common stock by market purchases based on the discretionary dealing contract regarding repurchase of own shares for approximately ¥100 billion in aggregate in satisfaction of the resolution adopted at the meeting of the Board of Directors of MUFG held on May 15, 2017. The repurchase plan as authorized by the Board of Directors of MUFG allowed for the repurchase of an aggregate amount of up to 200,000,000 shares, which represents the equivalent of 1.49% of the total number of common shares outstanding, or of an aggregate repurchase amount of up to ¥100 billion. The purpose of the repurchase is to enhance the return of earnings to shareholders, to improve capital efficiency, and to implement flexible capital policies. On July 20, 2017, MUFG cancelled all the acquired shares in satisfaction of the resolution adopted at the meeting of the Board of Directors of MUFG held on May 15, 2017.

From November 15, 2017 to December 22, 2017, MUFG repurchased 127,666,900 shares of MUFG’s common stock by market purchases based on the discretionary dealing contract regarding repurchase of own shares for approximately ¥100 billion, in aggregate, in satisfaction of the resolution adopted at the meeting of the Board of Directors of MUFG held on November 14, 2017. The repurchase plan as authorized by the Board of Directors of MUFG allowed for the repurchase of an aggregate amount of up to 200,000,000 shares, which represents the equivalent of 1.50% of the total number of common shares outstanding, or of an aggregate repurchase amount of up to ¥100 billion. The purpose of the repurchase is to enhance the return of earnings to shareholders, to improve capital efficiency, and to implement flexible capital policies. On January 22, 2018, MUFG cancelled all of the acquired shares in satisfaction of the resolution adopted at the meeting of the Board of Directors of MUFG held on November 14, 2017.

From May 16, 2018 to June 4, 2018, MUFG repurchased 72,420,700 shares of MUFG’s common stock by market purchases based on the discretionary dealing contract regarding repurchase of own shares for approximately ¥50 billion, in aggregate, in satisfaction of the resolution adopted at the meeting of the Board of Directors of MUFG held on May 15, 2018. The repurchase plan as authorized by the Board of Directors of MUFG allowed for the repurchase of an aggregate amount of up to 100,000,000 shares, which represents the equivalent of 0.76% of the total number of common shares outstanding, or of an aggregate repurchase amount of up to ¥50 billion. The purpose of the repurchase is to enhance the return of earnings to shareholders, to improve capital efficiency, and to implement flexible capital policies. On July 20, 2018, MUFG cancelled all of the acquired shares in satisfaction of the resolution adopted at the meeting of the Board of Directors of MUFG held on May 15, 2018.

From November 14, 2018 to December 10, 2018, MUFG repurchased 159,836,800 shares of MUFG’s common stock by market purchases based on the discretionary dealing contract regarding repurchase of own shares for approximately ¥100 billion, in aggregate, in satisfaction of the resolution adopted at the meeting of the Board of Directors of MUFG held on November 13, 2018. The repurchase plan as authorized by the Board of Directors of MUFG allowed for the repurchase of an aggregate amount of up to 200,000,000 shares, which represents the equivalent of 1.52% of the total number of common shares outstanding, or of an aggregate repurchase amount of up to ¥100 billion. The purpose of the repurchase is to enhance the return of earnings to

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shareholders, to improve capital efficiency, and to implement flexible capital policies. On January 22, 2019, MUFG cancelled all of the acquired shares in satisfaction of the resolution adopted at the meeting of the Board of Directors of MUFG held on November 13, 2018.

From November 14, 2019 to December 23, 2019, MUFG repurchased 85,775,400 shares of MUFG’s common stock by market purchases based on the discretionary dealing contract regarding repurchase of own shares for approximately ¥50 billion, in aggregate, in satisfaction of the resolution adopted at the meeting of the Board of Directors of MUFG held on November 13, 2019. The repurchase plan as authorized by the Board of Directors of MUFG allowed for the repurchase of an aggregate amount of up to 100,000,000 shares, which represents the equivalent of 0.77% of the total number of common shares outstanding, or of an aggregate repurchase amount of up to ¥50 billion. The purpose of the repurchase is to enhance the return of earnings to shareholders, to improve capital efficiency, and to implement flexible capital policies. On January 20, 2020, MUFG cancelled all of the acquired shares in satisfaction of the resolution adopted at the meeting of the Board of Directors of MUFG held on November 13, 2019.

19. RETAINED EARNINGS, LEGAL RESERVE AND DIVIDENDS

In addition to the Companies Act, Japanese banks, including MUFG Bank and Mitsubishi UFJ Trust and Banking, are required to comply with the Banking Law of Japan (the “Banking Law”).

Legal Reserve Set Aside as Appropriation of Retained Earnings and Legal Capital Surplus

Under the Companies Act

The Companies Act provides that an amount at least equal to 10% of the aggregate amount of cash dividends and certain appropriations of retained earnings associated with cash outlays applicable to each period shall be appropriated and set aside as a legal reserve until the aggregate amount of legal reserve set aside as an appropriation of retained earnings and the legal capital surplus equals 25% of stated capital as defined in the Companies Act.

Under the Banking Law

The Banking Law provides that an amount at least equal to 20% of the aggregate amount of cash dividends and certain appropriations of retained earnings associated with cash outlays applicable to each fiscal year shall be appropriated and set aside as a legal reserve until the aggregate amount of legal reserve set aside as appropriation of retained earnings and the legal capital surplus equals 100% of stated capital as defined in the Companies Act.

Transfer of Legal Reserve

Under the Companies Act

Under the Companies Act, Japanese companies, including MUFG, were permitted, pursuant to a resolution by the shareholders at a general meeting, to make legal reserve set aside as appropriation of retained earnings and legal capital surplus available for dividends until the aggregate amount of the legal reserve and legal capital surplus equals 25% of stated capital as defined in the Companies Act.

Under the Companies Act, Japanese companies, including MUFG, MUFG Bank and Mitsubishi UFJ Trust and Banking, are permitted, primarily pursuant to a resolution by the shareholders at a general meeting, to transfer legal capital surplus and legal reserve to stated capital and/or retained earnings without limitations of thresholds, thereby effectively removing the thresholds provided for in the Companies Act and Banking Law at the company’s discretion.

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Under the Banking Law

Under the Banking Law, Japanese banks, including MUFG Bank and Mitsubishi UFJ Trust and Banking, were permitted, pursuant to a resolution by the shareholders at a general meeting, to set aside a legal reserve as an appropriation of retained earnings and legal capital surplus available for dividends until the aggregate amount of the legal reserve and legal capital surplus equals 100% of stated capital as defined in the Companies Act.

Unappropriated Retained Earnings and Dividends

In addition to the provision that requires an appropriation for legal reserve as described above, the Companies Act and the Banking Law impose certain limitations on the amount available for dividends.

Under the Companies Act, the amount available for dividends is based on the amount recorded in MUFG’s general books of account maintained in accordance with accounting principles generally accepted in Japan (“Japanese GAAP”). The adjustments included in the accompanying consolidated financial statements but not recorded in MUFG’s general books of account, as explained in Note 1, have no effect on the determination of retained earnings available for dividends under the Companies Act. Under the Banking Law, MUFG, MUFG Bank and Mitsubishi UFJ Trust and Banking have to meet the minimum capital adequacy requirements and distributions of retained earnings of MUFG, MUFG Bank and Mitsubishi UFJ Trust and Banking, which are otherwise distributable to shareholders, are restricted in order to maintain the minimum capital requirements.

MUFG, formerly known as Mitsubishi Tokyo Financial Group, was established on April 2, 2001 with common stock of ¥924,400 million, preferred stock of ¥222,100 million, legal capital surplus of ¥2,838,693 million and no retained earnings in accordance with the Commercial Code of Japan (“the Code”), which was replaced by the Companies Act, and Japanese GAAP.

On October 1, 2005, MUFG started with common stock and preferred stock of ¥1,383,052 million, a legal capital surplus of ¥3,577,570 million and retained earnings of ¥757,458 million in accordance with the Code and Japanese GAAP.

MUFG’s amount available for dividends, at March 31, 2020, was ¥4,298,735 million, which is based on the amount recorded in MUFG’s general books of account under Japanese GAAP.

Annual dividends, including those for preferred stock, are approved by the shareholders at an annual general meeting held subsequent to the fiscal year to which the dividends are applicable. In addition, a semi-annual interim dividend payment may be made by resolution of the Board of Directors, subject to limitations imposed by the Companies Act and the Banking Law.

In the accompanying consolidated statements of equity, dividends and appropriations to legal reserve shown for each fiscal year represent dividends approved and paid during the fiscal year and the related appropriation to legal reserve.

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20. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the changes in Accumulated OCI, net of tax and net of noncontrolling interests, for the fiscal years ended March 31, 2018, 2019 and 2020:

	2018			2019			2020
	(in millions)
Accumulated other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on investment securities(1):
Balance at beginning of fiscal year	¥	2,032,807		¥	2,270,346		¥	(369,369	)
Net change during the fiscal year		244,249			60,616			24,584
Effect of adopting new guidance by a foreign affiliated company		118			—			—
Effect of adopting new guidance on reclassification on certain tax effects		(6,828	)		—			—
Effect of adopting new guidance on recognition and measurement of financial assets and financial liabilities (Note 1)		—			(2,700,331	)		—
Balance at end of fiscal year	¥	2,270,346		¥	(369,369	)	¥	(344,785	)
Net debt valuation adjustments:
Balance at beginning of fiscal year	¥	(10,632	)	¥	(16,488	)	¥	(8,670	)
Net change during the fiscal year		(2,178	)		9,729			54,172
Effect of adopting new guidance on reclassification on certain tax effects		(3,678	)		—			—
Effect of adopting new guidance on recognition and measurement of financial assets and financial liabilities (Note 1)		—			(1,911	)		—
Balance at end of fiscal year	¥	(16,488	)	¥	(8,670	)	¥	45,502
Net unrealized losses on derivatives qualifying for cash flow hedges:
Balance at beginning of fiscal year	¥	(8,729	)	¥	(19,250	)	¥	(24,140	)
Net change during the fiscal year		(7,025	)		(4,890	)		10,797
Effect of adopting new guidance on reclassification on certain tax effects		(3,496	)		—			—
Balance at end of fiscal year	¥	(19,250	)	¥	(24,140	)	¥	(13,343	)
Defined benefit plans:
Balance at beginning of fiscal year	¥	(214,062	)	¥	(119,593	)	¥	(208,273	)
Net change during the fiscal year		109,012			(88,680	)		(129,645	)
Effect of adopting new guidance on reclassification on certain tax effects		(14,543	)		—			—
Balance at end of fiscal year	¥	(119,593	)	¥	(208,273	)	¥	(337,918	)
Foreign currency translation adjustments:
Balance at beginning of fiscal year	¥	482,039		¥	362,300		¥	326,183
Net change during the fiscal year		(119,213	)		(36,117	)		(96,056	)
Effect of adopting new guidance on reclassification on certain tax effects		(526	)		—			—
Balance at end of fiscal year	¥	362,300		¥	326,183		¥	230,127
Balance at end of fiscal year	¥	2,477,315		¥	(284,269	)	¥	(420,417	)

Note:

(1) Included unrealized gains (losses) related to only debt securities for the fiscal years ended March 31, 2019 and 2020.

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The following table presents the before tax and net of tax changes in each component of Accumulated OCI for the fiscal years ended March 31, 2018, 2019 and 2020:

	2018									2019									2020
	Before tax			Tax (expense) or benefit			Net of tax			Before tax			Tax (expense) or benefit			Net of tax			Before tax			Tax (expense) or benefit			Net of tax
	(in millions)
Net unrealized gains (losses) on investment securities:
Net unrealized gains on investment securities(1)	¥	631,154		¥	(204,916	)	¥	426,238		¥	132,723		¥	(24,690	)	¥	108,033		¥	100,974		¥	(2,260	)	¥	98,714
Reclassification adjustment for gains included in net income before attribution of noncontrolling interests		(280,258	)		84,328			(195,930	)		(28,953	)		9,100			(19,853	)		(107,102	)		32,007			(75,095	)
Net change		350,896			(120,588	)		230,308			103,770			(15,590	)		88,180			(6,128	)		29,747			23,619
Net unrealized gains (losses) on investment securities attributable to noncontrolling interests								(13,941	)								27,564									(965	)
Net unrealized gains on investment securities attributable to Mitsubishi UFJ Financial Group								244,249									60,616									24,584
Net debt valuation adjustments:
Net debt valuation adjustments		(3,555	)		1,088			(2,467	)		13,006			(3,982	)		9,024			77,765			(23,812	)		53,953
Reclassification adjustment for losses included in net income before attribution of noncontrolling interests		417			(128	)		289			1,016			(311	)		705			315			(96	)		219
Net change		(3,138	)		960			(2,178	)		14,022			(4,293	)		9,729			78,080			(23,908	)		54,172
Net debt valuation adjustments attributable to noncontrolling interests								—									—									—
Net debt valuation adjustments attributable to Mitsubishi UFJ Financial Group								(2,178	)								9,729									54,172
Net unrealized gains (losses) on derivatives qualifying for cash flow hedges:
Net unrealized gains (losses) on derivatives qualifying for cash flow hedges		(3,430	)		1,571			(1,859	)		(10,397	)		2,825			(7,572	)		1,375			(560	)		815
Reclassification adjustment for losses (gains) included in net income before attribution of noncontrolling interests		(8,016	)		2,850			(5,166	)		3,662			(980	)		2,682			13,279			(3,452	)		9,827
Net change		(11,446	)		4,421			(7,025	)		(6,735	)		1,845			(4,890	)		14,654			(4,012	)		10,642
Net unrealized losses on derivatives qualifying for cash flow hedges attributable to noncontrolling interests								—									—									(155	)
Net unrealized gains (losses) on derivatives qualifying for cash flow hedges attributable to Mitsubishi UFJ Financial Group								(7,025	)								(4,890	)								10,797

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	2018									2019									2020
	Before tax			Tax (expense) or benefit			Net of tax			Before tax			Tax (expense) or benefit			Net of tax			Before tax			Tax (expense) or benefit			Net of tax
	(in millions)
Defined benefit plans:
Defined benefit plans		154,708			(48,537	)		106,171			(126,001	)		37,655			(88,346	)		(195,851	)		59,426			(136,425	)
Reclassification adjustment for losses (gains) included in net income before attribution of noncontrolling interests		5,904			(2,237	)		3,667			(1,168	)		574			(594	)		6,643			(1,741	)		4,902
Net change		160,612			(50,774	)		109,838			(127,169	)		38,229			(88,940	)		(189,208	)		57,685			(131,523	)
Defined benefit plans attributable to noncontrolling interests								826									(260	)								(1,878	)
Defined benefit plans attributable to Mitsubishi UFJ Financial Group								109,012									(88,680	)								(129,645	)
Foreign currency translation adjustments:
Foreign currency translation adjustments		(137,811	)		32,767			(105,044	)		(18,062	)		(17,932	)		(35,994	)		(99,520	)		19,588			(79,932	)
Reclassification adjustment for losses (gains) included in net income before attribution of noncontrolling interests		(1,494	)		1,760			266			(9,002	)		2,784			(6,218	)		(2,238	)		1,105			(1,133	)
Net change		(139,305	)		34,527			(104,778	)		(27,064	)		(15,148	)		(42,212	)		(101,758	)		20,693			(81,065	)
Foreign currency translation adjustments attributable to noncontrolling interests								14,435									(6,095	)								14,991
Foreign currency translation adjustments attributable to Mitsubishi UFJ Financial Group								(119,213	)								(36,117	)								(96,056	)
Other comprehensive income (loss) attributable to Mitsubishi UFJ Financial Group							¥	224,845								¥	(59,342	)							¥	(136,148	)

Note:

(1) Included unrealized gains (losses) related to only debt securities for the fiscal years ended March 31, 2019 and 2020.

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The following table presents the effect of the reclassification of significant items out of Accumulated OCI on the respective line items of the accompanying consolidated statements of income for the fiscal years ended March 31, 2018, 2019 and 2020:

	2018			2019			2020
Details of Accumulated OCI components	Amount reclassified out of Accumulated OCI									Line items in the consolidated statements of income
	(in millions)
Net unrealized losses (gains) on investment securities
Net gains on sales and redemptions of Available-for-sale debt securities(1)	¥	(287,279	)	¥	(29,182	)	¥	(108,193	)	Investment securities gains (losses)—net
Impairment losses on investment securities		6,759			596			1,590		Investment securities gains (losses)—net
Other		262			(367	)		(499	)
		(280,258	)		(28,953	)		(107,102	)	Total before tax
		84,328			9,100			32,007		Income tax expense
	¥	(195,930	)	¥	(19,853	)	¥	(75,095	)	Net of tax
Net debt valuation adjustments	¥	417		¥	1,016		¥	315		Equity in earnings of equity method investees—net
		417			1,016			315		Total before tax
		(128	)		(311	)		(96	)	Income tax expense
	¥	289		¥	705		¥	219		Net of tax
Net unrealized losses (gains) on derivatives qualifying for cash flow hedges
Interest rate contracts	¥	(7,782	)	¥	3,739		¥	9,878		Interest income on Loans, including fees
Foreign exchange contracts		—			—			3,399		Interest expense on Long-term debt or Foreign exchange losses—net
Other		(234	)		(77	)		2
		(8,016	)		3,662			13,279		Total before tax
		2,850			(980	)		(3,452	)	Income tax expense
	¥	(5,166	)	¥	2,682		¥	9,827		Net of tax
Defined benefit plans
Net actuarial loss(2)	¥	17,280		¥	11,431		¥	15,488		Other non-interest expenses
Prior service cost(2)		(6,959	)		(6,269	)		(5,718	)	Other non-interest expenses
Gain on settlements and curtailment, and other(2)		(4,417	)		(6,330	)		(3,127	)	Other non-interest expenses
		5,904			(1,168	)		6,643		Total before tax
		(2,237	)		574			(1,741	)	Income tax expense
	¥	3,667		¥	(594	)	¥	4,902		Net of tax

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	2018			2019			2020
Details of Accumulated OCI components	Amount reclassified out of Accumulated OCI									Line items in the consolidated statements of income
	(in millions)
Foreign currency translation adjustments	¥	(5,743	)	¥	(9,004	)	¥	(5,003	)	Other non-interest income
		4,249			2			2,765		Other non-interest expenses
		(1,494	)		(9,002	)		(2,238	)	Total before tax
		1,760			2,784			1,105		Income tax expense
	¥	266		¥	(6,218	)	¥	(1,133	)	Net of tax
Total reclassifications for the period	¥	(283,447	)	¥	(34,445	)	¥	(89,103	)	Total before tax
		86,573			11,167			27,823		Income tax expense
	¥	(196,874	)	¥	(23,278	)	¥	(61,280	)	Net of tax

Notes:

(1) Included unrealized gains (losses) related to only debt securities for the fiscal years ended March 31, 2019 and 2020 while included unrealized gains (losses) related to both debt and equity securities for the fiscal year ended March 31, 2018.

(2) These Accumulated OCI components are components of net periodic benefit cost. See Note 13 for more information.

21. REGULATORY CAPITAL REQUIREMENTS

Japan

MUFG, MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities Holdings are subject to various regulatory capital requirements promulgated by the regulatory authorities of the countries in which they operate. Failure to meet minimum capital requirements will initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on MUFG’s consolidated financial statements.

In Japan, MUFG, MUFG Bank, and Mitsubishi UFJ Trust and Banking are subject to regulatory capital requirements promulgated by the Financial Services Agency of Japan (“FSA”) in accordance with the provisions of the Banking Law and related regulations. A banking institution is subject to the minimum capital requirements both on a consolidated basis and a stand-alone basis, and is required to maintain the minimum capital irrespective of whether it operates independently or as a subsidiary under the control of another company. When a bank holding company manages operations of its banking subsidiaries, it is required to maintain the minimum capital adequacy ratio on a consolidated basis in the same manner as its subsidiary banks. The FSA provides two sets of capital adequacy guidelines. One is a set of guidelines applicable to Japanese banks and bank holding companies with their foreign offices conducting international operations, as defined, and the other is applicable to Japanese banks and bank holding companies that are not engaged in international operations conducted by their foreign offices.

The Basel Committee on Banking Supervision (“BCBS”) of the Bank for International Settlements (“BIS”) sets capital adequacy standards for all internationally active banks to ensure minimum levels of capital.

The Basel Committee revised the 1988 Accord (“Basel I”) in June 2004 and released “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” (“Basel II”). In addition, the Group of Central Bank Governors and Heads of Supervision reached an agreement on the new global regulatory framework, which has been referred to as “Basel III,” in July and September 2010. In December 2010, the Basel Committee agreed on the details of the Basel III rules. Effective as of March 31, 2013, Basel III was adopted by the FSA with transitional measures for Japanese banking institutions with international operations conducted by their foreign offices. MUFG calculated capital ratios as of March 31, 2019 and 2020 in accordance with Basel III.

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Capital Ratios

Basel III, the same as Basel II, is based on “three pillars”: (1) minimum capital requirements, (2) the self-regulation of financial institutions based on supervisory review process, and (3) market discipline through the disclosure of information. The framework of the 1988 Accord, Basel I is improved and expanded to be included in “minimum capital requirements” as the first pillar of Basel II and Basel III.

As for the denominator of the capital ratio, the Basel framework provides the following risk-based approaches and a range of options for determining risk-weighted assets.

“Credit Risk”

The Basel framework provides options for determining the risk-weighted assets for credit risk to allow banks to select approaches that are most appropriate for their level of risk assessment. Banks choose one of three approaches: “Standardized Approach,” “Foundation Internal Ratings-Based Approach” or “Advanced Internal Ratings-Based Approach (“AIRB”).”

“Market Risk”

In the “Amendment to the Capital Accord to incorporate market risks” of the year 1996, a choice between two methodologies “the Standardized Measurement Method” and “Internal Models Approach” is permitted. “Combination of Internal Models Approach and the Standardized Measurement Method” is also allowed under certain conditions. This is unchanged in Basel III.

“Operational Risk”

Operational risk, which is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, is newly added in Basel II. The Basel framework presents three methods for calculating operational risk capital charges: (i) the Basic Indicator Approach; (ii) the Standardized Approach; or (iii) Advanced Measurement Approaches (“AMA”). Banks adopt one of the three approaches to determine the risk-weighted assets for operational risk.

Banks need to obtain approval from their supervisors prior to adopting the following approaches to calculate capital requirements for each risk:

• the Advanced Internal Ratings-Based Approach for credit risk

• the Internal Models Approach for market risk

• the Standardized Approach and AMA for operational risk

With approval from the FSA, MUFG and most of its major subsidiaries adopt AIRB to calculate capital requirements for credit risk, adopt the AMA to calculate capital requirements for operational risk, as for market risk, adopt the Internal Models Approach mainly to calculate general market risk and adopt the Standardized Measurement Method to calculate specific risk.

The MUFG Group’s proprietary assets do not include trust assets under management and administration in a capacity of agent or fiduciary and, accordingly trust account assets are generally not included in the capital measure. However, guarantees for trust principal are counted as off-balance sheet items requiring a capital charge in accordance with the capital adequacy guidelines.

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Under Basel III, as adopted by the FSA, MUFG’s risk-weighted assets increased, largely reflecting the new capital charge of the credit valuation adjustment (CVA), the credit risk related to asset value correlation multiplier for large financial institutions, and the 250% risk-weighted threshold items not deducted from Common Equity Tier 1 capital, as well as the conversion of certain Basel II capital deductions to risk-weighted assets, such as securitizations.

On the other hand, as for the numerator of the capital ratio, there are three primary regulatory capital ratios used to assess capital adequacy, Common Equity Tier 1, Tier 1 and Total capital ratios, which are determined by dividing applicable capital components by risk-weighted assets. Tier 1 capital consists of Common Equity Tier 1 capital and Additional Tier 1 capital. Common Equity Tier 1 capital is primarily consisting of common stock, capital surplus, retained earnings, and Accumulated OCI. Regulatory adjustments including certain intangible fixed assets, such as goodwill, and defined-benefit pension fund assets, are made to Common Equity Tier 1. Additional Tier 1 capital generally consists of Basel III compliant preferred securities, and during the transition period, other capital that meets Tier 1 requirements under Basel II standards.

Tier 2 capital generally consists of Basel III compliant subordinated debts, capital that meets Tier 2 requirements under Basel II standards during the transition period, certain allowances for credit losses, and noncontrolling interests in subsidiaries’ Tier 2 instruments. Total capital is defined as the sum of Tier 1 and Tier 2 capital.

Effective March 31, 2016, the FSA’s capital conservation buffer, countercyclical buffer and the Global Systematically Important Bank (“G-SIB”), as designated by the FSB, surcharge requirements became applicable to Japanese banking institutions with international operations conducted through foreign offices. The requirements had been phased in and fully implemented as of March 31, 2019. In addition to the 4.50% minimum Common Equity Tier 1 capital ratio, MUFG is required to maintain a capital conservation buffer of 2.5% and a G-SIB surcharge of 1.5% as of March 31, 2019 and 2020, and a countercyclical buffer of 0.04% and 0.01% as of March 31, 2019 and 2020, respectively.

Leverage Ratios

The leverage ratio is designed for monitoring and preventing the build-up of excessive leverage in the banking sector and is expressed as the ratio of Tier 1 capital to both on and off-balance sheet assets adjusted in accordance with the FSA guidance. In December 2017, the Group of Central Bank Governors and Heads of Supervision announced final Basel III reforms. The announced reforms include revisions to the measurement of the leverage ratio and a 3% minimum leverage ratio requirement, plus a G-SIB leverage ratio buffer equal to 50% of the applicable G-SIB capital surcharge. The announcement sets forth implementation dates of January 1, 2018 for the minimum leverage ratio requirement and January 1, 2022 for the G-SIB leverage ratio buffer requirement. Effective as of March 31, 2019, the minimum leverage ratio requirement was adopted by the FSA.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The risk-adjusted capital amounts and ratios, and leverage ratios, of MUFG, MUFG Bank and Mitsubishi UFJ Trust and Banking presented in the following table are based on amounts calculated in accordance with Japanese GAAP as required by the FSA.

	Actual					For capital adequacy purposes
	Amount		Ratio			Amount		Ratio
	(in millions, except percentages)
Consolidated:
At March 31, 2019:
Total capital (to risk-weighted assets):
MUFG(1)	¥	18,769,793		16.03	%	¥	14,097,771		12.04	%
BK		14,632,620		14.42			8,114,105		8.00
TB		2,213,195		24.40			725,540		8.00
Tier 1 capital (to risk-weighted assets):
MUFG(1)		16,276,301		13.90			11,755,949		10.04
BK		12,639,454		12.46			6,085,579		6.00
TB		1,928,955		21.26			544,155		6.00
Common Equity Tier 1 capital (to risk-weighted assets):
MUFG(1)		14,322,407		12.23			9,999,582		8.54
BK		10,990,820		10.83			4,564,184		4.50
TB		1,775,565		19.57			408,116		4.50
Leverage ratio(2):
MUFG		16,276,301		4.94			9,871,460		3.00
BK		12,639,454		4.63			8,189,494		3.00
TB		1,928,955		5.09			1,135,795		3.00
At March 31, 2020:
Total capital (to risk-weighted assets):
MUFG(1)	¥	18,279,566		15.87	%	¥	13,827,788		12.01	%
BK		14,285,601		14.43			7,917,895		8.00
TB		1,889,973		25.46			593,652		8.00
Tier 1 capital (to risk-weighted assets):
MUFG(1)		15,623,321		13.56			11,525,076		10.01
BK		12,170,005		12.29			5,938,421		6.00
TB		1,625,712		21.90			445,239		6.00
Common Equity Tier 1 capital (to risk-weighted assets):
MUFG(1)		13,708,333		11.90			9,798,042		8.51
BK		10,597,133		10.70			4,453,816		4.50
TB		1,444,348		19.46			333,929		4.50
Leverage ratio(2):
MUFG		15,623,321		4.42			10,593,527		3.00
BK		12,170,005		4.21			8,656,169		3.00
TB		1,625,712		4.51			1,079,863		3.00

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	Actual					For capital adequacy purposes
	Amount		Ratio			Amount		Ratio
	(in millions, except percentages)
Stand-alone:
At March 31, 2019:
Total capital (to risk-weighted assets):
BK	¥	13,560,583		15.58	%	¥	6,959,207		8.00	%
TB		2,195,098		24.25			723,953		8.00
Tier 1 capital (to risk-weighted assets):
BK		11,773,839		13.53			5,219,405		6.00
TB		1,911,237		21.12			542,965		6.00
Common Equity Tier 1 capital (to risk-weighted assets):
BK		10,172,206		11.69			3,914,554		4.50
TB		1,758,237		19.42			407,224		4.50
Leverage ratio(2):
BK		11,773,839		4.84			7,284,812		3.00
TB		1,911,237		5.55			1,031,484		3.00
At March 31, 2020:
Total capital (to risk-weighted assets):
BK	¥	12,092,262		14.76	%	¥	6,550,969		8.00	%
TB		2,131,514		25.42			670,714		8.00
Tier 1 capital (to risk-weighted assets):
BK		10,254,608		12.52			4,913,227		6.00
TB		1,867,723		22.27			503,035		6.00
Common Equity Tier 1 capital (to risk-weighted assets):
BK		8,738,975		10.67			3,684,920		4.50
TB		1,686,723		20.11			377,276		4.50
Leverage ratio(2):
BK		10,254,608		4.02			7,644,928		3.00
TB		1,867,723		5.87			953,353		3.00

Notes:

(1) Effective March 31, 2016, the FSA’s capital conservation buffer, countercyclical buffer and G-SIB surcharge requirements became applicable to Japanese banking institutions with international operations conducted through foreign offices. As a result, in addition to the 4.50% minimum Common Equity Tier 1 capital ratio, MUFG is required to maintain a capital conservation buffer of 2.5% and a G-SIB surcharge of 1.5% as of March 31, 2019 and 2020, and the countercyclical buffer of 0.04% and 0.01% as of March 31, 2019 and 2020, respectively.

(2) Effective as of March 31, 2019, the minimum leverage ratio requirement was adopted by the FSA.

Mitsubishi UFJ Morgan Stanley Securities and other securities subsidiaries in Japan and overseas are also subject to regulatory capital requirements of the countries or jurisdictions in which they operate. In Japan, the Financial Instruments and Exchange Act and related ordinance require financial instruments firms to maintain a minimum capital ratio of 120% calculated as a percentage of capital accounts less certain fixed assets, as determined in accordance with Japanese GAAP, against amounts equivalent to market, counterparty credit and operational risks. Specific guidelines are issued as a ministerial ordinance which details the definition of essential components of the capital ratios, including capital, deductible fixed asset items and risks, and related measures. Failure to maintain a minimum capital ratio will trigger mandatory regulatory actions. A capital ratio of less than 140% will call for regulatory reporting and a capital ratio of less than 100% may lead to a suspension of all or part of the business for a period of time and cancellation of a registration.

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At March 31, 2019, Mitsubishi UFJ Morgan Stanley Securities’s capital accounts less certain fixed assets of ¥446,609 million on a stand-alone basis and ¥469,272 million on a consolidated basis, were 331.6% and 332.2% of the total amounts equivalent to market, counterparty credit and operational risks, respectively. At March 31, 2020, its capital accounts less certain fixed assets of ¥440,520 million on a stand-alone basis and ¥465,343 million on a consolidated basis, were 313.0% and 316.2% of the total amounts equivalent to market, counterparty credit and operational risks, respectively.

Management believes, as of March 31, 2020, that MUFG, MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Morgan Stanley Securities and other regulated securities subsidiaries met all capital adequacy requirements to which they are subject.

United States of America

In the United States of America, MUFG Americas Holdings and its banking subsidiary MUFG Union Bank, N.A. (“MUFG Union Bank” or “BK(US)”), MUFG Bank’s largest subsidiaries operating outside Japan, are subject to various regulatory capital requirements administered by the U. S. Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a material effect on MUFG Americas Holdings’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, MUFG Americas Holdings and MUFG Union Bank must meet specific capital guidelines that involve quantitative measures of MUFG Americas Holdings’s and MUFG Union Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. MUFG Americas Holdings’s capital amounts and MUFG Union Bank’s prompt corrective action classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies such as MUFG Americas Holdings. MUFG Union Bank is subject to laws and regulations that limit the amount of dividends MUFG Union Bank can pay to MUFG Americas Holdings.

Quantitative measures established by regulation to help ensure capital adequacy require MUFG Americas Holdings and MUFG Union Bank to maintain minimum amounts and ratios (set forth in the tables below) of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to quarterly average assets (as defined).

In July 2013, the Board of Governors of the Federal Reserve System and the other U.S. Federal banking agencies adopted final rules making significant changes to the U.S. regulatory capital framework for U.S. banking organizations (U.S. Basel III). The final rules are intended to conform this framework to the BCBS’ current international regulatory capital accord (Basel III). These rules replace the U.S. Federal banking agencies’ general risk-based capital rules (commonly known as “Basel I”), advanced approaches rules (commonly known as “Basel II”) that are applicable to certain large banking organizations (including MUFG Union Bank), and leverage rules, and are subject to certain transition provisions. Among other requirements, the U.S. Basel III rules revise the definition of capital, increase minimum capital ratios, and introduce a minimum Common Equity Tier 1 capital ratio of 4.5% and a capital conservation buffer of 2.5% (for a total minimum Common Equity Tier 1 capital ratio of 7.0%) and a potential countercyclical buffer of up to 2.5%, which would be imposed by regulators at their discretion if it is determined that a period of excessive credit growth is contributing to an increase in financial institution systemic risk; mandate a Tier 1 leverage ratio of 4% and introduce, for large and internationally active bank holding companies, a Tier 1 Supplementary Leverage Ratio that is currently set at 3% and which incorporates off-balance sheet exposures; revise Basel I rules for calculating risk-weighted assets under a standardized approach; modify the existing Basel II advanced approaches rules for calculating

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risk-weighted assets under U.S. Basel III; and eliminate, for advanced approaches institutions, over a four-year phase-in period beginning on January 1, 2014, the Accumulated OCI or loss exclusion that had applied under Basel I and Basel II rules.

As a result of the Federal Reserve’s approval of MUFG Americas Holdings’s request to opt out of the advanced approaches methodology in the fourth quarter of 2014, MUFG Americas Holdings calculated its regulatory capital ratios under U.S. Basel I rules at December 31, 2014 and became subject to the U.S. Basel III standardized approach on January 1, 2015, with certain provisions subject to phase-in periods. As permitted for institutions not subject to the advanced approaches methodology, MUFG Americas Holdings made a one-time permanent election in the first quarter of 2015 to exclude certain components of the Accumulated OCI from its regulatory capital calculations. MUFG Union Bank continues to be subject to the advanced approaches rules. Advanced approaches institutions were required to apply U.S. Basel III rules beginning on January 1, 2014. The U.S. Basel III rules are scheduled to be substantially phased in by January 1, 2019. Effective June 30, 2015, MUFG Americas Holdings updated the methodologies applied to the calculation of its regulatory capital ratios due to recent regulatory guidance, which clarified the treatment of certain off-balance sheet credit exposures. These methodologies were applied to MUFG Americas Holdings’s capital ratios and increased the ratios by approximately 50 basis points. This change did not affect MUFG Union Bank’s ratios as the U.S. Office of the Comptroller of the Currency (“OCC”) had previously adopted this guidance.

As required under U.S. Basel III rules, the 2.5% capital conservation buffer is being implemented on a phased-in basis in equal increments of 0.625% per year over a four-year period that commenced on January 1, 2016. MUFG Americas Holdings and MUFG Union Bank would satisfy the minimum capital requirements including the capital conservation buffer on a fully phased-in basis if those requirements were effective as of December 31, 2019.

The figures on the table below are calculated according to U.S. Basel III as of December 31, 2018 and 2019. MUFG Americas Holdings’s actual capital amounts and ratios are presented as follows:

	Actual					Minimum capital ratios required(1)
	Amount		Ratio			Amount		Ratio
	(in millions, except percentages)
MUAH:
At December 31, 2018:
Total capital (to risk-weighted assets)	$	14,904		14.60	%	$	10,081		9.875	%
Tier 1 capital (to risk-weighted assets)		14,256		13.96			8,039		7.875
Tier 1 capital (to quarterly average assets)(2)		14,256		8.77			6,502		4.000
Common Equity Tier 1 capital (to risk-weighted assets)		14,256		13.96			6,508		6.375
At December 31, 2019:
Total capital (to risk-weighted assets)	$	15,769		14.73	%	$	11,237		10.500	%
Tier 1 capital (to risk-weighted assets)		15,086		14.10			9,097		8.500
Tier 1 capital (to quarterly average assets)(2)		15,086		8.88			6,792		4.000
Common Equity Tier 1 capital (to risk-weighted assets)		15,086		14.10			7,492		7.000

Notes:

(1) The minimum capital requirement includes a capital conservation buffer of 1.875% at December 31, 2018 and 2.5% at December 31, 2019.

(2) Excludes certain deductions.

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The figures on the table below are calculated according to U.S. Basel III as of December 31, 2018 and 2019. MUFG Union Bank’s actual capital amounts and ratios are presented as follows:

	Actual					Minimum capital ratios required(1)					Ratios OCC requires to be “well capitalized”
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(in millions, except percentages)
BK(US):
At December 31, 2018:
Total capital (to risk-weighted assets)	$	13,905		15.09	%	$	9,102		9.875	%	$	9,217		10.00	%
Tier 1 capital (to risk-weighted assets)		13,316		14.45			7,258		7.875			7,374		8.00
Tier 1 capital (to quarterly average assets)(2)		13,316		10.61			5,018		4.000			6,273		5.00
Common Equity Tier 1 capital (to risk-weighted assets)		13,316		14.45			5,876		6.375			5,991		6.50
At December 31, 2019:
Total capital (to risk-weighted assets)	$	14,746		15.11	%	$	10,244		10.500	%	$	9,756		10.00	%
Tier 1 capital (to risk-weighted assets)		14,115		14.47			8,293		8.500			7,805		8.00
Tier 1 capital (to quarterly average assets)(2)		14,115		10.65			5,304		4.000			6,629		5.00
Common Equity Tier 1 capital (to risk-weighted assets)		14,115		14.47			6,829		7.000			6,342		6.50

Notes:

(1) Beginning January 1, 2018 and 2019, the minimum capital requirement includes a capital conservation buffer of 1.875% and 2.5%, respectively.

(2) Excludes certain deductions.

Management believes, as of December 31, 2019, that MUFG Americas Holdings and MUFG Union Bank met all capital adequacy requirements to which they are subject.

As of December 31, 2018 and 2019, the notification from the OCC categorized MUFG Union Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” MUFG Union Bank must maintain a minimum total risk-based capital ratio of 10% as of December 31, 2018 and 2019, a Tier 1 risk-based capital ratio of 8% as of December 31, 2018 and 2019, a Tier 1 capital to quarterly average assets of 5% as of December 31, 2018 and 2019, and Common Equity Tier 1 risk-based capital ratio of 6.5% as of December 31, 2018 and 2019, as set forth in the table. There are no conditions or events since that notification that management believes have changed MUFG Union Bank’s category.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

22. EARNINGS PER COMMON SHARE APPLICABLE TO COMMON SHAREHOLDERS OF MUFG

Reconciliations of net income and weighted average number of common shares outstanding used for the computation of basic EPS to the adjusted amounts for the computation of diluted EPS for the fiscal years ended March 31, 2018, 2019 and 2020 are as follows:

	2018			2019			2020
	(in millions)
Income (Numerator):
Net income attributable to Mitsubishi UFJ Financial Group	¥	1,228,160		¥	718,645		¥	305,955
Effect of dilutive instruments:
Stock acquisition rights and restricted stock units—Morgan Stanley		(3,826	)		(3,745	)		(2,861	)
Earnings applicable to common shareholders of Mitsubishi UFJ Financial Group and assumed conversions	¥	1,224,334		¥	714,900		¥	303,094
	2018			2019			2020
	(thousands of shares)
Shares (Denominator):
Weighted average common shares outstanding		13,291,842			13,058,698			12,912,790
Effect of dilutive instruments:
Stock acquisition rights and the common shares of MUFG under the Board Incentive Plan(1)		1,650			484			166
Weighted average common shares for diluted computation		13,293,492			13,059,182			12,912,956
	2018			2019			2020
	(in yen)
Earnings per common share applicable to common shareholders of Mitsubishi UFJ Financial Group:
Basic earnings per common share:
Earnings applicable to common shareholders of Mitsubishi UFJ Financial Group	¥	92.40		¥	55.03		¥	23.69
Diluted earnings per common share:
Earnings applicable to common shareholders of Mitsubishi UFJ Financial Group(1)	¥	92.10		¥	54.74		¥	23.47

Note:

(1) For the fiscal years ended March 31, 2019 and 2020, the performance-based plan under the Board Incentive Plan could potentially dilute earnings per common share but were not included in the computation of diluted earnings per common share due to their antidilutive effects.

23. DERIVATIVE FINANCIAL INSTRUMENTS

The MUFG Group uses various derivative financial instruments both for trading purposes and for purposes other than trading (primarily risk management purposes) in the normal course of business to meet the financial needs of its customers, as a source of revenue and to manage its exposures to a variety of risks.

Market risk is the possibility that future changes in market indices make the financial instruments less valuable. The MUFG Group is a party to derivative financial instruments, including swaps, forwards, options and

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other types of derivatives, dealing primarily with market risk associated with interest rates, foreign currencies, equity and commodity prices, and credit risk associated with counterparty’s nonperformance of transactions.

Credit risk is the possibility that a loss may result from a counterparty’s failure to perform according to the terms and conditions of the contract, which may exceed the value of underlying collateral. To reduce credit risk, the MUFG Group may require collateral or guarantees based on a case-by-case assessment of creditworthiness of each customer and evaluation of the instrument. The MUFG Group also uses master netting agreements in order to mitigate overall counterparty credit risk.

Trading Activities

The MUFG Group’s trading activities include dealing and customer accommodation activities. As part of its trading activities, the MUFG Group offers a variety of derivative financial instruments for managing interest rate and foreign exchange risk to its domestic and foreign corporate and financial institution customers. The MUFG Group also enters into other types of derivative transactions, including equity and credit-related contracts, for its own account.

Risk Management Activities

As part of the MUFG Group’s risk management activities, asset and liability management is viewed as one of the methods for the MUFG Group to manage its interest rate exposures on interest-bearing assets and liabilities. The MUFG Group uses certain derivative financial instruments in order to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. For example, an increase or a decrease in interest income and interest expense on hedged variable rate assets and liabilities as a result of interest rate fluctuations are expected to be substantially offset by the variability in earnings by gains and losses on the derivative instruments that are linked to these hedged assets and liabilities.

The MUFG Group enters into interest rate swaps and other contracts primarily to manage the interest rate risk of its loans, investment securities and deposit liabilities. Interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options and futures, allow the MUFG Group to effectively manage its interest rate risk position. Option contracts primarily consist of caps, floors, swaptions and options on index futures. Futures contracts used for asset and liability management activities are primarily index futures providing for cash payments based upon the movement of an underlying rate index.

The MUFG Group enters into forward exchange contracts, currency swaps and other contracts in response to currency exposures resulting from on-balance sheet assets and liabilities denominated in foreign currencies in order to limit the net foreign exchange position by currency to an appropriate level.

Derivatives Designated as Hedges

The MUFG Group adopts hedging strategies and applies hedge accounting to certain derivative transactions entered mainly by MUFG Americas Holdings whose fiscal period ends on December 31.

Cash Flow Hedges

From time to time, MUFG Americas Holdings uses interest rate derivatives to hedge the risk of changes in cash flows attributable to changes in the designated interest rate on LIBOR indexed loans, and to a lesser extent, to hedge interest rate risk on rollover debt.

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MUFG Americas Holdings used interest rate derivatives with an aggregate notional amount of ¥1,457.1 billion at December 31, 2019 to hedge the risk of changes in cash flows attributable to changes in the designated interest rates from variable rate loans. MUFG Americas Holdings used interest rate derivatives with an aggregate notional amount of ¥7.6 billion at December 31, 2019 to hedge the risk of changes in cash flows attributable to changes in the designated interest rate on LIBOR indexed short-term borrowings. At December 31, 2019, the weighted average remaining life of the active cash flow hedges was 3.1 years.

For cash flow hedges, changes in the fair value of the hedging instruments are reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged cash flows are recognized in net interest income. At December 31, 2019, MUFG Americas Holdings expects to reclassify approximately ¥7.3 billion of losses from Accumulated OCI as a reduction to net interest income during the twelve months ending December 31, 2020. This amount could differ from amounts actually realized due to changes in interest rates, hedge terminations and the addition of other hedges subsequent to December 31, 2019.

Fair Value Hedges

MUFG Americas Holdings engaged in an interest rate hedging strategy in which one or more interest rate derivatives were associated with a specified interest bearing liability, in order to convert the liability from a fixed rate to a floating rate instrument. This strategy mitigated the changes in fair value of the hedged liability caused by changes in the designated interest rate, LIBOR.

For the fiscal year ended December 31, 2018, MUFG Americas Holdings recorded losses on the hedging instruments and gains on the hedged liability, both of which were less than ¥1 billion. For the fiscal year ended December 31, 2019, MUFG Americas Holdings did not have any fair value hedges.

Notional Amounts of Derivative Contracts

The following table summarizes the notional amounts of derivative contracts at March 31, 2019 and 2020:

	Notional amounts(1)
	2019		2020
	(in trillions)
Interest rate contracts	¥	1,409.6	¥	1,553.5
Foreign exchange contracts		230.5		230.2
Equity contracts		6.4		8.1
Commodity contracts		0.2		0.1
Credit derivatives		7.2		8.7
Other		3.0		3.1
Total	¥	1,656.9	¥	1,803.7

Note:

(1) Includes both written and purchased positions.

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Impact of Derivatives on the Consolidated Balance Sheets

The following table summarizes fair value information on derivative instruments that are recorded on the MUFG Group’s consolidated balance sheets at March 31, 2019 and 2020:

	Fair value of derivative instruments
	2019(1)(5)								2020(1)(5)
	Not designated as hedges(2)			Designated as hedges(3)		Total derivatives(4)			Not designated as hedges(2)			Designated as hedges(3)		Total derivatives(4)
	(in billions)
Derivative assets:
Interest rate contracts	¥	10,108		¥	1	¥	10,109		¥	10,847		¥	—	¥	10,847
Foreign exchange contracts		2,795			—		2,795			3,734			—		3,734
Equity contracts		188			—		188			236			—		236
Commodity contracts		27			—		27			26			—		26
Credit derivatives		84			—		84			114			—		114
Other		2			—		2			1			—		1
Total derivative assets	¥	13,204		¥	1	¥	13,205		¥	14,958		¥	—	¥	14,958
Derivative liabilities:
Interest rate contracts	¥	9,896		¥	—	¥	9,896		¥	10,205		¥	—	¥	10,205
Foreign exchange contracts		2,671			—		2,671			3,604			4		3,608
Equity contracts		183			—		183			277			—		277
Commodity contracts		27			—		27			26			—		26
Credit derivatives		69			—		69			95			—		95
Other(6)		(136	)		—		(136	)		(177	)		—		(177	)
Total derivative liabilities	¥	12,710		¥	—	¥	12,710		¥	14,030		¥	4	¥	14,034

Notes:

(1) The fair value of derivative instruments is presented on a gross basis even when derivative instruments are subject to master netting agreements. Cash collateral payable and receivable associated with derivative instruments are not added to or netted against the fair value amounts.

(2) The derivative instruments which are not designated as a hedging instrument are held for trading and risk management purposes, and are presented in Trading account assets/liabilities except for (6).

(3) The MUFG Group adopts hedging strategies and applies hedge accounting to certain derivative transactions entered into by certain subsidiaries. The derivative instruments which are designated as hedging instruments are presented in Other assets or Other liabilities on the accompanying consolidated balance sheets.

(4) This table does not include contracts with embedded derivatives for which the fair value option has been elected.

(5) For more information about fair value measurement and assumptions used to measure the fair value of derivatives, see Note 31.

(6) Other mainly includes bifurcated embedded derivatives carried at fair value, which are presented in Deposits and Long-term debt.

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Impact of Derivatives on the Consolidated Statements of Income

The following table provides more detailed information regarding the derivative-related impact on the accompanying consolidated statements of income for the fiscal years ended March 31, 2018, 2019 and 2020:

Gains and losses for trading and risk management derivatives (not designated as hedging instruments)

	Trading and risk management derivatives gains and losses (Not designated as hedging instruments)
	2018									2019									2020
	Foreign exchange gains (losses) —net			Trading account profits (losses) —net			Total			Foreign exchange gains (losses) —net			Trading account profits (losses) —net			Total			Foreign exchange gains (losses) —net			Trading account profits (losses) —net			Total
	(in billions)
Interest rate contracts	¥	—		¥	51		¥	51		¥	—		¥	6		¥	6		¥	—		¥	(173	)	¥	(173	)
Foreign exchange contracts		(163	)		—			(163	)		(347	)		—			(347	)		(429	)		—			(429	)
Equity contracts		—			(260	)		(260	)		—			80			80			—			30			30
Commodity contracts		—			6			6			—			—			—			—			—			—
Credit derivatives		—			(2	)		(2	)		—			(40	)		(40	)		—			15			15
Other		3			(22	)		(19	)		(7	)		(70	)		(77	)		(5	)		(31	)		(36	)
Total	¥	(160	)	¥	(227	)	¥	(387	)	¥	(354	)	¥	(24	)	¥	(378	)	¥	(434	)	¥	(159	)	¥	(593	)

Credit Derivatives

The MUFG Group enters into credit derivatives to manage its credit risk exposure, to facilitate client transactions, and for proprietary trading purposes, under which they provide the counterparty protection against the risk of default on a set of debt obligations issued by a specified reference entity or entities. Types of such credit derivatives primarily include single name credit default swaps, index and basket credit default swaps. The MUFG Group will have to perform under a credit derivative if a credit event as defined under the contract occurs. Such credit events include bankruptcy, dissolution or insolvency of the referenced entity, default and restructuring of the obligations of the referenced entity. The MUFG Group’s counterparties are banks, broker-dealers, insurance and other financial institutions. The contractual or notional amounts of these credit derivatives represent the maximum potential amounts of future payments without consideration of possible recoveries under recourse provisions or from collateral held or pledged. 

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The table below summarizes certain information regarding protection sold through credit derivatives as of March 31, 2019 and 2020:

	Protection sold
	Maximum potential/Notional amount by expiration period								Fair value
At March 31, 2019:	1 year or less		1-5 years		Over 5 years		Total		(Asset)/ Liability(1)
	(in millions)
Single name credit default swaps:
Investment grade(2)	¥	378,527	¥	1,603,962	¥	145,689	¥	2,128,178	¥	(30,303	)
Non-investment grade		112,901		238,330		5,672		356,903		(127	)
Not rated		—		5,097		—		5,097		(47	)
Total		491,428		1,847,389		151,361		2,490,178		(30,477	)
Index and basket credit default swaps held by BK:
Investment grade(2)		—		120,854		—		120,854		(82	)
Non-investment grade		—		101,001		—		101,001		(2,010	)
Total		—		221,855		—		221,855		(2,092	)
Index and basket credit default swaps held by SCHD:
Investment grade(2)		13,000		194,618		8,000		215,618		(3,853	)
Non-investment grade		—		—		—		—		—
Not rated		8,863		206,832		3,444		219,139		(3,043	)
Total		21,863		401,450		11,444		434,757		(6,896	)
Total index and basket credit default swaps sold		21,863		623,305		11,444		656,612		(8,988	)
Total credit default swaps sold		513,291		2,470,694		162,805		3,146,790		(39,465	)
Other credit derivatives sold(3)
Investment grade		77,693		—		—		77,693		(620	)
Total credit derivatives	¥	590,984	¥	2,470,694	¥	162,805	¥	3,224,483	¥	(40,085	)

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	Protection sold
	Maximum potential/Notional amount by expiration period								Fair value
At March 31, 2020:	1 year or less		1-5 years		Over 5 years		Total		(Asset)/ Liability(1)
	(in millions)
Single name credit default swaps:
Investment grade(2)	¥	303,870	¥	2,125,006	¥	494,040	¥	2,922,916	¥	(63,855	)
Non-investment grade		93,671		279,892		49,681		423,244		3,358
Not rated		2,453		6,826		—		9,279		(18	)
Total		399,994		2,411,724		543,721		3,355,439		(60,515	)
Index and basket credit default swaps held by BK:
Investment grade(2)		—		28,296		—		28,296		(3	)
Non-investment grade		—		99,035		—		99,035		(1,195	)
Total		—		127,331		—		127,331		(1,198	)
Index and basket credit default swaps held by SCHD:
Investment grade(2)		20,000		182,306		14,950		217,256		(1,820	)
Non-investment grade		—		7,595		—		7,595		(165	)
Not rated		28,296		190,398		5,316		224,010		(5,205	)
Total		48,296		380,299		20,266		448,861		(7,190	)
Total index and basket credit default swaps sold		48,296		507,630		20,266		576,192		(8,388	)
Total credit default swaps sold		448,290		2,919,354		563,987		3,931,631		(68,903	)
Other credit derivatives sold
Investment grade		—		—		—		—		—
Total credit derivatives	¥	448,290	¥	2,919,354	¥	563,987	¥	3,931,631	¥	(68,903	)

Notes:

(1) Fair value amounts are shown on a gross basis prior to cash collateral or counterparty netting.

(2) The MUFG Group considers ratings of Baa3/BBB- or higher to meet the definition of investment grade.

(3) Other credit derivatives primarily consist of total return swaps.

Single name credit default swaps—Single name credit default swap protects the buyer against the loss of principal on a bond or loan in case of a default by the issuer. The protection buyer pays a premium to the MUFG Group and is protected for the period of the credit default swap. As the seller of protection, the MUFG Group in turn will have to perform under a credit default swap if a credit event as defined under the contracts occurs. In order to provide an indication of the current payment/performance risk of the credit default swaps, the external credit ratings, primarily those provided by Moody’s and Standard & Poor’s (“S&P”), of the underlying reference entity of the credit default swaps are disclosed.

Index and basket credit default swaps—Index and basket credit default swaps are credit default swaps that reference multiple names through underlying baskets or portfolios of single name credit default swaps. Typically, in the event of a default on one of the underlying names, the MUFG Group, as the seller of protection, will have to pay a pro-rata portion of the total notional amount of the credit default index or basket contract. In order to provide an indication of the current payment/performance risk of these credit default swaps, MUFG Bank and Mitsubishi UFJ Securities Holdings rating scale based upon the entity’s internal ratings, which generally correspond to ratings defined by primarily Moody’s and S&P, of the underlying reference entities comprising the basket or index were calculated and disclosed.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The MUFG Group may economically hedge its exposure to credit derivatives by entering into offsetting derivative contracts. The carrying value and notional amounts of credit protection sold in which the MUFG Group held purchased protection with identical underlying referenced entities were approximately ¥35 billion and ¥2,687 billion, respectively, at March 31, 2019, and approximately ¥65 billion and ¥3,544 billion, respectively, at March 31, 2020.

Collateral is held by the MUFG Group in relation to these instruments. Collateral requirements are determined at the counterparty level and cover numerous transactions and products as opposed to individual contracts.

Credit Risk, Liquidity Risk and Credit-risk-related Contingent Features

Certain derivative instruments held by the MUFG Group contain provisions that require the MUFG Group’s debt to maintain an investment grade credit rating from each of the major credit rating agencies. If the MUFG Group’s debt were to fall below investment grade, it would be in violation of these provisions, and the counterparties to the derivative instruments could request payments on early termination or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position at March 31, 2019 and 2020 was approximately ¥0.6 trillion and ¥0.6 trillion, respectively, for which the MUFG Group has posted collateral of approximately ¥85 billion and ¥152 billion, respectively, in the normal course of business. The amount of additional collateral and early termination amount which could be requested if the MUFG Group’s debt falls below investment grade was ¥84 billion and ¥56 billion, respectively, as of March 31, 2019 and ¥58 billion and ¥80 billion, respectively, as of March 31, 2020.

24. OBLIGATIONS UNDER GUARANTEES AND OTHER OFF-BALANCE SHEET INSTRUMENTS

Obligations under Guarantees

The MUFG Group provides customers with a variety of guarantees and similar arrangements, including standby letters of credit, financial and performance guarantees, credit protection, liquidity facilities, other off-balance sheet credit-related support and similar instruments, in order to meet the customers’ financial and business needs. The tables below present the contractual or notional amounts of such guarantees at March 31, 2019 and 2020. The contractual or notional amounts of these instruments represent the maximum potential amounts of future payments without consideration of possible recoveries under recourse provisions or from collateral held or pledged.

For certain types of derivatives, such as written interest rate options and written currency options, the maximum potential future payments are unlimited. Accordingly, it is impracticable to estimate the maximum potential amount of future payments. As such, the notional amounts of the related contracts, other than the maximum potential payments, are included in the table.

The MUFG Group mitigates its credit risk exposure resulting from guarantees by utilizing various techniques, including collateralization in the form of cash, securities, and real estate properties based on management’s credit assessment of the guaranteed parties and the related credit profile. In order to manage the credit risk exposure, the MUFG Group also enters into sub-participation contracts with third parties who will fund a portion of the credit facility and bear its share of the loss to be incurred in the event that the customer fails to fulfill its obligations. The following table includes guarantees of ¥468.9 billion and ¥455.8 billion at March 31, 2019 and 2020, respectively, which are syndicated out to third parties. The contractual or notional

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

amounts summarized in the following table do not necessarily bear any direct relationship to the future actual credit exposure, primarily because of risk management techniques of the MUFG Group.

	Maximum potential/ Contractual or Notional amount		Amount by expiration period
At March 31, 2019:			1 year or less		1-5 years		Over 5 years
	(in billions)
Standby letters of credit and financial guarantees	¥	3,901	¥	2,792	¥	838	¥	271
Performance guarantees		3,256		2,332		784		140
Derivative instruments(1)		58,025		29,734		20,921		7,370
Liabilities of trust accounts		11,520		5,884		420		5,216
Other		53		12		13		28
Total	¥	76,755	¥	40,754	¥	22,976	¥	13,025

	Maximum potential/ Contractual or Notional amount		Amount by expiration period
At March 31, 2020:			1 year or less		1-5 years		Over 5 years
	(in billions)
Standby letters of credit and financial guarantees	¥	4,098	¥	3,109	¥	763	¥	226
Performance guarantees		3,058		2,160		738		160
Derivative instruments(1)		58,836		36,021		14,543		8,272
Liabilities of trust accounts		13,142		6,752		451		5,939
Other		88		8		73		7
Total	¥	79,222	¥	48,050	¥	16,568	¥	14,604

Note:

(1) Credit derivatives sold by the MUFG Group are excluded from this presentation.

Nature of Guarantee Contracts

Standby letters of credit and financial guarantees generally include an obligation of an issuer or a designated third-party to guarantee the performance of the customer to the beneficiary under the terms of contracts such as lending contracts and other similar financial transactions. The MUFG Group is required to make payments to the guaranteed parties in the event that the customers fail to fulfill the obligations under the contracts. The guarantees whose contractual maturities are over 5 years are mainly comprised of guarantees of housing loans.

Performance guarantees are contracts that contingently require the MUFG Group to make payments to the guaranteed party based on another party’s failure to perform under an obligating agreement, except financial obligation. For example, performance guarantees include guarantees of completion of construction projects.

Derivative instruments that are deemed to be included within the definition of guarantees as prescribed in the guidance on guarantees include certain written options and credit default swaps. In order for the MUFG Group to determine if those derivative instruments meet the definition of guarantees, as prescribed in the guidance on guarantees, the MUFG Group has to track whether the counterparties are actually exposed to losses that will result from the adverse change in the underlyings. Accordingly, the MUFG Group has disclosed information on all credit default swaps and certain written options for which there is a possibility of meeting the definition of guarantees as prescribed in the guidance on guarantees, regardless of whether the counterparties

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

have assets or liabilities related to the underlyings of the derivatives. However, credit derivatives sold by the MUFG Group at March 31, 2019 and 2020 are excluded from this presentation, as they are disclosed in Note 23.

Liabilities of trust accounts represent the trustee’s potential responsibility for temporary payments to creditors of liabilities of trust accounts making use of funds of the MUFG Group, unless there are certain agreements with trust creditors that have provisions limiting the MUFG Group’s exposure as a trustee to the trust account assets. A trust may incur external liabilities to obtain certain services during the terms of the trust arrangement. While in principle, any liabilities of a trust are payable by the trust account and its beneficiaries. A trustee’s responsibility may be interpreted to encompass temporary payments for the trust account liabilities when the trust account does not maintain sufficient liquidity available for such liabilities unless the agreement with trust creditors limits the trustee’s exposure to the trust account assets. At March 31, 2019 and 2020, there were liabilities of ¥11,520 billion and ¥13,142 billion, respectively, in the segregated records of trust accounts including the amounts related to liabilities with provisions limiting trustee responsibility. Liabilities of trust accounts principally includes obligations to return collateral under security lending transactions. The MUFG Group has experienced no significant losses on such responsibilities and its exposure to the risk associated with the temporary payments is judged to be remote because trust account liabilities are generally covered by the corresponding trust account assets. The MUFG Group continuously monitors the liabilities of trust accounts and assesses the trust account’s ability to perform its obligations to prevent any unfavorable outcomes; the MUFG Group claims its recourse for its temporary payments against the trust account assets and the beneficiaries.

Carrying Amount

At March 31, 2019 and 2020, the carrying amounts of the liabilities related to guarantees and similar instruments set forth above were ¥1,051,297 million and ¥1,130,522 million, respectively, which are included in Other liabilities and Trading account liabilities. The guarantees and similar instruments comprising the largest components of the total were options sold in the amount of ¥1,005,951 million and ¥1,090,921 million as of March 31, 2019 and 2020, respectively. Credit derivatives sold by the MUFG Group at March 31, 2019 and 2020 are excluded from this presentation, as they are disclosed in Note 23. In addition, Other liabilities include an allowance for off-balance sheet instruments of ¥96,946 million and ¥30,911 million at March 31, 2019 and 2020, respectively, related to these transactions.

Performance Risk

The MUFG Group monitors performance risk of its guarantees using the same credit rating system utilized for estimating probabilities of default with its loan portfolio. The MUFG Group’s credit rating system is consistent with both the method of evaluating credit risk under Basel III and those of third-party credit rating agencies. On certain underlying referenced credits or entities, ratings are not available. Such referenced credits are included in the “Not rated” category in the following tables.

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Presented in the tables below is the maximum potential amount of future payments classified based upon internal credit ratings as of March 31, 2019 and 2020. The determination of the maximum potential future payments is based on the notional amount of the guarantees without consideration of possible recoveries under recourse provisions or from collateral held or pledged. Such amounts do not represent the anticipated losses, if any, on these guarantees. 

			Amount by borrower grade
At March 31, 2019:	Maximum potential/ Contractual or Notional amount		Normal		Close Watch(1)		Likely to become Bankrupt or Legally/ Virtually Bankrupt(2)		Not rated
	(in billions)
Standby letters of credit and financial guarantees	¥	3,901	¥	3,779	¥	98	¥	21	¥	3
Performance guarantees		3,256		3,070		79		78		29
Total	¥	7,157	¥	6,849	¥	177	¥	99	¥	32
			Amount by borrower grade
At March 31, 2020:	Maximum potential/ Contractual or Notional amount		Normal		Close Watch(1)		Likely to become Bankrupt or Legally/ Virtually Bankrupt(2)		Not rated
	(in billions)
Standby letters of credit and financial guarantees	¥	4,098	¥	3,984	¥	93	¥	17	¥	4
Performance guarantees		3,058		2,904		96		36		22
Total	¥	7,156	¥	6,888	¥	189	¥	53	¥	26

Notes:

(1) Borrowers classified as Close Watch represent those that require close monitoring as the borrower has begun to exhibit elements of potential concern with respect to its business performance and financial condition, the borrower has begun to exhibit elements of serious concern with respect to its business performance and financial condition, including business problems requiring long-term solutions, or the borrower’s loans are TDRs or loans contractually past due 90 days or more for special reasons.

(2) Borrowers classified as Likely to become Bankrupt or Legally/Virtually Bankrupt represent those that have a higher probability of default than those categorized as Close Watch due to serious debt repayment problems with poor progress in achieving restructuring plans, the borrower being considered virtually bankrupt with no prospects for an improvement in business operations, or the borrower being legally bankrupt with no prospects for continued business operations because of non-payment, suspension of business, voluntary liquidation or filing for legal liquidation.

The guarantees the MUFG Group does not classify based upon internal credit ratings are as follows.

The MUFG Group records all derivative contracts at fair value. Aggregate market risk limits have been established, and market risk measures are routinely monitored against these limits. The MUFG Group also manages its exposure to these derivative contracts through a variety of risk mitigation strategies, including, but not limited to, offsetting economic hedge positions. The MUFG Group expects the risk of loss to be remote and believes that the notional amounts of the derivative contracts generally exceed its exposure.

Liabilities of trust accounts represent the trustee’s potential responsibility for temporary payments to creditors of liabilities of trust accounts using funds of the MUFG Group. The MUFG Group has experienced no significant losses on such responsibilities and its exposure to the risk associated with the temporary payments is judged to be remote because trust account liabilities are generally covered by the corresponding trust account assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other Off-balance Sheet Instruments

In addition to obligations under guarantees and similar arrangements set forth above, the MUFG Group issues other off-balance sheet instruments to meet the financial needs of its customers and for purposes other than trading. Such off-balance sheet instruments consist of lending-related commitments, including commitments to extend credit and commercial letters of credit that the MUFG Group provides to meet the financing needs of its customers. Once the MUFG Group issues these off-balance sheet instruments, the MUFG Group is required to extend credit to or make certain payments to the customers or beneficiaries specified pursuant to the underlying contracts unless otherwise provided in the contracts. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. At March 31, 2020, approximately 67% of these commitments will expire within one year, 30% from one year to five years and 3% after five years. The table below presents the contractual amounts with regard to such instruments at March 31, 2019 and 2020:

	2019		2020
	(in billions)
Commitments to extend credit	¥	77,273	¥	76,398
Commercial letters of credit		1,057		757
Commitments to make investments		240		247
Other		5		5

Commitments to extend credit, which generally have fixed expiration dates or other termination clauses, are binding agreements to lend to customers. Commitments are different from guarantees in that the commitments are generally revocable or have provisions that enable the MUFG Group to avoid payments in the event of violations of any conditions of the contracts and certain deterioration of the potential borrowers’ financial condition.

Commercial letters of credit, generally used for trade transactions, are typically secured by the underlying goods. The MUFG Group continually monitors the type and amount of collateral and other securities, and requires counterparties to provide additional collateral or guarantors as necessary.

Commitments to make investments are legally binding contracts to make additional contributions to corporate recovery or private equity investment funds in accordance with limited partnership agreements. Some of these funds, in which the MUFG Group has significant variable interests, are described in Note 25.

25. VARIABLE INTEREST ENTITIES

In the normal course of business, the MUFG Group has financial interests and other contractual obligations in various entities which may be deemed to be VIEs such as asset-backed conduits, various investment funds, special purpose entities created for structured financing, repackaged instruments, entities created for the securitization of the MUFG Group’s assets and trust arrangements.

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The following tables present the assets and liabilities of consolidated VIEs recorded on the accompanying consolidated balance sheets at March 31, 2019 and 2020:

Consolidated VIEs	Consolidated assets
At March 31, 2019:	Total			Cash and due from banks			Interest-earning deposits in other banks			Trading account assets			Investment securities			Loans			All other assets
	(in millions)
Asset-backed conduits	¥	6,698,146		¥	92,310		¥	26,101		¥	3,005		¥	1,424,444		¥	5,124,462		¥	27,824
Investment funds		680,922			—			14,113			477,239			18,118			—			171,452
Special purpose entities created for structured financing		203,458			—			2,214			—			—			127,243			74,001
Repackaged instruments		279,327			506			—			53,346			137,509			86,753			1,213
Securitization of the MUFG Group’s assets		10,208,496			—			—			—			—			10,183,624			24,872
Trust arrangements		7,888,210			—			8,953			202			311,412			7,565,862			1,781
Other		34,303			362			1,635			—			42			9,699			22,565
Total consolidated assets before elimination		25,992,862			93,178			53,016			533,792			1,891,525			23,097,643			323,708
The amounts eliminated in consolidation		(7,772,776	)		(93,171	)		(29,361	)		(5,102	)		(63,331	)		(7,552,315	)		(29,496	)
Total consolidated assets	¥	18,220,086		¥	7		¥	23,655		¥	528,690		¥	1,828,194		¥	15,545,328		¥	294,212

	Consolidated liabilities
	Total			Deposits			Other short-term borrowings			Long-term debt			All other liabilities
	(in millions)
Asset-backed conduits	¥	6,691,362		¥	—		¥	4,678,588		¥	1,552,572		¥	460,202
Investment funds		6,852			—			—			5,158			1,694
Special purpose entities created for structured financing		114,469			—			609			111,523			2,337
Repackaged instruments		277,179			—			48,014			174,215			54,950
Securitization of the MUFG Group’s assets		10,167,632			—			—			10,162,231			5,401
Trust arrangements		7,881,332			7,616,575			—			—			264,757
Other		32,584			—			8,611			1,474			22,499
Total consolidated liabilities before elimination		25,171,410			7,616,575			4,735,822			12,007,173			811,840
The amounts eliminated in consolidation		(14,676,389	)		(50,396	)		(2,996,041	)		(11,517,019	)		(112,933	)
The amount of liabilities with recourse to the general credit of the MUFG Group		(9,922,307	)		(7,566,179	)		(1,719,246	)		(121	)		(636,761	)
Liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general credit of the MUFG Group	¥	572,714		¥	—		¥	20,535		¥	490,033		¥	62,146

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Consolidated VIEs	Consolidated assets
At March 31, 2020:	Total			Cash and due from banks			Interest-earning deposits in other banks			Trading account assets			Investment securities			Loans			All other assets
	(in millions)
Asset-backed conduits	¥	6,263,082		¥	102,781		¥	31,625		¥	12,989		¥	1,195,283		¥	4,913,939		¥	6,465
Investment funds		493,757			—			16,482			314,074			34,121			—			129,080
Special purpose entities created for structured financing		204,047			—			2,658			—			—			119,348			82,041
Repackaged instruments		249,529			1,330			—			42,052			118,776			86,859			512
Securitization of the MUFG Group’s assets		10,956,261			—			—			—			—			10,933,580			22,681
Trust arrangements		7,527,539			—			654			336,546			745,846			6,441,864			2,629
Other		31,295			350			2,055			—			—			6,885			22,005
Total consolidated assets before elimination		25,725,510			104,461			53,474			705,661			2,094,026			22,502,475			265,413
The amounts eliminated in consolidation		(6,877,849	)		(103,615	)		(23,427	)		(10,592	)		(289,567	)		(6,429,880	)		(20,768	)
Total consolidated assets	¥	18,847,661		¥	846		¥	30,047		¥	695,069		¥	1,804,459		¥	16,072,595		¥	244,645

	Consolidated liabilities
	Total			Deposits			Other short-term borrowings			Long-term debt			All other liabilities
	(in millions)
Asset-backed conduits	¥	6,253,318		¥	—		¥	4,327,685		¥	1,478,921		¥	446,712
Investment funds		15,817			—			—			5,546			10,271
Special purpose entities created for structured financing		114,357			—			—			112,474			1,883
Repackaged instruments		251,056			—			65,965			163,833			21,258
Securitization of the MUFG Group’s assets		10,924,830			—			16,008			10,077,839			830,983
Trust arrangements		7,522,190			6,743,261			—			—			778,929
Other		27,302			—			5,989			1,321			19,992
Total consolidated liabilities before elimination		25,108,870			6,743,261			4,415,647			11,839,934			2,110,028
The amounts eliminated in consolidation		(15,045,398	)		(703	)		(2,526,893	)		(11,374,581	)		(1,143,221	)
The amount of liabilities with recourse to the general credit of the MUFG Group		(9,465,320	)		(6,742,558	)		(1,857,923	)		(1	)		(864,838	)
Liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general credit of the MUFG Group	¥	598,152		¥	—		¥	30,831		¥	465,352		¥	101,969

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In general, the creditors or beneficial interest holders of consolidated VIEs have recourse not only to the assets of those VIEs of which they are creditors or beneficial interest holders, but also to other assets of the MUFG Group, since the MUFG Group is also contractually required to provide credit enhancement or program-wide liquidity to these VIEs.

The following tables present the total assets of non-consolidated VIEs, the maximum exposure to loss resulting from the MUFG Group’s involvement with non-consolidated VIEs and the assets and liabilities which relate to the MUFG’s variable interests in non-consolidated VIEs at March 31, 2019 and 2020:

Non-consolidated VIEs					On-balance sheet assets										On-balance sheet liabilities
At March 31, 2019:	Total assets		Maximum exposure		Total		Trading account assets		Investment securities		Loans		All other assets		Total		All other liabilities
	(in millions)
Asset-backed conduits	¥	29,621,609	¥	6,221,274	¥	4,982,357	¥	659	¥	1,704,553	¥	3,277,145	¥	—	¥	—	¥	—
Investment funds		67,750,419		1,952,676		1,753,823		187,166		1,253,705		304,310		8,642		206		206
Special purpose entities created for structured financing		42,676,571		3,972,450		3,015,593		252,597		48,895		2,709,008		5,093		9,827		9,827
Repackaged instruments		12,885,367		3,477,545		3,383,161		690,305		2,169,798		478,252		44,806		6,087		6,087
Other		60,074,743		3,482,153		2,454,807		123,595		65,451		2,145,665		120,096		57,567		57,567
Total	¥	213,008,709	¥	19,106,098	¥	15,589,741	¥	1,254,322	¥	5,242,402	¥	8,914,380	¥	178,637	¥	73,687	¥	73,687
Non-consolidated VIEs					On-balance sheet assets										On-balance sheet liabilities
At March 31, 2020:	Total assets		Maximum exposure		Total		Trading account assets		Investment securities		Loans		All other assets		Total		All other liabilities
	(in millions)
Asset-backed conduits	¥	27,700,099	¥	5,836,895	¥	4,797,551	¥	190	¥	1,737,979	¥	3,059,382	¥	—	¥	—	¥	—
Investment funds		55,644,434		1,918,403		1,712,037		437,858		525,022		724,253		24,904		356,679		356,679
Special purpose entities created for structured financing		37,026,192		3,601,834		2,764,156		392,588		35,774		2,317,128		18,666		6,058		6,058
Repackaged instruments		8,215,327		3,030,263		2,931,617		394,478		2,123,058		361,184		52,897		—		—
Other		54,962,702		2,940,349		2,314,142		191,646		—		1,995,985		126,511		41,693		41,693
Total	¥	183,548,754	¥	17,327,744	¥	14,519,503	¥	1,416,760	¥	4,421,833	¥	8,457,932	¥	222,978	¥	404,430	¥	404,430

Maximum exposure to loss on each type of entity is determined based on the carrying amount of any on-balance sheet assets and any off-balance sheet liabilities held, net of any recourse liabilities. Therefore, the maximum exposure to loss represents the maximum loss the MUFG Group could possibly incur at each balance sheet date and does not reflect the likelihood of such a loss being incurred. The difference between the amount of

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on-balance sheet assets and the maximum exposure to loss primarily comprises the remaining undrawn commitments.

Asset-Backed Conduits

This category primarily comprises the following:

Multi-Seller Conduits (MUFG-sponsored Asset-Backed Commercial Paper (“ABCP”) Conduits and Other ABCP Conduits)

The MUFG Group administers several conduits under asset-backed financing programs under which the conduits purchase financial assets, primarily trade accounts receivable, from the MUFG Group’s customers by issuing short-term financing instruments, primarily commercial paper, to third-party investors. Under the asset-backed financing programs, the MUFG Group acts as an agent for the conduits, which enter into agreements with the MUFG Group’s customers where the customers transfer financial assets to the conduits in exchange for monetary consideration. The MUFG Group also underwrites commercial paper for the conduits that is secured by the assets held by them and provides program-wide liquidity and credit enhancement facilities to the conduits. The MUFG Group receives fees related to the services it provides to the conduits and the program-wide liquidity and credit enhancement. The MUFG Group considers itself to be the primary beneficiary of the multi-seller conduits because, as an agent and sponsor, the MUFG Group has the power to direct activities of the conduits that most significantly impact the conduits’ economic performance and also has the obligation to absorb losses of the conduits that could potentially be significant to the conduits through the program-wide liquidity and credit enhancement. Consequently, the MUFG Group consolidates the conduits.

In addition to the entities described above, the MUFG Group participates as a provider of financing to several conduits that are administered by third parties. Most of these conduits are established under a multi-seller asset-backed financing program and the MUFG Group provides financing along with other financial institutions. With respect to these conduits, the MUFG Group is not considered as the primary beneficiary because the MUFG Group’s participation in the conduits is only to provide financing along with other third-party financial institutions and it does not have the power to direct the activities of the conduits. Consequently, the MUFG Group does not consolidate the conduits.

Asset-Backed Conduits (MUFG-sponsored Asset-Backed Loan (“ABL”) Programs and Other Programs)

The MUFG Group administers several conduits under asset-backed financing programs where the MUFG Group provides financing to fund the conduits’ purchases of financial assets, comprising primarily trade accounts receivable, from its customers. The MUFG Group acts as an agent and sponsor for the conduits, which enter into agreements with the MUFG Group’s customers where the customers transfer assets to the conduits in exchange for monetary consideration. In most cases, the MUFG Group is the sole provider of financing that is secured by the assets held by the conduits. The MUFG Group considers itself to be the primary beneficiary of the conduits because, as an agent and sponsor for the conduits, the MUFG Group has the power to direct activities of the conduits, such as selection of the assets to be purchased and condition for purchases, and debt collection from the original obligors, that most significantly impact the conduits’ economic performance, and also has the obligation to absorb losses of the conduits that could potentially be significant to the conduits through financing it provides. Consequently, the MUFG Group consolidates the conduits.

In addition, the MUFG Group is involved with entities, which take in most cases the form of a trust, where originators of financial assets, which primarily comprise lease receivables, entrust the assets with trust banks and

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receive beneficial certificates of trusts in exchange. The originators then transfer the beneficiary certificates to the MUFG Group in exchange for cash. The originators of the financial assets entrusted continue to be involved in the assets as servicers. Because the originators are deemed to have the power to direct activities of the entities that most significantly impact the entities’ economic performance through their role as a servicer, the MUFG Group is not considered as the primary beneficiary of these entities. Consequently, the MUFG Group does not consolidate these entities.

The MUFG Group also participates as a provider of financing to the ABL programs that are managed by third parties. The MUFG Group is not considered as the primary beneficiary of the entities used in these programs as the MUFG Group’s participation in the entities is only to provide financing along with other third parties and it does not have the power to direct the activities of the entities. Consequently, the MUFG Group does not consolidate the entities used in these programs.

Investment Funds

This category primarily comprises the following:

Corporate Recovery Funds

These entities are established by fund managers, which are unrelated to the MUFG Group, for the purpose of investing in debt or equity instruments issued by distressed companies. After investment, the fund managers work closely with the management of the entities and attempt to enhance corporate value by various means including corporate restructuring and reorganization. Their exit strategies include, among others, sales to others and initial public offerings.

Typically, these entities take the form of a limited partnership which is entirely funded by general and limited partner interests. These partnerships are considered as VIEs unless the limited partners hold substantive kick-out rights or participating rights.

The MUFG Group mostly serves as a limited partner in corporate recovery funds that are considered as VIEs, and does not have the power to direct the activities of these funds that most significantly impact the economic performance of these funds. Therefore, the MUFG Group does not consider itself to be the primary beneficiary of these funds and does not consolidate them.

Private Equity Funds

The MUFG Group is involved in venture capital funds that are established by either the MUFG Group’s entities or fund managers unrelated to the MUFG Group. These entities have specific investment objectives in connection with their acquisition of equity interests, such as providing financing and other support to start-up businesses, medium and small entities in a particular geographical area, and to companies with certain technology or companies in a high-growth industry.

These entities typically take the form of a limited partnership and usually are entirely funded by general and limited partner interests. These partnerships are considered as VIEs unless the limited partners hold substantive kick-out rights or participating rights.

The MUFG Group participates in these partnerships as a general partner or limited partner. The MUFG Group consolidates these funds, which are considered as VIEs, if the MUFG Group has the power to direct the

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activities of these funds that most significantly impact the economic performance of these funds, and also has the obligation to absorb losses of these funds that could potentially be significant to these funds or the right to receive benefits from these funds that could potentially be significant to these funds.

Investment Trusts

The MUFG Group invests in investment trusts that are professionally managed collective investment schemes which pool money from many investors and invest in, among others, equity and debt securities. Most of these funds take the form of a trust where there is a separation in investment decisions, which is assumed by an investment manager who has no investment in a trust, and ownership through beneficiary interests issued by a trust are owned by investors. Therefore, these investment trusts are considered as VIEs. The MUFG Group consolidates these funds if the MUFG Group has the power to direct the activities of these funds that most significantly impact the economic performance of these funds, and also has the obligation to absorb losses of these funds that could potentially be significant to these funds or the right to receive benefits from these funds that could potentially be significant to these funds.

Buy-out Financing Vehicles

The MUFG Group provides financing to buy-out vehicles. The buy-out vehicles are established by equity investments from, among others, private equity funds or the management of target companies for the purpose of purchasing the equity shares of target companies. Along with other financial institutions, the MUFG Group provides financing to the buy-out vehicles in the form of loans. While the buy-out vehicles’ equity is normally substantive in its amount and the rights and obligations associated with it, in some cases, the vehicles have equity that is insufficient to absorb expected variability primarily because the amount provided by equity investors is nominal in nature. These vehicles engage in non-investment activities, and are considered as VIEs. In most cases, the MUFG Group’s participation in these vehicles is only to provide financing to the vehicles, and the power to direct the activities that most significantly impact the economic performance of the vehicles is held by the management of target companies. As a result, the MUFG Group is not considered as the primary beneficiary of these vehicles and does not consolidate them.

Other Investment Funds

The MUFG Group’s investments in VIEs through MUFG Americas Holdings primarily consist of equity investments in low-income housing credit (“LIHC”) structures, designed to generate a return primarily through the realization of federal tax credits. MUFG Americas Holdings considers itself as the primary beneficiary of certain types of LIHC investments.

LIHC Unguaranteed Syndicated Investment Funds

MUFG Americas Holdings creates the investment funds, serves as the managing investor member, and sells limited investor member interests to third parties. MUFG Americas Holdings receives benefits through income from the structuring of these funds, servicing fees for managing the funds and, as an investor member, tax benefits and tax credits to reduce the MUFG Americas Holdings tax liability. MUFG Americas Holdings considers itself to be the primary beneficiary and consolidates them upon adoption of the current guidance because, as a sponsor and managing member of the funds, it has the power to direct activities that most significantly impact the funds’ economic performance and also has the obligation to absorb losses of the funds that could potentially be significant to the funds.

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LIHC Guaranteed Syndicated Investment Funds

MUFG Americas Holdings also forms limited liability companies, which in turn invest in LIHC operating partnerships, to create LIHC guaranteed syndicated investment funds. Interests in these funds are sold to third parties who pay a premium for a guaranteed return. MUFG Americas Holdings earns structuring fees from the sale of these funds and asset management fees. MUFG Americas Holdings serves as the funds’ sponsor and non-member asset manager, and also guarantees a minimum rate of return throughout the investment term, therefore, it directs the activities that most significantly impact the funds’ economic performance and also has an obligation to absorb losses pertaining to its minimum rate of return guarantee to investors. Therefore, the MUFG Group is considered as the primary beneficiary of these funds and consolidates them.

Special Purpose Entities Created for Structured Financing

This category primarily comprises the following:

Leasing Transaction Vehicles

These entities are established to raise funds to purchase or build equipment and machinery including, among others, commercial vessels, passenger and cargo aircraft, and production equipment for the purpose of leasing them to lessees who use the equipment and machinery as part of their business operations. These entities typically take the form of a limited partnership or a special purpose company where they fund their purchases of equipment and machinery via senior and subordinate financing. When entities take the form of a limited partnership, these entities are considered as VIEs unless limited partners hold substantive kick-out rights or participating rights. The entities considered as VIEs are typically funded only by senior financing or there is a guarantee provided to the senior financing by parties unrelated to those providing the senior financing. In most cases, the MUFG Group participates in the senior financing and does not participate in the subordinate financing or provide guarantees. Generally, because the MUFG Group’s participation in these entities is only to provide financing, it does not have the power to direct the activities of the entities that most significantly impact the economic performance of the entities. Therefore, the MUFG Group does not consider itself to be the primary beneficiary of these entities and does not consolidate them, except for limited circumstances where the MUFG Group is directly involved with the structuring of the transaction and has the power to direct the activities of the entities that most significantly impact the economic performance of the entities.

Project Financing Vehicles

These entities are established to raise funds in connection with, among others, production of natural resources, construction and development of urban infrastructure (including power plants and grids, highways and ports), and the development of real estate properties or complexes. These projects typically involve special purpose companies which issue senior and subordinate financing to raise funds in connection with the various projects. The subordinate financing is usually provided by parties that will ultimately make use of the assets constructed or developed. By contrast, the senior financing is typically provided by financial institutions, including the MUFG Group. Because the MUFG Group’s participation in these entities is only to provide financing, it does not have the power to direct the activities that most significantly impact the economic performance of these entities. Therefore, the MUFG Group is not considered as the primary beneficiary of these entities and does not consolidate them.

Sale-and-Leaseback Vehicles

The MUFG Group is involved with vehicles that acquire assets, primarily real estate, from the MUFG Group’s customers and other unrelated parties where the sellers of the assets continue to use the assets through

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leaseback agreements. These vehicles typically take the form of a limited partnership, and are considered as VIEs unless the limited partners hold substantive kick-out rights or participating rights. The subordinated financing of these vehicles considered as VIEs is usually provided by the sellers of the assets, with the MUFG Group providing senior financing for the vehicles. Because the MUFG Group’s participation in these vehicles is only to provide senior financing, it does not have the power to direct the activities that most significantly impact the economic performance of these vehicles. Therefore, the MUFG Group is not considered as the primary beneficiary and does not consolidate them.

Securitization of Client Real Estate Properties

These entities are established for the purpose of securitizing real estate properties held by the MUFG Group’s customers. In most cases, these entities take the form of a limited partnership or a special purpose company. When entities take the form of a limited partnership, these entities are considered as VIEs unless the limited partners hold substantive kick-out rights or participating rights. The entities considered as VIEs are typically funded by senior and subordinated financing where the original owners of the real estate properties provide the subordinated financing, primarily in the form of partnership interests or subordinated notes, and financial institutions, including the MUFG Group, provide senior financing in the form of senior loans. Because the MUFG Group’s participation in these vehicles is only to provide a portion of senior financing, it does not have the power to direct the activities that most significantly impact the economic performance of these entities. Therefore, the MUFG Group is not considered as the primary beneficiary and does not consolidate these entities.

Repackaged Instruments

This category primarily comprises the following:

Investments in Financially-Engineered Products

The MUFG Group is involved in special purpose entities that have been established to issue financial products through the engineering and repackaging of existing financial instruments such as collateralized debt obligations (“CDOs”). These entities are considered as VIEs because the holders of the equity investment at risk do not have the power to direct the activities that most significantly impact their economic performance. These entities are generally arranged and managed by parties that are not related to the MUFG Group. The MUFG Group’s involvement with the entities arranged and managed by third parties is for investment purposes. In these cases, the MUFG Group participates as one of many other investors and the MUFG Group typically holds investments in senior tranches or tranches with high credit ratings. Therefore, the MUFG Group does not have the power to direct activities of the entities that most significantly impact the entities’ economic performance, and thus is not considered as the primary beneficiary of these entities and does not consolidate these entities.

In certain instances, special purpose entities have been established and are managed by the MUFG Group. The MUFG Group’s involvement includes establishing and arranging the transaction and underwriting securities issued by the entities to general investors. For these entities, the MUFG Group has the power to direct activities that most significantly impact the economic performance and it has the obligation to absorb losses or receive benefits that could potentially be significant to the entities. As such, the MUFG Group considers itself as the primary beneficiary of these entities and consolidates them.

Investments in Securitized Financial Instruments

The MUFG Group holds investments in special purpose entities that issue securitized financial products. The assets held by the entities include credit card receivables and residential mortgage loans. These entities are

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established and managed by parties that are unrelated to the MUFG Group and the MUFG Group’s involvement with these entities is for its own investment purposes. In all cases, the MUFG Group participates as one of many other investors and the MUFG Group does not have the power to direct activities of the entities that most significantly impact the entities’ economic performance. Therefore, the MUFG Group is not considered as the primary beneficiary of these entities and does not consolidate them.

Securitization of the MUFG Group’s Assets

This category primarily comprises the following:

Securitization for issuing interests or financing

The MUFG Group establishes entities to securitize its own financial assets that include, among others, corporate and retail loans and lease receivables. The entities used for securitization, which typically take the form of a special purpose company or a trust, are established by the MUFG Group and, in most cases, issue senior and subordinate interests or financing. After securitization, the MUFG Group typically continues to service securitized assets as a servicer. The MUFG Group may also retain subordinate interests or financing or other interests. The MUFG Group is considered as the primary beneficiary and consolidates the entities used for securitization since it has the obligation to absorb losses through subordinate interests, and also has the power for determining and implementing policies as servicer that give it the ability to manage the entities’ assets that become delinquent or are in default in order to improve the economic performance of the entities.

Eligible beneficiary interests in housing loan trusts

The MUFG Group establishes trusts, which acquire the MUFG Group’s housing loans and in turn issue beneficiary interests to the MUFG Group, to pledge these beneficiary interests as collateral for borrowings from the Bank of Japan, as a result of the decision by the Bank of Japan on June 30, 2016 to accept these beneficial interests as collateral in the same way as it does for Japanese national government bonds. The MUFG Group is considered as the primary beneficiary and consolidates the trusts since it has the obligation to absorb losses through beneficiary interests, and also has the power for determining and implementing policies as servicer that give it the ability to manage housing loans owned by the trusts that become delinquent or are in default in order to improve the economic performance of the trusts.

Trust Arrangements

The MUFG Group offers, primarily through Mitsubishi UFJ Trust and Banking, a variety of trust products and services including securities investment trusts, pension trusts and trusts used as securitization vehicles. In a typical trust arrangement, however, the MUFG Group manages and administers assets on behalf of the customers in an agency, fiduciary and trust capacity and does not assume risks associated with the entrusted assets. The trusts are generally considered as VIEs because the trust beneficiaries, who provide all of the equity at risk, usually do not have power to direct the activities that most significantly impact its economic performance in the arrangements. The MUFG Group, however, is not considered as the primary beneficiary, mainly, except for the case mentioned below, because it merely receives fees for compensation for its services on terms that are customary for these activities and the fees are insignificant relative to the total amount of the trusts’ economic performance and variability. Therefore, the MUFG Group does not consolidate these entities.

With respect to the jointly operated designated money in trusts, Mitsubishi UFJ Trust and Banking pools money from investors and determines how best to invest it. In addition, certain investors, such as money reserve

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funds and investment funds, place excess funds in the jointly operated designated money trusts. Mitsubishi UFJ Trust and Banking typically invests in high-quality financial assets, including government bonds, corporate bonds and corporate loans including loans to Mitsubishi UFJ Trust and Banking and receives fees as compensation for services. In this role as a sponsor of these trusts’ Mitsubishi UFJ Trust and Banking provides guarantees under which it is required to compensate a loss on the stated principal of the trust beneficial interests. Mitsubishi UFJ Trust and Banking is considered as the primary beneficiary of these trusts’ because it is exposed to a potentially significant amount of losses and also has the power to direct activities of these trusts’ that most significantly impact their economic performance. Upon consolidation of the trusts, the certificates issued to the investors are accounted for as deposit liabilities as the products are structured and marketed to customers similar to Mitsubishi UFJ Trust and Banking’s term deposit products.

Mitsubishi UFJ Trust and Banking considers the likelihood of incurring losses on the stated principal guarantee to be highly remote. In the trusts’ operational history that extends over decades, the stated principal guarantee has never been called upon. The variability in fair value of the net assets of the trusts has been primarily affected by the fluctuations in interest rates, and the majority of such variability has been absorbed by investors or trust beneficiaries.

Other

This category primarily comprises the following:

Financing Vehicles of the MUFG Group’s Customers

The MUFG Group is involved with several entities that are established by the MUFG Group’s customers. These entities borrow funds from financial institutions and extend loans to their group entities. These entities effectively work as fund-raising vehicles for their respective group entities and enable the groups to achieve efficient financing by integrating their financing activities into a single entity. In all cases, the MUFG Group is not considered as the primary beneficiary because the MUFG Group’s participation in these entities is only to provide financing, and the customers effectively hold the power to direct activities of these entities that most significantly impact the economic performance of the entities. Consequently, the MUFG Group does not consolidate these entities.

Funding Vehicles

The MUFG Group has established several wholly-owned off-shore vehicles which issue securities, typically preferred stock that is fully guaranteed by the MUFG Group, to investors unrelated to the MUFG Group to fund purchases of debt instruments issued by the MUFG Group. These entities are considered as VIEs because the MUFG Group’s investment in the vehicles’ equity is not considered at risk and substantive as the entire amount raised by the vehicles was used to purchase debt instruments issued by the MUFG Group. Because the MUFG Group does not have variable interests in these vehicles, the MUFG Group does not consolidate these entities.

Troubled Borrowers

During the normal course of business, the borrowers from the MUFG Group may experience financial difficulties and sometimes enter into certain transactions that require the MUFG Group to assess whether they would be considered as VIEs due to their difficult financial position. While in most cases such borrowers are not considered as VIEs when the transactions take place, in limited circumstances they are considered as VIEs due to insufficient equity investment at risk. In all cases, the MUFG Group is not considered as the primary beneficiary 

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because the power to direct activities that most significantly impact the economic performance of the troubled borrowers resides with the management of the troubled borrowers, and the MUFG Group, as a lender, does not have power over or assume any role in management. Therefore, the MUFG Group does not consolidate these troubled borrowers.

26. COMMITMENTS AND CONTINGENT LIABILITIES

Repayment of Excess Interest

The MUFG Group maintains an allowance for repayment of excess interest based on an analysis of past experience of reimbursement of excess interest, borrowers’ profile, recent trend of borrowers’ claims for reimbursement, and management future forecasts. Management believes that the provision for repayment of excess interest is adequate and the allowance is at the appropriate amount to absorb probable losses, so that the impact of future claims for reimbursement of excess interest will not have a material adverse effect on the MUFG Group’s financial position and results of operations. The allowance for repayment of excess interest established by MUFG’s consumer finance subsidiaries, which was included in Other liabilities, was ¥24,983 million and ¥29,438 million as of March 31, 2019 and 2020, respectively. Provision (reversal) related to the allowance is included in Other non-interest expenses in the accompanying consolidated statements of income. For the fiscal years ended March 31, 2018, 2019 and 2020, there was a negative impact of nil, ¥15,632 million and ¥7,800 million, respectively, on Equity in earnings of equity method investees—net in the accompanying consolidated statements of income.

Litigation

In the ordinary course of business, the MUFG Group is subject to various litigation and regulatory matters. In accordance with applicable accounting guidance, the MUFG Group establishes an accrued liability for loss contingencies arising from litigation and regulatory matters when they are determined to be probable in their occurrence and the probable loss amount can be reasonably estimated. Based upon current knowledge and consultation with counsel, management believes the eventual outcome of such litigation and regulatory matters, where losses are probable and the probable loss amounts can be reasonably estimated, would not have a material adverse effect on the MUFG Group’s financial position, results of operations or cash flows. Additionally, management believes the amount of loss that is reasonably possible, but not probable, from various litigation and regulatory matters is not material to the MUFG Group’s financial position, results of operations or cash flows.

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27. FEES AND COMMISSIONS INCOME

Disaggregation of Contract Revenue

Details of fees and commissions income for the fiscal years ended March 31, 2018, 2019 and 2020 were as follows:

	2018		2019		2020
	(in millions)
Fees and commissions on deposits	¥	53,483	¥	52,624	¥	53,684
Fees and commissions on remittances and transfers		169,300		168,756		169,407
Fees and commissions on foreign trading business		78,239		73,176		66,025
Fees and commissions on credit card business		212,515		225,877		238,112
Fees and commissions on security-related services		258,728		233,448		221,494
Fees and commissions on administration and management services for investment funds		159,481		147,597		184,559
Trust fees		112,399		115,002		119,919
Guarantee fees(1)		44,160		44,962		46,322
Insurance commissions		49,223		46,918		44,415
Fees and commissions on real estate business		40,573		45,160		49,764
Other fees and commissions(2)		284,691		285,058		308,351
Total	¥	1,462,792	¥	1,438,578	¥	1,502,052

Notes:

(1) Guarantee fees are not within the scope of the guidance on revenue from contracts with customers.

(2) Other fees and commissions include non-refundable financing related fees that are not within the scope of the guidance on revenue from contracts with customers.

The following is an explanation of the relationship with revenue information disclosed for each reportable segment.

These revenues from contracts with customers are related to various reportable segments disclosed in Note 29. The business segment information is derived from the internal management reporting system used by management to measure the performance of the MUFG Group’s business segments. In addition, the business segment information is primarily based on the financial information prepared in accordance with accounting principles generally accepted in Japan as adjusted in accordance with internal management accounting rules and practices. Further, the format and information as disclosed in Note 29 are not consistent with the accompanying consolidated financial statements prepared on the basis of U.S. GAAP. For example, management does not use information on segments’ gross revenue to allocate resources and assess performance.

The majority of fees and commissions on deposits are from the business activities relevant to Retail & Commercial Banking Business Group (“R&C”), with Global Commercial Banking Business Group (“GCB”) providing a smaller impact.

The business activities relevant to fees and commissions on remittances and transfers are attributable to R&C, Japanese Corporate Investment Banking Business Group (“JCIB”), Global Corporate Investment Banking Business Group (“GCIB”), and GCB with no significant concentration in any particular segments.

The business activities relevant to fees and commissions on foreign trading business are attributable to R&C, JCIB, GCIB, and GCB with no significant concentration in any particular segments.

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The business activities relevant to fees and commissions on credit card business are substantially attributable to R&C.

The majority of fees and commissions on security-related services are from the business activities relevant to R&C, with JCIB and GCIB providing a smaller impact.

The business activities relevant to fees and commissions on administration and management services for investment funds are substantially attributable to Asset Management & Investor Service Business Group (“AM/IS”).

The business activities relevant to trust fees are attributable to R&C, JCIB, and AM/IS with no significant concentration in any particular segments.

The majority of insurance commissions are from the business activities relevant to R&C, with GCB providing a smaller impact.

The business activities relevant to fees and commissions on real estate business are attributable to R&C and JCIB with no significant concentration in any particular segments.

Contract Balances

Contract balances are recognized in the consolidated balance sheets in accordance with the definition of receivables and contract liabilities specified in the guidance on revenue from contracts with customers. Receivables include receivables for which the services are completed, and accrued income which represents the amount of consideration unpaid for the performance obligations that have been fulfilled pursuant to certain contracts under which the services are continuously provided. Contract liabilities include unearned revenue which represents the amount of consideration received for the performance obligations that have not been fulfilled pursuant to certain contracts under which the services are continuously provided.

As of March 31, 2019 and 2020, receivables from contracts with customers of ¥185 billion and ¥192 billion, respectively, were included primarily in Other assets. As of March 31, 2019 and 2020, contract liabilities of ¥8 billion and ¥25 billion, respectively, were included in Other liabilities.

Among the balance of contract liabilities as of March 31, 2020, ¥12 billion is a remaining performance obligation related to an insurance agency service which a certain subsidiary of the MUFG Group entered into as a single performance obligation to be satisfied as the service is rendered over the next 20 years.

28. TRADING ACCOUNT PROFITS AND LOSSES

The MUFG Group performs trading activities through market-making, sales and arbitrage, while maintaining risk levels within appropriate limits in accordance with its risk management policy.

The MUFG Group has trading account securities and trading derivative assets and liabilities for this purpose. In addition, the trading account securities include foreign currency-denominated debt securities such as foreign government or official institution bonds, corporate bonds and mortgage-backed securities, which are mainly comprised of securities measured at fair value under the fair value option.

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Net trading gains (losses) for the fiscal years ended March 31, 2018, 2019 and 2020 were comprised of the following:

	2018			2019			2020
	(in millions)
Interest rate and other derivative contracts	¥	(226,788	)	¥	(24,031	)	¥	(159,045	)
Trading account securities, excluding derivatives		153,674			192,931			924,418
Trading account profits (losses)—net		(73,114	)		168,900			765,373
Foreign exchange derivative contracts(1)		(159,986	)		(354,401	)		(434,052	)
Net trading gains (losses)	¥	(233,100	)	¥	(185,501	)	¥	331,321

Note:

(1) Losses on foreign exchange derivative contracts are included in Foreign exchange losses—net in the accompanying consolidated statements of income. Foreign exchange losses—net in the accompanying consolidated statements of income are also comprised of foreign exchange gains other than derivative contracts and foreign exchange gains (losses) related to the fair value option.

For further information on the methodologies and assumptions used to estimate fair value, see Note 31, which also shows fair values of trading account securities by major category. Note 23 discloses further information regarding the derivative-related impact on Trading account profits (losses)—net by major category.

29. BUSINESS SEGMENTS

The reportable segments of the MUFG Group are subject to the periodical review by the Executive Committee, which represents the MUFG Group’s chief operating decision maker, to determine the allocation of management resources and assess performance. The MUFG Group has established its business units according to the characteristics of customers and the nature of the underlying business. Each business unit engages in business activities based on comprehensive strategies developed for and aimed at respective targeted customers and businesses. The business segment information is primarily based on the financial information prepared in accordance with accounting principles generally accepted in Japan as adjusted in accordance with internal management accounting rules and practices. Accordingly, the format and information are not consistent with the accompanying consolidated financial statements prepared on the basis of U.S. GAAP. A reconciliation is provided for the total amounts of segments’ operating profit with income before income tax expense under U.S. GAAP.

See Note 30 for financial information relating to the MUFG Group’s operations by geographic area. The geographic financial information is consistent with the basis of the accompanying consolidated financial statements.

Effective April 1, 2018, the MUFG Group reorganized its business groups in an effort to further integrate the expertise and capabilities of its consolidated subsidiaries to respond to the needs of customers more effectively and efficiently, as part of its current medium-term business plan. To make and execute unified group-wide strategies based on customer characteristics and the nature of business, the MUFG Group integrated the operations of its consolidated subsidiaries into six business segments.—Retail & Commercial Banking, Japanese Corporate & Investment Banking, Global Corporate & Investment Banking, Global Commercial Banking, Asset Management & Investor Services, and Global Markets.

The following is a brief explanation of the MUFG Group’s business segments:

Retail & Commercial Banking Business Group—Covers the domestic retail and commercial banking businesses of MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Securities Holdings, Mitsubishi

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UFJ NICOS and other group companies of MUFG. This business group offers retail and small and medium-sized enterprise customers in Japan an extensive array of commercial banking, trust banking and securities products and services.

Japanese Corporate & Investment Banking Business Group—Covers the large Japanese corporate businesses of MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities Holdings, including the transaction banking, investment banking, trust banking and securities businesses. This business group offers large Japanese corporations advanced financial solutions designed to respond to their diversified and globalized needs and to contribute to their business and financial strategies through the global network of the MUFG group companies.

Global Corporate & Investment Banking Business Group—Covers the global corporate, investment and transaction banking businesses of MUFG Bank and Mitsubishi UFJ Securities Holdings. Through a global network of offices and branches, this business group provides non-Japanese large corporate and financial institution customers with a comprehensive set of solutions that meet their increasingly diverse and sophisticated financing needs.

Global Commercial Banking Business Group—Covers the retail and commercial banking businesses of MUFG Union Bank and Krungsri. From the fiscal year ended March 31, 2020, this business group also covers Bank Danamon. This business group offers a comprehensive array of financial products and services such as loans, deposits, fund transfers, investments and asset management services for local retail, small and medium-sized enterprise, and corporate customers across the Asia-Pacific region.

Asset Management & Investor Services Business Group—Covers the asset management and asset administration businesses of Mitsubishi UFJ Trust and Banking and MUFG Bank. By integrating the trust banking expertise of Mitsubishi UFJ Trust and Banking and the global strengths of MUFG Bank, the business group offers a full range of asset management and administration services for corporations and pension funds, including pension fund management and administration, advice on pension structures, and payments to beneficiaries, and also offer investment trusts for retail customers.

Global Markets Business Group—Covers the customer business and the treasury operations of MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities Holdings. The customer business includes sales and trading in fixed income instruments, currencies and equities as well as other investment products, and origination and distribution of financial products. The treasury operations include asset and liability management as well as global investments for the MUFG Group.

Other—Consists mainly of the corporate centers of MUFG, MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Morgan Stanley Securities. The elimination of duplicated amounts of net revenues among business segments was also reflected in Other.

Management does not use information on segments’ total assets to allocate resources and assess performance. Accordingly, business segment information on total assets is not presented.

The MUFG Group made modifications to the MUFG Group’s internal management accounting rules and practices to clarify the responsibility for profits of each business segment, effective April 1, 2019. Major rule changes are (i) reallocation of overseas Japanese corporates business in MUFG Americas Holdings previously included in the Global Commercial Banking Business Group into the Japanese Corporate & Investment Banking Business Group due to the refinement of definition, (ii) reallocation of operating expenses among Business Groups based on cost drivers due to the refinement of definition, and (iii) allocation of adjustments related to the

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derivative counterparty risk previously included in Other to the Customer Business Groups and the Global Markets Business Group that held the derivative assets. These modifications had the following impact for the fiscal years ended March 31, 2018 and 2019:

• increasing the operating profits of the Global Corporate & Investment Banking Business Group by ¥1.8 billion for the fiscal year ended March 31, 2018, the Retail & Commercial Banking Business Group by ¥1.9 billion for the fiscal year ended March 31, 2019, the Global Markets Business Group and Other by ¥6.3 billion and ¥29.7 billion, respectively for the fiscal year ended March 31, 2018, and ¥5.1 billion and ¥30.6 billion, respectively for the fiscal year ended March 31, 2019; and

• reducing the operating profits of the Retail & Commercial Banking Business Group by ¥0.5 billion for the fiscal year ended March 31, 2018, the Global Corporate & Investment Banking Business Group by ¥10.4 billion for the fiscal year ended March 31, 2019, the Japanese Corporate & Investment Banking Business Group and the Global Commercial Banking Business Group by ¥18.6 billion and ¥18.7 billion, respectively for the fiscal year ended March 31, 2018, and ¥13.8 billion and ¥13.4 billion, respectively for the fiscal year ended March 31, 2019.

Prior period business segment information has been restated to enable comparison between the relevant amounts for the fiscal years ended March 31, 2018, 2019 and 2020.

	Customer Business															Global Markets Business Group			Other			Total
	Retail & Commercial Banking Business Group		Japanese Corporate & Investment Banking Business Group		Global Corporate & Investment Banking Business Group			Global Commercial Banking Business Group			Asset Management & Investor Services Business Group			Total
	(in billions)
Fiscal year ended March 31, 2018:
Net revenue:	¥	1,582.5	¥	523.2	¥	364.3		¥	652.8		¥	190.4		¥	3,313.2	¥	574.5		¥	30.4		¥	3,918.1
BK and TB(1):		781.6		433.0		236.9			(3.3	)		83.8			1,532.0		369.3			128.6			2,029.9
Net interest income		463.4		148.9		92.1			(3.3	)		—			701.1		235.1			183.5			1,119.7
Net fees		246.4		225.1		146.8			—			83.8			702.1		(12.0	)		(22.9	)		667.2
Other		71.8		59.0		(2.0	)		—			—			128.8		146.2			(32.0	)		243.0
Other than BK and TB		800.9		90.2		127.4			656.1			106.6			1,781.2		205.2			(98.2	)		1,888.2
Operating expenses		1,226.3		314.8		226.7			468.8			119.4			2,356.0		228.7			132.8			2,717.5
Operating profit (loss)	¥	356.2	¥	208.4	¥	137.6		¥	184.0		¥	71.0		¥	957.2	¥	345.8		¥	(102.4	)	¥	1,200.6
Fiscal year ended March 31, 2019:
Net revenue:	¥	1,522.0	¥	545.2	¥	383.8		¥	690.5		¥	203.0		¥	3,344.5	¥	479.8		¥	(11.9	)	¥	3,812.4
BK and TB(1):		737.1		415.0		254.0			(1.3	)		93.2			1,498.0		303.9			59.1			1,861.0
Net interest income		457.2		150.2		110.9			(1.3	)		—			717.0		227.8			200.4			1,145.2
Net fees		243.8		210.3		142.4			—			93.2			689.7		(13.9	)		(54.9	)		620.9
Other		36.1		54.5		0.7			—			—			91.3		90.0			(86.4	)		94.9
Other than BK and TB		784.9		130.2		129.8			691.8			109.8			1,846.5		175.9			(71.0	)		1,951.4
Operating expenses		1,221.3		309.3		241.5			483.5			124.6			2,380.2		223.5			136.4			2,740.1
Operating profit (loss)	¥	300.7	¥	235.9	¥	142.3		¥	207.0		¥	78.4		¥	964.3	¥	256.3		¥	(148.3	)	¥	1,072.3
Fiscal year ended March 31, 2020:
Net revenue:	¥	1,501.6	¥	551.1	¥	376.8		¥	804.6		¥	243.0		¥	3,477.1	¥	575.2		¥	15.7		¥	4,068.0
BK and TB(1):		721.1		420.7		270.5			0.1			94.6			1,507.0		358.4			12.7			1,878.1
Net interest income		439.0		164.2		115.2			0.9			2.5			721.8		123.1			85.4			930.3
Net fees		248.0		205.0		137.6			—			92.2			682.8		(12.6	)		(64.8	)		605.4
Other		34.1		51.5		17.7			(0.8	)		(0.1	)		102.4		247.9			(7.9	)		342.4
Other than BK and TB		780.5		130.4		106.3			804.5			148.4			1,970.1		216.8			3.0			2,189.9
Operating expenses		1,203.0		315.8		247.8			571.8			171.7			2,510.1		232.2			150.7			2,893.0
Operating profit (loss)	¥	298.6	¥	235.3	¥	129.0		¥	232.8		¥	71.3		¥	967.0	¥	343.0		¥	(135.0	)	¥	1,175.0

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Note:

(1) “BK and TB” is a sum of MUFG Bank on a stand-alone basis and Mitsubishi UFJ Trust and Banking on a stand-alone basis.

Reconciliation

As set forth above, the measurement basis and the income and expense items of the internal management reporting system are different from the accompanying consolidated statements of income. Therefore, it is impracticable to present reconciliations of all of the business segments’ information, other than operating profit, to corresponding items in the accompanying consolidated statements of income.

A reconciliation of operating profit under the internal management reporting system for the fiscal years ended March 31, 2018, 2019 and 2020 above to income before income tax expense shown in the accompanying consolidated statements of income is as follows:

	2018			2019			2020
	(in billions)
Operating profit:	¥	1,201		¥	1,072		¥	1,175
Reversal of (provision for) credit losses		241			(34	)		(322	)
Trading account profits (losses)—net		(287	)		182			920
Equity investment securities gains (losses)—net		215			(305	)		(618	)
Debt investment securities gains (losses)—net		71			(3	)		(403	)
Foreign exchange gains (losses)—net		7			47			(145	)
Equity in earnings of equity method investees—net		228			210			283
Impairment of goodwill		—			—			(384	)
Impairment of intangible assets		(22	)		(118	)		(4	)
Reversal of (provision for) off-balance sheet credit instruments		96			(38	)		62
Other—net		(88	)		(142	)		(131	)
Income before income tax expense	¥	1,662		¥	871		¥	433

30. FOREIGN ACTIVITIES

Foreign operations include the business conducted by overseas offices, as well as international business conducted from domestic offices, principally several international banking-related divisions of MUFG Bank’s and Mitsubishi UFJ Trust and Banking’s head office in Tokyo, and involve various transactions with debtors and customers residing outside Japan. Close integration of the MUFG Group’s foreign and domestic activities makes precise estimates of the amounts of assets, liabilities, income and expenses attributable to foreign operations difficult and necessarily subjective. Assets, income and expenses attributable to foreign operations are allocated to geographical areas based on the domicile of the debtors and customers.

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Generally, interest rates with respect to funds borrowed and loaned between domestic and foreign operations are based on prevailing money market rates appropriate for the transactions. In general, the MUFG Group has allocated all direct expenses and a proportionate share of general and administrative expenses to income derived from foreign loans and other transactions by the MUFG Group’s foreign operations. The following table sets forth estimated total assets at March 31, 2018, 2019 and 2020, and estimated total revenue, total expense, income (loss) before income tax expense (benefit) and net income (loss) attributable to Mitsubishi UFJ Financial Group for the respective fiscal years then ended:

	Domestic			Foreign									Total
	Japan			United States of America		Europe			Asia/Oceania excluding Japan		Other areas(1)
	(in millions)
Fiscal year ended March 31, 2018:
Total revenue(2)	¥	2,127,278		¥	1,337,529	¥	506,211		¥	779,983	¥	443,106	¥	5,194,107
Total expense(3)		1,687,344			843,885		173,665			651,125		176,269		3,532,288
Income before income tax expense		439,934			493,644		332,546			128,858		266,837		1,661,819
Net income attributable to Mitsubishi UFJ Financial Group		140,091			447,887		322,581			92,016		225,585		1,228,160
Total assets at end of fiscal year		196,121,542			44,831,664		22,342,574			27,163,121		10,111,411		300,570,312
Fiscal year ended March 31, 2019:
Total revenue(2)	¥	1,886,469		¥	1,637,569	¥	222,267		¥	1,157,946	¥	504,372	¥	5,408,623
Total expense(3)		2,204,147			1,012,978		173,934			892,729		253,993		4,537,781
Income (loss) before income tax expense (benefit)		(317,678	)		624,591		48,333			265,217		250,379		870,842
Net income (loss) attributable to Mitsubishi UFJ Financial Group		(345,148	)		573,698		50,877			214,582		224,636		718,645
Total assets at end of fiscal year		194,070,495			49,987,389		21,535,278			27,992,986		11,642,751		305,228,899
Fiscal year ended March 31, 2020:
Total revenue(2)	¥	1,596,794		¥	2,223,984	¥	89,412		¥	1,326,426	¥	566,222	¥	5,802,838
Total expense(3)		2,565,895			1,051,164		218,623			1,174,200		359,736		5,369,618
Income (loss) before income tax expense (benefit)		(969,101	)		1,172,820		(129,211	)		152,226		206,486		433,220
Net income (loss) attributable to Mitsubishi UFJ Financial Group		(1,001,477	)		1,113,913		(140,372	)		142,568		191,323		305,955
Total assets at end of fiscal year		207,532,337			60,587,867		19,099,410			30,845,864		13,687,805		331,753,283

Notes:

(1) Other areas primarily include Canada, Latin America, the Caribbean and the Middle East.

(2) Total revenue is comprised of Interest income and Non-interest income.

(3) Total expense is comprised of Interest expense, Provision for (reversal of) credit losses and Non-interest expense.

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The following is an analysis of certain asset and liability accounts related to foreign activities at March 31, 2019 and 2020:

	2019		2020
	(in millions)
Cash and due from banks	¥	828,839	¥	971,870
Interest-earning deposits in other banks		8,453,191		12,662,558
Total	¥	9,282,030	¥	13,634,428
Trading account assets	¥	26,991,984	¥	31,374,451
Investment securities	¥	8,779,340	¥	9,040,512
Loans—net of unearned income, unamortized premiums and deferred loan fees	¥	51,678,674	¥	53,079,542
Deposits	¥	49,044,234	¥	49,291,478
Funds borrowed:
Call money, funds purchased	¥	67,246	¥	276,040
Payables under repurchase agreements		9,459,547		13,476,026
Payables under securities lending transactions		47,886		176,998
Other short-term borrowings		5,107,832		4,733,138
Long-term debt		2,697,463		2,733,242
Total	¥	17,379,974	¥	21,395,444
Trading account liabilities	¥	3,897,844	¥	6,575,570

31. FAIR VALUE

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance on fair value measurements also specifies a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable inputs, for example, the reporting entity’s own data. Based on the observability of the inputs used in the valuation techniques, the following three-level hierarchy is specified by the guidance:

• Level 1—Unadjusted quoted prices for identical instruments in active markets.

• Level 2—Observable inputs other than Level 1 prices for substantially the full term of the instruments, such as quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; other inputs that are observable; or market-corroborated inputs.

• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the instruments.

A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The MUFG Group has an established and documented process for determining fair values in accordance with the guidance. When available, quoted prices are used to determine fair value. If quoted prices are not

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available, fair value is based upon valuation techniques that use observable or unobservable inputs. The fair values of liabilities are determined by discounting future cash flows at a rate which incorporates the MUFG Group’s own creditworthiness. In addition, valuation adjustments may be made to ensure the financial instruments are recorded at fair value. These adjustments include, but are not limited to, amounts that reflect counterparty credit quality, funding cost, liquidity risk and model risk.

The following section describes the valuation techniques used by the MUFG Group to measure fair values of certain financial instruments. The discussion includes the general classification of such financial instruments in accordance with the fair value hierarchy, a brief explanation of the valuation techniques, the significant inputs to those valuation techniques, and any additional significant assumptions.

Trading Account Assets and Liabilities—Trading Account Securities

When quoted prices are available in an active market, the MUFG Group uses quoted prices to measure the fair values of securities and such securities are classified in Level 1 of the fair value hierarchy. Examples of Level 1 securities include certain Japanese and foreign government bonds, and marketable equity securities.

When quoted prices are available but the securities are not traded in active markets, such securities are classified in Level 2 of the fair value hierarchy. These securities include certain Japanese government agency bonds, Japanese prefectural and municipal bonds, foreign government and official institution bonds, corporate bonds, residential mortgage-backed securities and equity securities.

As for quoted prices provided by third-party vendors, independent price verification is performed by the MUFG group to determine the quality and reliability of the data for fair value measurement purposes. As part of its independent price verification procedures, the MUFG group obtains a sufficient understanding of the vendors’ pricing sources and valuation processes. Further, the MUFG group performs internal price verification procedures to ensure that the quoted prices provided from the third-party vendors are reasonable. Such verification procedures include comparison of pricing sources and analysis of variances beyond certain thresholds.

When quoted prices are not available, the MUFG Group estimates fair values by using an internal model, quoted prices of securities with similar characteristics or non-binding prices obtained from independent third parties. Such securities include certain commercial paper, corporate bonds, asset-backed securities and residential mortgage-backed securities. For commercial paper, the MUFG Group estimates fair value using discounted cash flows. The cash flows are estimated in accordance with the terms of contracts and discounted using a discount rate based on the yield curve estimated from market interest rates appropriate to the securities. Commercial paper is generally classified in Level 2 of the fair value hierarchy. For corporate bonds, the MUFG Group estimates fair value using discounted cash flows. The cash flows are estimated in accordance with the terms of contracts and discounted using discount rates applicable to the maturity of the bonds, which are adjusted to reflect credit risk of issuers. Credit risk of issuers is reflected in the future cash flows being discounted by the interest rate applicable to the maturity of the bonds. Corporate bonds are classified in either Level 2 or Level 3 of the fair value hierarchy, depending primarily on the significance of the adjustments to the unobservable input of credit worthiness. For residential mortgage-backed securities, the MUFG Group estimates fair value using non-binding prices obtained from independent third parties. Residential mortgage-backed securities are classified as level 2 unless otherwise significant unobservable input is used for the valuation.

When there is less liquidity for securities or significant inputs used in the fair value measurements are unobservable, such securities are classified in Level 3 of the fair value hierarchy. Examples of such Level 3

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securities include CLOs backed by general corporate loans, which are classified in asset-backed securities. The fair value of CLOs is measured by weighing the estimated fair value amounts from the internal model and the non-binding quotes from the independent broker-dealers. The weight of the quotes from independent broker-dealers is determined based on the result of inquiries with the broker-dealers to understand their basis of fair value calculation with consideration given to transaction volume. Key inputs to the internal model include projected cash flows through an analysis of underlying loans, probability of default which incorporates market indices such as LCDX (which is an index of loan credit default swaps), prepayment rates and discount rates reflecting liquidity premiums based on historical market data.

Trading Account Assets and Liabilities—Derivatives

Exchange-traded derivatives valued using quoted prices are classified in Level 1 of the fair value hierarchy. Examples of Level 1 derivatives include stock futures index and interest rate futures. However, the majority of the derivative contracts entered into by the MUFG Group are traded over-the-counter and valued using valuation techniques as there are no quoted prices for such derivatives. The valuation techniques and inputs vary depending on the types and contractual terms of the derivatives. The principal valuation techniques used to value derivatives include discounted cash flows, the Black-Scholes model and the Hull-White model. The key inputs include interest rate yield curve, foreign currency exchange rate, volatility, credit quality of the counterparty or the MUFG Group and spot price of the underlying. These models are commonly accepted in the financial industry and key inputs to the models are generally readily observable in an active market. Derivatives valued using such valuation techniques and inputs are generally classified in Level 2 of the fair value hierarchy. Examples of such Level 2 derivatives include plain-vanilla interest rate swaps, foreign currency forward contracts and currency option contracts.

Derivatives that are valued using valuation techniques with significant unobservable inputs are classified in Level 3 of the fair value hierarchy. Examples of Level 3 derivatives include long-term interest rate or currency swaps and certain credit derivatives, where significant inputs such as volatility and correlation of such inputs are unobservable.

Investment Securities

Investment securities include Available-for-sale debt and equity securities, whose fair values are measured using the same valuation techniques as the trading account securities described above. Investment securities also include investments in nonmarketable equity securities which are subject to specialized industry accounting principles. The valuation of such nonmarketable equity securities involves significant management judgment due to the absence of quoted prices, lack of liquidity and the long term nature of these investments. Further, there may be restriction on transfers of nonmarketable equity securities. The MUFG Group values such securities initially at transaction price and subsequently adjusts such valuations, considering evidence such as current sales transactions of similar securities, initial public offerings, recent equity issuances and change in financial condition of the investee company. Nonmarketable equity securities are included in Level 3 of the fair value hierarchy.

Other Assets

Other assets measured at fair value mainly consist of securities received as collateral that may be sold or repledged under securities lending transactions, money in trust for segregating cash deposited by customers on security transactions and derivatives designated as hedging instruments. The securities received as collateral under lending transactions mainly consist of certain Japanese and foreign government bonds which are valued using the valuation techniques previously described in the section entitled “Trading Accounts Assets and Liabilities—Trading Account Securities” above.

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Money in trust for segregating cash deposited by customers on security transactions mainly consists of certain Japanese government bonds which are valued using the valuation techniques described in the “Trading Account Assets and Liabilities—Trading Account Securities” above and is included in Level 1 or Level 2 of the fair value hierarchy depending on the component assets.

The fair values of derivatives designated as hedging instruments are measured using the valuation techniques described in the “Trading Account Assets and Liabilities—Derivatives” above.

Obligations to Return Securities Received as Collateral

Obligations to return securities received as collateral under securities lending transactions included in Other liabilities are measured at the fair values of the securities received as collateral. The securities received as collateral consist primarily of certain Japanese and foreign government bonds, whose fair values are measured using the valuation techniques described in the “Trading Account Assets and Liabilities—Trading Account Securities” above.

Other Short-term Borrowings and Long-term Debt

Certain short-term borrowings and long-term debt are measured at fair value due to the election of the fair value option. The fair value of these instruments are measured principally based on the discounted cash flows. Where the inputs into the valuation techniques are mainly based on observable inputs, these instruments are classified in Level 2 of the fair value hierarchy. Where significant inputs are unobservable, they are classified in Level 3 of the fair value hierarchy.

Market Valuation Adjustments

Counterparty credit risk adjustments are made to certain financial assets such as over-the-counter derivatives to factor in counterparty credit exposure. As not all counterparties have the same credit risk, it is necessary in calculating credit risk adjustments, to take into account probability of a default event occurring for each counterparty, which is primarily derived from observed or estimated spreads on credit default swaps. In addition, the counterparty credit risk adjustment takes into account the effect of credit risk mitigation such as pledged collateral and the legal right of offset with the counterparty.

Funding valuation adjustment (“FVA”) represents the adjustment to reflect the impact of uncollateralized funding. The FVA is calculated using the MUFG’s market funding spread and the funding exposure of any uncollateralized component of the over-the-counter derivative instrument. The MUFG Group’s FVA framework incorporates key inputs, such as the expected future funding requirements arising from the MUFG Group’s positions with each counterparty and collateral arrangements, and the estimated market funding cost in the principal market, which considers the MUFG Group’s credit risk.

Liquidity adjustments are applied mainly to the instruments classified in Level 3 of the fair value hierarchy when recent observable prices of such instruments are not available or such instruments are traded in inactive or less active markets. The liquidity adjustments are based on the facts and circumstances of the markets including the availability of external quotes and the time since the latest available quote.

Model valuation adjustments such as unobservable parameter valuation adjustments may be provided when the fair values of instruments are determined based on internally developed valuation techniques. Examples of such adjustments include adjustments to the model price of certain derivatives where parameters such as correlation are unobservable. Unobservable parameter valuation adjustments are applied to mitigate the uncertainty inherent in the resulting valuation estimate.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Investments in Certain Entities That Calculate Net Asset Value per Share

The MUFG Group has interests in investment funds mainly private equity funds, and real estate funds that are measured at fair value on a recurring or nonrecurring basis.

Private equity funds have specific investment objectives in connection with their acquisition of equity interests, such as providing financing and other support to start-up businesses, medium and small entities in a particular geographical area, and to companies with certain technology or companies in a high-growth industry. Generally, these investments cannot be redeemed with the funds, and the return of invested capital and its gains are derived from distributions received upon the liquidation of the underlying assets of the fund, the timing of which is uncertain.

Real estate funds invest globally and primarily in real estate companies, debt recapitalizations and direct property. These investments are generally not redeemable with the funds. Distributions from each fund will be received as the underlying investments of the funds are liquidated, the timing of which is uncertain.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the financial instruments carried at fair value by level within the fair value hierarchy as of March 31, 2019 and 2020:

At March 31, 2019	Level 1		Level 2		Level 3		Fair Value
	(in millions)
Assets
Trading account assets:
Trading securities(1)	¥	12,821,328	¥	13,725,079	¥	785,326	¥	27,331,733
Debt securities
Japanese national government and Japanese government agency bonds		2,117,841		512,134		—		2,629,975
Japanese prefectural and municipal bonds		—		117,799		—		117,799
Foreign government and official institution bonds		9,264,028		454,365		792		9,719,185
Corporate bonds		—		3,203,585		31,384		3,234,969
Residential mortgage-backed securities		—		7,038,353		35,181		7,073,534
Asset-backed securities		—		253,274		627,678		880,952
Other debt securities		—		747		35,148		35,895
Commercial paper		—		1,473,693		—		1,473,693
Equity securities(2)		1,439,459		671,129		55,143		2,165,731
Trading derivative assets		63,582		13,047,590		93,313		13,204,485
Interest rate contracts		23,430		10,067,719		17,307		10,108,456
Foreign exchange contracts		1,115		2,771,115		22,861		2,795,091
Equity contracts		39,037		139,666		9,000		187,703
Commodity contracts		—		3,727		25,684		29,411
Credit derivatives		—		65,363		18,461		83,824
Investment securities:
Available-for-sale debt securities		22,550,086		10,684,983		283,434		33,518,503
Japanese national government and Japanese government agency bonds		20,635,872		3,441,824		—		24,077,696
Japanese prefectural and municipal bonds		—		2,226,566		—		2,226,566
Foreign government and official institution bonds		1,914,214		707,959		19,246		2,641,419
Corporate bonds		—		1,126,535		4,196		1,130,731
Residential mortgage-backed securities		—		1,615,336		15		1,615,351
Commercial mortgage-backed securities		—		128,917		2,038		130,955
Asset-backed securities		—		1,371,467		131,455		1,502,922
Other debt securities		—		66,379		126,484		192,863
Equity securities		5,982,629		375,914		27,820		6,386,363
Marketable equity securities		5,982,629		375,914		—		6,358,543
Nonmarketable equity securities(3)		—		—		27,820		27,820
Other(4)		807,193		42,184		32,378		881,755
Total	¥	42,224,818	¥	37,875,750	¥	1,222,271	¥	81,322,839

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At March 31, 2019	Level 1		Level 2		Level 3		Fair Value
	(in millions)
Liabilities
Trading account liabilities:
Trading securities sold, not yet purchased	¥	157,114	¥	5,796	¥	—	¥	162,910
Trading derivative liabilities		88,329		12,701,110		57,143		12,846,582
Interest rate contracts		35,179		9,839,618		21,496		9,896,293
Foreign exchange contracts		2,633		2,663,347		4,670		2,670,650
Equity contracts		50,517		126,737		6,138		183,392
Commodity contracts		—		2,916		24,735		27,651
Credit derivatives		—		68,492		104		68,596
Obligation to return securities received as collateral(5)		2,912,355		174,671		—		3,087,026
Other(6)		—		426,368		65,648		492,016
Total	¥	3,157,798	¥	13,307,945	¥	122,791	¥	16,588,534

At March 31, 2020	Level 1		Level 2		Level 3		Fair Value
	(in millions)
Assets
Trading account assets:
Trading securities(1)	¥	14,891,635	¥	17,061,985	¥	525,946	¥	32,479,566
Debt securities
Japanese national government and Japanese government agency bonds		3,805,039		350,128		—		4,155,167
Japanese prefectural and municipal bonds		—		93,479		—		93,479
Foreign government and official institution bonds		9,356,427		417,766		1,052		9,775,245
Corporate bonds		11		2,537,559		144		2,537,714
Residential mortgage-backed securities		—		9,037,539		—		9,037,539
Asset-backed securities		—		590,556		416,259		1,006,815
Other debt securities		—		7,787		6,651		14,438
Commercial paper		—		2,959,580		—		2,959,580
Equity securities(2)		1,730,158		1,067,591		101,840		2,899,589
Trading derivative assets		216,834		14,680,632		60,108		14,957,574
Interest rate contracts		74,488		10,758,790		13,329		10,846,607
Foreign exchange contracts		1,550		3,723,087		9,046		3,733,683
Equity contracts		140,796		87,285		7,491		235,572
Commodity contracts		—		10		27,492		27,502
Credit derivatives		—		111,460		2,750		114,210
Investment securities:
Available-for-sale debt securities		22,126,881		11,798,392		274,930		34,200,203
Japanese national government and Japanese government agency bonds		19,897,187		3,565,692		—		23,462,879
Japanese prefectural and municipal bonds		—		2,952,820		—		2,952,820
Foreign government and official institution bonds		2,229,694		792,027		15,767		3,037,488
Corporate bonds		—		1,262,718		10,108		1,272,826
Residential mortgage-backed securities		—		1,459,378		15		1,459,393
Commercial mortgage-backed securities		—		380,278		1,977		382,255
Asset-backed securities		—		1,328,601		140,875		1,469,476
Other debt securities		—		56,878		106,188		163,066
Equity securities		4,471,499		296,819		39,963		4,808,281
Marketable equity securities		4,471,499		296,819		—		4,768,318
Nonmarketable equity securities(3)		—		—		39,963		39,963
Other(4)		1,054,186		45,913		36,701		1,136,800
Total	¥	42,761,035	¥	43,883,741	¥	937,648	¥	87,582,424

F-149

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At March 31, 2020	Level 1		Level 2		Level 3			Fair Value
	(in millions)
Liabilities
Trading account liabilities:
Trading securities sold, not yet purchased	¥	555,664	¥	3,718		¥	—	¥	559,382
Trading derivative liabilities		300,215		13,851,205			56,631		14,208,051
Interest rate contracts		153,098		10,038,198			14,079		10,205,375
Foreign exchange contracts		3,360		3,596,589			4,041		3,603,990
Equity contracts		143,757		121,229			11,713		276,699
Commodity contracts		—		14			26,775		26,789
Credit derivatives		—		95,175			23		95,198
Obligation to return securities received as collateral(5)		4,663,068		143,103			—		4,806,171
Other(6)		—		514,003			6,606		520,609
Total	¥	5,518,947	¥	14,512,029		¥	63,237	¥	20,094,213

Notes:

(1) Includes securities measured under the fair value option.

(2) Excludes certain investments valued at net asset value of private equity funds whose fair values were ¥40,400 million and ¥66,918 million at March 31, 2019 and 2020, respectively. The amounts of unfunded commitments related to these private equity funds were ¥94,483 million and ¥102,743 million at March 31, 2019 and 2020, respectively.

(3) Excludes certain investments valued at net asset value of real estate funds and private equity and other funds whose fair values at March 31, 2019 were ¥17,583 million and ¥9,921 million, respectively, and those at March 31, 2020 were ¥23,233 million and ¥18,862 million, respectively. The amounts of unfunded commitments related to these real estate funds and private equity and other funds at March 31, 2019 were ¥2,054 million and nil, respectively, and those at March 31, 2020 were ¥1,494 million and nil, respectively.

(4) Mainly comprises securities received as collateral that may be sold or repledged under securities lending transactions, money in trust for segregating cash deposited by customers on security transactions and derivative assets designated as hedging instruments.

(5) Included in Other liabilities.

(6) Includes other short-term borrowings, long-term debt, bifurcated embedded derivatives carried at fair value and derivative liabilities designated as hedging instruments.

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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Changes in Level 3 Recurring Fair Value Measurements

The following tables present a reconciliation of the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the fiscal years ended March 31, 2019 and 2020. The determination to classify a financial instrument within Level 3 is based upon the significance of the unobservable inputs to overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable or Level 3 input, observable inputs (inputs that are actively quoted and can be validated to external sources). Accordingly, the gains and losses in the tables below include changes in fair value due in part to observable inputs used in the valuation techniques.

	March 31, 2018			Total gains (losses) for the period						Purchases		Issues			Sales			Settlements			Transfers into Level 3			Transfers out of Level 3			March 31, 2019			Change in unrealized gains (losses) included in earnings for assets and liabilities still held at March 31, 2019
				Included in earnings			Included in other comprehensive income
	(in millions)
Assets
Trading account assets:
Trading securities(1)	¥	827,493		¥	23,848	(2)	¥	(1,341	)	¥	454,048	¥	—		¥	(316,384	)	¥	(213,944	)	¥	29,445		¥	(17,839	)	¥	785,326		¥	18,299	(2)
Debt securities
Foreign government and official institution bonds		1,047			863			—			117,619		—			(118,377	)		(317	)		—			(43	)		792			5
Corporate bonds		23,092			611			—			2,040		—			(1,798	)		(4,188	)		29,423	(5)		(17,796	)(5)		31,384			286
Residential mortgage-backed securities		41,141			(282	)		—			—		—			—			(5,678	)		—			—			35,181			(289	)
Asset-backed securities		684,637			18,692			(1,341	)		315,865		—			(195,851	)		(194,324	)		—			—			627,678			15,528
Other debt securities		33,450			1,698			—			—		—			—			—			—			—			35,148			1,698
Equity securities		44,126			2,266			—			18,524		—			(358	)		(9,437	)		22			—			55,143			1,071
Trading derivatives—net		12,119			(5,871	)(2)		(744	)		787		(682	)		—			37			20,192			10,332			36,170			(25,241	)(2)
Interest rate contracts—net		14,596			12,397			57			—		(119	)		—			(25,601	)		(7,013	)		1,494			(4,189	)		11,507
Foreign exchange contracts—net		6,736			(10,997	)		(419	)		210		—			—			(322	)		27,230	(5)		(4,247	)		18,191			(10,451	)
Equity contracts—net		(10,685	)		18,756			(374	)		13		(228	)		—			(17,680	)		(25	)		13,085			2,862			(752	)
Commodity contracts—net		683			32			6			564		(335	)		—			(1	)		—			—			949			795
Credit derivatives—net		789			(26,059	)		(14	)		—		—			—			43,641			—			—			18,357			(26,340	)
Investment securities:
Available-for-sale debt securities		350,660			6,415	(3)		(9,791	)		273,201		—			—			(338,180	)		1,456			(327	)		283,434			(498	)(3)
Foreign government and official institution bonds		20,192			—			(876	)		645		—			—			(715	)		—			—			19,246			—
Corporate bonds		6,037			(345	)		3			3,450		—			—			(6,078	)		1,456	(5)		(327	)(5)		4,196			(498	)
Residential mortgage-backed securities		15			—			—			—		—			—			—			—			—			15			—
Commercial mortgage-backed securities		2,430			—			(135	)		—		—			—			(257	)		—			—			2,038			—
Asset-backed securities		161,172			6,760			(5,016	)		263,587		—			—			(295,048	)		—			—			131,455			—
Other debt securities		160,814			—			(3,767	)		5,519		—			—			(36,082	)		—			—			126,484			—
Equity securities		28,359			(2,298	)(3)		—			3,795		—			(1,418	)		—			—			(618	)		27,820			(3,060	)(3)
Nonmarketable equity securities		28,359			(2,298	)		—			3,795		—			(1,418	)		—			—			(618	)		27,820			(3,060	)
Other		8,660			(1,022	)(7)		(20	)		24,961		—			(206	)		—			5			—			32,378			(1,191	)(7)
Total	¥	1,227,291		¥	21,072		¥	(11,896	)	¥	756,792	¥	(682	)	¥	(318,008	)	¥	(552,087	)	¥	51,098		¥	(8,452	)	¥	1,165,128		¥	(11,691	)
Liabilities
Other	¥	(25,528	)	¥	(19,629	)(4)	¥	6,670		¥	—	¥	16,759		¥	—		¥	(18,499	)	¥	44,727	(6)	¥	35,230	(6)	¥	65,648		¥	(10,778	)(4)
Total	¥	(25,528	)	¥	(19,629	)	¥	6,670		¥	—	¥	16,759		¥	—		¥	(18,499	)	¥	44,727		¥	35,230		¥	65,648		¥	(10,778	)

F-151

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	March 31, 2019			Total gains (losses) for the period						Purchases		Issues			Sales			Settlements			Transfers into Level 3			Transfers out of Level 3			March 31, 2020			Change in unrealized gains (losses) included in earnings for assets and liabilities still held at March 31, 2020
				Included in earnings			Included in other comprehensive income
	(in millions)
Assets
Trading account assets:
Trading securities(1)	¥	785,326		¥	(22,419	)(2)	¥	—		¥	227,656	¥	—		¥	(214,183	)	¥	(225,980	)	¥	52,140		¥	(76,594	)	¥	525,946		¥	(18,915	)(2)
Debt securities
Foreign government and official institution bonds		792			589			—			93,957		—			(92,748	)		(18	)		—			(1,520	)		1,052			(12	)
Corporate bonds		31,384			(279	)		—			631		—			(3,937	)		(4,721	)		24,882	(5)		(47,816	)(5)		144			(13	)
Residential mortgage-backed securities		35,181			(695	)		—			—		—			(23,837	)		(10,649	)		—			—			—			—
Asset-backed securities		627,678			(23,494	)		—			113,239		—			(93,655	)		(207,509	)		—			—			416,259			(18,815	)
Other debt securities		35,148			(1,239	)		—			—		—			—			—			—			(27,258	)(8)		6,651			(387	)
Equity securities		55,143			2,699			—			19,829		—			(6	)		(3,083	)		27,258	(8)		—			101,840			312
Trading derivatives—net		36,170			4,503	(2)		178			714		(1,449	)		—			(33,463	)		40,857			(44,033	)		3,477			(16,742	)(2)
Interest rate contracts—net		(4,189	)		21,290			(24	)		—		—			—			(12,025	)		2,254			(8,056	)		(750	)		8,046
Foreign exchange contracts—net		18,191			(21,429	)		89			3		—			—			4,858			35,444	(5)		(32,151	)(5)		5,005			(21,483	)
Equity contracts—net		2,862			5,188			110			96		(777	)		—			(11,305	)		(41	)		(355	)		(4,222	)		(2,846	)
Commodity contracts—net		949			(174	)		(1	)		615		(672	)		—			—			—			—			717			(167	)
Credit derivatives—net		18,357			(372	)		4			—		—			—			(14,991	)		3,200			(3,471	)		2,727			(292	)
Investment securities:
Available-for-sale debt securities		283,434			(2,402	)(3)		804			281,041		—			(24	)		(300,023	)		15,201			(3,101	)		274,930			(934	)(3)
Foreign government and official institution bonds		19,246			—			1,625			828		—			—			(5,932	)		—			—			15,767			—
Corporate bonds		4,196			(458	)		342			663		—			(1	)		(6,734	)		15,201	(5)		(3,101	)(5)		10,108			(934	)
Residential mortgage-backed securities		15			—			—			—		—			—			—			—			—			15			—
Commercial mortgage-backed securities		2,038			—			125			—		—			(23	)		(163	)		—			—			1,977			—
Asset-backed securities		131,455			(1,944	)		(1,085	)		274,110		—			—			(261,661	)		—			—			140,875			—
Other debt securities		126,484			—			(203	)		5,440		—			—			(25,533	)		—			—			106,188			—
Equity securities		27,820			2,585	(3)		—			12,718		—			(2,527	)		(35	)		—			(598	)		39,963			863	(3)
Nonmarketable equity securities		27,820			2,585			—			12,718		—			(2,527	)		(35	)		—			(598	)		39,963			863
Other		32,378			(10,105	)(7)		(375	)		44,324		—			(29,334	)		(187	)		—			—			36,701			(10,136	)(7)
Total	¥	1,165,128		¥	(27,838	)	¥	607		¥	566,453	¥	(1,449	)	¥	(246,068	)	¥	(559,688	)	¥	108,198		¥	(124,326	)	¥	881,017		¥	(45,864	)
Liabilities
Other	¥	65,648		¥	(5,388	)(4)	¥	(414	)	¥	—	¥	2,258		¥	—		¥	(21,133	)	¥	333	(6)	¥	(46,302	)(6)	¥	6,606		¥	9,648	(4)
Total	¥	65,648		¥	(5,388	)	¥	(414	)	¥	—	¥	2,258		¥	—		¥	(21,133	)	¥	333		¥	(46,302	)	¥	6,606		¥	9,648

Notes:

(1) Includes Trading securities measured under the fair value option.

(2) Included in Trading account profits (losses)—net and in Foreign exchange losses—net.

(3) Included in Investment securities gains (losses)—net.

(4) Included in Trading account profits (losses)—net.

(5) Transfers into (out of) Level 3 for Corporate bonds were caused by the decrease (increase) in liquidity or the availability of the quoted prices provided by third-party vendors. Transfers into (out of) Level 3 for Foreign exchange contracts—net were mainly caused by the valuation using certain unobservable input.

(6) Transfers into (out of) Level 3 for bifurcated embedded derivatives in Other were mainly caused by the decrease (increase) in the observability of the key inputs to the valuation models and a corresponding increase (decrease) in the significance of the unobservable inputs.

(7) Included in Fees and commissions income and Other non-interest income.

(8) Transfers relate to the reclassification of certain securities.

F-152

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Quantitative Information about Level 3 Fair Value Measurements

The following tables present information on the valuation techniques, significant unobservable inputs and their ranges for each major category of assets and liabilities measured at fair value on a recurring basis and classified in Level 3:

At March 31, 2019	Fair value(1)		Valuation technique	Significant unobservable inputs	Range	Weighted average(2)
	(in millions)
Assets
Trading securities and Investment securities:
Foreign government and official institution bonds	¥	19,246	Return on equity method	Probability of default	0.0%~0.4%		0.3	%
				Recovery rate	60.0%~70.0%		66.7	%
				Market-required return on capital	10.0%		10.0	%
Residential mortgage-backed securities, Commercial mortgage-backed securities and Asset-backed securities		109,213	Discounted cash flow	Probability of default	1.2%~5.3%		5.0	%
				Recovery rate	60.0%~76.0%		67.2	%
				Loan price	90.5%~100.3%		95.4	%
		587,577	Internal model(4)	Asset correlations	10.0%		10.0	%
				Discount factor	1.0%~1.2%		1.2	%
				Prepayment rate	22.7%		22.7	%
				Probability of default	0.0%~90.1%		—	(3)
				Recovery rate	64.3%		64.3	%
Other debt securities		35,148	Discounted cash flow	Liquidity premium	1.0%~2.4%		1.3	%
		112,822	Return on equity method	Probability of default	0.0%~25.0%		0.3	%
				Recovery rate	40.0%~90.0%		78.0	%
				Market-required return on capital	8.0%~10.0%		9.5	%

At March 31, 2019	Fair value(1)			Valuation technique	Significant unobservable inputs	Range
	(in millions)
Trading derivatives—net:
Interest rate contracts—net		(4,189	)	Option model	Probability of default	0.0%~12.0%
					Correlation between interest rates	29.2%~51.3%
					Correlation between interest rate and foreign exchange rate	22.8%~60.0%
					Recovery rate	41.0%~48.0%
					Volatility	11.0%~71.3%
Foreign exchange contracts—net		18,198		Option model	Probability of default	0.0%~12.0%
					Correlation between interest rates	35.0%~70.0%
					Correlation between interest rate and foreign exchange rate	14.8%~60.0%
					Recovery rate	41.0%~48.0%
					Correlation between underlying assets	65.0%
					Volatility	9.7%~18.2%
Equity contracts—net		(2,727	)	Option model	Correlation between foreign exchange rate and equity	7.0%~64.1%
					Correlation between equities	21.6%~80.3%
					Correlation between underlying assets	51.7%~82.0%
					Volatility	21.0%~30.0%
		5,878		Discounted cash flow	Term of litigation	1.0 year

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At March 31, 2020	Fair value(1)		Valuation technique	Significant unobservable inputs	Range	Weighted average(2)
	(in millions)
Assets
Trading securities and Investment securities:
Foreign government and official institution bonds	¥	15,767	Return on equity method	Probability of default	0.2%~1.3%		0.4	%
				Recovery rate	55.0%~90.0%		69.9	%
				Market-required return on capital	8.0%~10.0%		9.9	%
Residential mortgage-backed securities, Commercial mortgage-backed securities and Asset-backed securities		92,025	Discounted cash flow	Probability of default	1.2%~5.3%		5.0	%
				Recovery rate	60.0%~76.0%		68.2	%
		389,170	Internal model(4)	Asset correlations	1.0%		1.0	%
				Discount factor	1.1%~1.4%		1.4	%
				Prepayment rate	21.0%		21.0	%
				Probability of default	0.0%~99.0%		—	(3)
				Recovery rate	57.8%		57.8	%
Other debt securities		6,651	Discounted cash flow	Liquidity premium	2.4%		2.4	%
		86,734	Return on equity method	Probability of default	0.0%~25.0%		0.3	%
				Recovery rate	60.0%~90.0%		79.8	%
				Market-required return on capital	8.0%~10.0%		9.4	%
Equity securities		27,144	Discounted cash flow	Liquidity premium	1.0%		1.0	%

At March 31, 2020	Fair value(1)			Valuation technique	Significant unobservable inputs	Range
	(in millions)
Trading derivatives—net:
Interest rate contracts—net		(728	)	Option model	Correlation between interest rates	32.9%~62.5%
					Correlation between interest rate and foreign exchange rate	16.7%~60.0%
					Volatility	0.0%~100.0%
Foreign exchange    contracts—net		5,005		Option model	Correlation between interest rates	30.0%~70.0%
					Correlation between interest rate and foreign exchange rate	15.8%~60.0%
					Correlation between underlying assets	60.0%
					Volatility	7.5%~17.0%
Equity contracts—net		(10,038	)	Option model	Correlation between foreign exchange rate and equity	(58.4)%~56.9%
					Correlation between equities	19.5%~81.0%
					Volatility	24.2%~32.0%
		6,166		Discounted cash flow	Term of litigation	0.1  year~1.1 years

Notes:

(1) The fair value as of March 31, 2019 and 2020 excludes the fair value of investments valued using vendor prices.

(2) Weighted averages are calculated by weighing each input by the relative fair value of the respective financial instruments.

(3) See “Probability of default” in “Sensitivity to and range of unobservable inputs.”

(4) For further detail of Internal model, refer to the last paragraph of “Trading Account Assets and Liabilities—Trading Account Securities.”

Sensitivity to and range of unobservable inputs

Probability of default—Probability of default is an estimate of the likelihood that the default event will occur and the MUFG Group will be unable to collect the contractual amounts. A significant increase (decrease)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

in the default rate would result in a significant decrease (increase) in a fair value through a decrease (increase) in the estimated cash flows. Probability of default used in internal model of Residential mortgage-backed securities, Commercial mortgage-backed securities and Asset-backed securities represents that of underlying assets, whereas probability of default used in other valuation techniques represents the counterparty default risks, determined through the MUFG Group’s credit rating system.

The wide range of probability of default used in the internal model of Residential mortgage-backed securities, Commercial mortgage-backed securities and Asset-backed securities is mainly caused by Asset-backed securities. Asset-backed securities have a large number of underlying loans, mainly corporate loans, in several industries. The MUFG Group primarily makes investments in the senior tranches of such securities, with no investments in the equity portion. Thus, the MUFG Group’s investments have higher priority of payments than mezzanine and equity and even if some of underlying loans become default, the MUFG Group may still be able to receive the full contractual payments.

Discount factor and Liquidity premium—Discount factor and liquidity premium are adjustments to discount rates to reflect uncertainty of cash flows and liquidity of the instruments. When recent prices of similar instruments are unobservable in inactive or less active markets, discount rates are adjusted based on the facts and circumstances of the markets including the availability of quotes and the time since the latest available quotes. A significant increase (decrease) in discount rate would result in a significant decrease (increase) in a fair value.

Recovery rate and Prepayment rate—Recovery rate is the proportion of the total outstanding balance of a bond or loan that is expected to be collected in a liquidation scenario. For many debt securities (such as asset-backed securities), there is no directly observable market input for recovery, but indications of recovery levels are available from third-party pricing services. The assumed recovery of a security may differ from its actual recovery that will be observable in the future. Prepayment rate represents the proportion of principal that is expected to be paid prematurely in each period on a security or pool of securities. Prepayment rates change the future cash flows for the investor and thereby change the fair value of the security. Recovery rate and prepayment rate would affect estimation of future cash flows to a certain extent and changes in these inputs could result in a significant increase or decrease in fair value.

Volatility—Volatility is a measure of the speed and severity of market price changes and is a key factor in pricing. Typically, instruments can become more expensive if volatility increases. A significant increase (decrease) in volatility would cause a significant increase (decrease) in the value of an option resulting in the significant increase (decrease) in fair value.

The level of volatility generally depends on the tenor of the underlying instrument and the strike price or level defined in the contract. Volatilities for certain combinations of tenor and strike price are not observable. The volatility inputs used to estimate fair value of interest rate contracts are distributed throughout the range.

Correlation—Correlation is a measure of the relationship between the movements of two variables (i.e. how the change in one variable influences a change in the other variables). A variety of correlation-related assumptions are required for a wide range of instruments including foreign government and official institution bonds, asset-backed securities, corporate bonds, derivatives and certain other instruments. In most cases, correlations used are not observable in the market and must be estimated using historical information. Changes in correlation inputs can have a major impact, favorable or unfavorable, on the value of an instrument, depending on its nature. In addition, the wide range of correlation inputs are primarily due to the complex and unique nature of these instruments. There are many different types of correlation inputs, including cross-asset correlation (such as correlation between interest rate and equity), and same-asset correlation (such as correlation between interest rates). Correlation levels are highly dependent on market conditions and could have a relatively wide range of levels within or across asset classes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For interest rate contracts and foreign exchange contracts, the diversity in the portfolio held by the MUFG Group is reflected in wide ranges of correlation, as the fair values of transactions with a variety of currencies and tenors are determined using several foreign exchange and interest rate curves. For equity derivative contracts, the wide range of correlation between interest rate and equity is primarily due to the large number of correlation pairs with different maturities of contracts. For credit derivative contracts, the wide range of correlation between underlying assets is primarily due to factors such as reference assets with different maturities, capital structure subordinations, and credit quality.

Term of litigation—Term of litigation is the estimated period until the resolution of a certain litigation matter that relates to an issuer’s restricted shares (“Covered Litigation”) that the MUFG Group purchased, which is referenced in certain swap transactions.

These swaps are valued using a discounted cash flow methodology and are dependent upon the final resolution of the Covered Litigation. The settlement timing of the Covered Litigation is not observable in the market, therefore the estimated term is classified as a level 3 input.

The restricted shares which the MUFG Group purchased will be convertible to listed shares of the issuer at the end of the Covered Litigation. The restricted shares will be diluted dependent upon the settlement amount of the Covered Litigation and the dilution of the restricted shares is accomplished through an adjustment to the conversion rate of the restricted shares. In order to hedge the reduction of the conversion rate, the MUFG Group entered into certain swaps with the seller which references the conversion rate. The value generated by these trades is subject to the ultimate term of the issuer’s litigation, subject to a minimum term referenced within the trade contracts.

Market-required return on capital—Market-required return on capital is the return on capital expected by the secondary market. A significant increase (decrease) in the market-required return on capital would result in a significant decrease (increase) in a fair value of a financial asset.

Loan Price—Loan price refers to independent valuations which are supported by a number of third-party quotes. A significant increase (decrease) in the loan price would result in a significant increase (decrease) in a fair value of a financial asset. 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities may be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting, write-downs of individual assets or the measurement alternative for nonmarketable equity securities. The following table presents the carrying value of assets measured at fair value on a nonrecurring basis by level within the fair value hierarchy as of March 31, 2019 and 2020:

	2019								2020
	Level 1		Level 2		Level 3		Total carrying value		Level 1		Level 2		Level 3		Total carrying value
	(in millions)
Assets
Investment securities(1)(2)	¥	—	¥	80,779	¥	4,208	¥	84,987	¥	—	¥	15,473	¥	2,703	¥	18,176
Loans		2,656		9,104		250,678		262,438		2,548		9,199		260,282		272,029
Loans held for sale		—		—		77,506		77,506		—		—		73,573		73,573
Collateral dependent loans		2,656		9,104		173,172		184,932		2,548		9,199		186,709		198,456
Premises and equipment		—		—		35,352		35,352		—		—		37,109		37,109
Intangible assets		—		—		19,635		19,635		—		—		453		453
Goodwill		—		—		—		—		—		—		283,032		283,032
Other assets		136,528		49,756		9,774		196,058		73,015		—		18,609		91,624
Investments in equity method investees(1)		136,528		49,756		—		186,284		73,015		—		5,911		78,926
Other		—		—		9,774		9,774		—		—		12,698		12,698
Total	¥	139,184	¥	139,639	¥	319,647	¥	598,470	¥	75,563	¥	24,672	¥	602,188	¥	702,423

Notes:

(1) Excludes certain investments valued at net asset value of ¥8,866 million and ¥12,935 million at March 31, 2019 and 2020, respectively. The unfunded commitments related to these investments are ¥12,242 million and ¥17,216 million at March 31, 2019 and 2020, respectively. These investments are in private equity funds.

(2) Includes certain nonmarketable equity securities that are measured at fair value on a nonrecurring basis, including impairment and observable price change for nonmarketable equity securities measured under the measurement alternative.

The following table presents losses (gains) recorded as a result of changes in the fair value of assets measured at fair value on a nonrecurring basis for the fiscal years ended March 31, 2019 and 2020:

	2019			2020
	(in millions)
Investment securities	¥	(50,785	)	¥	(2,171	)
Loans		30,153			47,359
Loans held for sale		4,762			4,688
Collateral dependent loans		25,391			42,671
Premises and equipment		31,345			16,517
Intangible assets		118,108			3,732
Goodwill		—			383,810
Other assets		59,557			46,237
Investments in equity method investees		51,645			21,672
Other		7,912			24,565
Total	¥	188,378		¥	495,484

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Investment securities for the year ended March 31, 2019 and 2020 primarily include nonmarketable equity securities measured under the measurement alternative. See Note 3 for the details of the measurement alternative.

Loans include loans held for sale and collateral dependent loans. Loans held for sale are recorded at the lower of cost or estimated fair value. The fair value of the loans held for sale is based on secondary market prices, recent transactions or discounted cash flows. These loans are principally classified in Level 3 of the fair value hierarchy, and when quoted prices are available but not traded actively, such loans held for sale are classified in Level 2 of the fair value hierarchy. Collateral dependent loans are measured at fair value of the underlying collateral. Collateral is comprised mainly of real estate and exchange-traded equity securities. The MUFG Group maintains an established process for internally determining the fair value of real estate, using the following valuation techniques and assumptions. Collateral dependent loans that are measured based on underlying real estate collateral are classified in Level 3 of the fair value hierarchy.

• Replacement cost approach. The replacement cost approach is primarily used for buildings and the land they are built on. This approach calculates the fair value of the collateral using the replacement cost of the property as of the valuation date. Replacement cost tables and useful life tables used for this approach are developed by subsidiaries of MUFG.

• Sales comparison approach. The sales comparison approach is mainly used for land. The fair value of the collateral located in Japan is based on Japanese government official land prices and standard land prices, considering the results of comparison analysis between the official roadside value which is used for tax purposes and the related government official land and standard land prices.

• Income approach. The income approach is, as a general rule, applied to all rental properties based on the highest and best use concept. This approach calculates the fair value of the collateral using expected future cash flows. In this approach, the expected annual net operating income is discounted using the related capitalization yield. The significant assumptions within the income approach are the expected annual net operating income and capitalization yield. The expected annual net operating income is estimated based on rental income of the property. The capitalization yield is determined based on the location and use of the property by subsidiaries of MUFG. The capitalization yield may be adjusted to reflect the trends in locations, occupancy rates and rent level and other factors.

Premises and equipment consist of those assets which were written down to fair value. The fair values are determined based on prices obtained from an appraiser or discounted cash flows. These impaired premises and equipment are classified as Level 3 of the fair value hierarchy.

Intangible assets consist of those assets which were written down to fair value. The fair values are determined based on discounted cash flows. These impaired intangible assets are classified as Level 3 of the fair value hierarchy.

Other assets mainly consist of investments in equity method investees which were written down to fair value due to impairment. When investments in equity method investees are marketable equity securities, the fair values are determined based on quoted prices. Impaired investments in equity method investees which are marketable equity securities are classified in either Level 1 or Level 2 of the fair value hierarchy. When investments in equity method investees are nonmarketable equity securities, the fair values are determined using the same methodologies as those for impaired nonmarketable equity securities described above. Impaired investments in equity method investees which are nonmarketable equity securities are classified in Level 3 of the fair value hierarchy.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair Value Option

The MUFG Group elected the fair value option for foreign currency-denominated debt securities and equity securities held by MUFG Bank and Mitsubishi UFJ Trust and Banking. The election was made to mitigate accounting mismatches related to fluctuations of foreign exchange rates by allowing the gains and losses on translation of these securities to be included in current earnings. The gains and losses on translation of debt securities without the fair value option, are included in OCI, while the gains and losses on translation of foreign currency-denominated financial liabilities are included in current earnings.

The MUFG Group also elected the fair value option for certain financial instruments held by Mitsubishi UFJ Securities Holdings’s foreign subsidiaries because those financial instruments are managed on a fair value basis, and these exposures are considered to be trading-related positions. These financial assets are included in Other assets. These financial liabilities are mainly included in Other short-term borrowings and Long-term debt. Unrealized gains and losses on such financial instruments are recognized in the accompanying consolidated statements of income.

The following table presents the gains or losses recorded for the fiscal years ended March 31, 2018, 2019 and 2020 related to the eligible instruments for which the MUFG Group elected the fair value option:

	2018									2019								2020
	Trading account profits (losses)			Foreign exchange gains (losses)			Total changes in fair value			Trading account profits (losses)			Foreign exchange gains (losses)		Total changes in fair value			Trading account profits (losses)			Foreign exchange gains (losses)			Total changes in fair value
	(in millions)
Financial assets:
Trading account securities(1)	¥	(148,242	)	¥	(267,507	)	¥	(415,749	)	¥	208,952		¥	186,578	¥	395,530		¥	837,832		¥	(596,017	)	¥	241,815
Total	¥	(148,242	)	¥	(267,507	)	¥	(415,749	)	¥	208,952		¥	186,578	¥	395,530		¥	837,832		¥	(596,017	)	¥	241,815
Financial liabilities:
Other short-term borrowings(2)	¥	5,902		¥	—		¥	5,902		¥	(5,559	)	¥	—	¥	(5,559	)	¥	5,194		¥	—		¥	5,194
Long-term debt(2)		7,554			—			7,554			(8,322	)		—		(8,322	)		(8,087	)		—			(8,087	)
Total	¥	13,456		¥	—		¥	13,456		¥	(13,881	)	¥	—	¥	(13,881	)	¥	(2,893	)	¥	—		¥	(2,893	)

Notes:

(1) Excludes Danamon’s equity securities. See Note 2 for reference.

(2) Change in value attributable to the instrument-specific credit risk related to those financial liabilities are not material.

The following table presents the differences between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of March 31, 2019 and 2020 for long-term debt instruments for which the fair value option has been elected:

	2019							2020
	Remaining aggregate contractual amounts outstanding		Fair value		Fair value over (under) remaining aggregate contractual amounts outstanding			Remaining aggregate contractual amounts outstanding		Fair value		Fair value over (under) remaining aggregate contractual amounts outstanding
	(in millions)
Financial liabilities:
Long-term debt	¥	358,730	¥	325,808	¥	(32,922	)	¥	319,149	¥	304,067	¥	(15,082	)
Total	¥	358,730	¥	325,808	¥	(32,922	)	¥	319,149	¥	304,067	¥	(15,082	)

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Interest income and expense related to the assets and liabilities for which the fair value option is elected are measured based on the contractual rates and dividend income related to these assets are recognized when the shareholder right to receive the dividend is established. These interest income and expense and dividend income are reported in the accompanying consolidated statements of income as either interest income or expense, depending on the nature of the related asset or liability.

Estimated Fair Value of Financial Instruments

The following is a summary of carrying amounts and estimated fair values by level within the fair value hierarchy of financial instruments which are not carried at fair value on a recurring basis in the accompanying consolidated balance sheets as of March 31, 2019 and 2020:

	Carrying amount		Estimated fair value
At March 31, 2019			Total		Level 1		Level 2		Level 3
	(in billions)
Financial assets:
Cash and due from banks	¥	33,924	¥	33,924	¥	33,924	¥	—	¥	—
Interest-earning deposits in other banks		40,647		40,647		—		40,647		—
Call loans and funds sold		1,110		1,110		—		1,110		—
Receivables under resale agreements		10,975		10,975		—		10,975		—
Receivables under securities borrowing transactions		2,759		2,759		—		2,759		—
Investment securities		4,442		4,453		1,197		1,135		2,121
Loans, net of allowance for credit losses(1)		116,213		117,064		3		247		116,814
Other financial assets(2)		7,455		7,455		—		7,455		—
Financial liabilities:
Deposits
Non-interest-bearing	¥	30,443	¥	30,443	¥	—	¥	30,443	¥	—
Interest-bearing		168,846		168,899		—		168,899		—
Total deposits		199,289		199,342		—		199,342		—
Call money and funds purchased		2,450		2,450		—		2,450		—
Payables under repurchase agreements		25,225		25,225		—		25,225		—
Payables under securities lending transactions		913		913		—		913		—
Due to trust account and other short-term borrowings		9,177		9,177		—		9,177		—
Long-term debt		27,790		27,968		—		27,968		—
Other financial liabilities		6,781		6,781		—		6,781		—

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Carrying amount		Estimated fair value
At March 31, 2020			Total		Level 1		Level 2		Level 3
	(in billions)
Financial assets:
Cash and due from banks	¥	33,283	¥	33,283	¥	33,283	¥	—	¥	—
Interest-earning deposits in other banks		45,267		45,267		—		45,267		—
Call loans and funds sold		1,169		1,169		—		1,169		—
Receivables under resale agreements		23,996		23,996		—		23,996		—
Receivables under securities borrowing transactions		3,444		3,444		—		3,444		—
Investment securities		4,166		4,178		1,134		1,042		2,002
Loans, net of allowance for credit losses(1)		117,373		118,497		3		259		118,235
Other financial assets(2)		8,494		8,494		—		8,494		—
Financial liabilities:
Deposits
Non-interest-bearing	¥	33,382	¥	33,382	¥	—	¥	33,382	¥	—
Interest-bearing		170,574		170,631		—		170,631		—
Total deposits		203,956		204,013		—		204,013		—
Call money and funds purchased		3,669		3,669		—		3,669		—
Payables under repurchase agreements		31,850		31,850		—		31,850		—
Payables under securities lending transactions		1,017		1,017		—		1,017		—
Due to trust account and other short-term borrowings		19,057		19,057		—		19,057		—
Long-term debt		27,772		27,941		—		27,941		—
Other financial liabilities		7,139		7,139		—		7,139		—

Notes:

(1) Includes loans held for sale and collateral dependent loans measured at fair value on a nonrecurring basis. Refer to “Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis” for the details of the level classification.

(2) Excludes investments in equity method investees of ¥2,487 billion and ¥2,421 billion at March 31, 2019 and 2020, respectively.

The fair values of certain off-balance sheet financial instruments held for purposes other than trading, including commitments to extend credit and commercial letters of credit, are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the credit quality. The aggregate fair value of such instruments at March 31, 2019 and 2020 was not material.

32. PARENT COMPANY ONLY FINANCIAL INFORMATION

Distributions of retained earnings of MUFG Bank and Mitsubishi UFJ Trust and Banking are restricted in order to meet the minimum capital adequacy requirements under the Banking Law. Additionally, retained earnings of these banking subsidiaries are restricted, except for approximately ¥6,077 billion and ¥5,247 billion, in accordance with the statutory reserve requirements under the Companies Act at March 31, 2019 and 2020, respectively. See Notes 19 and 21 for further information.

The Banking Law and related regulations restrict the ability of these banking subsidiaries to extend loans or credit to the parent company. Such loans or credits to the parent company are generally limited to 15% of the banking subsidiary’s consolidated total capital, as determined by the capital adequacy guidelines.  

At March 31, 2019 and 2020, approximately ¥5,160 billion and ¥5,696 billion, respectively, of net assets of consolidated subsidiaries may be restricted as to payment of cash dividends and loans to the parent company.  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents the parent company only financial information of MUFG:

Condensed Balance Sheets

	As of March 31,
	2019		2020
	(in millions)
Assets:
Cash and interest-earning deposits with banking subsidiaries	¥	203,713	¥	185,668
Investments in subsidiaries and affiliated companies		16,668,232		16,116,568
Banking subsidiaries		12,754,653		12,361,190
Non-banking subsidiaries and affiliated companies		3,913,579		3,755,378
Loans to subsidiaries		7,199,052		8,746,231
Banking subsidiaries		6,864,309		8,222,278
Non-banking subsidiaries		334,743		523,953
Other assets		223,725		241,441
Total assets	¥	24,294,722	¥	25,289,908
Liabilities and Shareholders’ equity:
Short-term borrowings from banking subsidiaries	¥	1,425,682	¥	1,255,991
Long-term debt from non-banking subsidiaries and affiliated companies		277,138		30,686
Long-term debt		7,187,469		8,758,646
Other liabilities		204,885		228,098
Total liabilities		9,095,174		10,273,421
Total shareholders’ equity		15,199,548		15,016,487
Total liabilities and shareholders’ equity	¥	24,294,722	¥	25,289,908

F-162

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Condensed Statements of Income

	Fiscal years ended March 31,
	2018			2019			2020
	(in millions)
Income:
Dividends from subsidiaries and affiliated companies	¥	576,332		¥	306,879		¥	376,376
Banking subsidiaries		487,491			207,161			277,472
Non-banking subsidiaries and affiliated companies		88,841			99,718			98,904
Management fees from subsidiaries		26,073			28,305			33,543
Interest income from subsidiaries		80,670			127,117			174,500
Foreign exchange gains (losses)—net		24,726			(20,598	)		4,834
Trading account losses—net		(26,749	)		(8,078	)		(37,272	)
Gains on sales of investment in subsidiaries and affiliated companies		—			252,253			67,406
Other income		1,508			3,199			14,968
Total income		682,560			689,077			634,355
Expense:
Operating expenses		26,016			28,168			30,431
Interest expense to subsidiaries and affiliated companies		31,426			34,594			26,244
Interest expense		65,068			108,756			155,774
Other expense		1,791			1,657			15,024
Total expense		124,301			173,175			227,473
Equity in undistributed net income (loss) of subsidiaries and affiliated companies—net		672,421			194,390			(108,069	)
Income before income tax expense (benefit)		1,230,680			710,292			298,813
Income tax expense (benefit)		2,520			(8,353	)		(7,142	)
Net income	¥	1,228,160		¥	718,645		¥	305,955

F-163

MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Condensed Statements of Cash Flows

	Fiscal years ended March 31,
	2018			2019			2020
	(in millions)
Operating activities:
Net income	¥	1,228,160		¥	718,645		¥	305,955
Adjustments and other		(799,571	)		(351,775	)		(1,704	)
Net cash provided by operating activities		428,589			366,870			304,251
Investing activities:
Proceeds from redemption of other investment securities		—			—			240,000
Proceeds from sales of investment in subsidiaries and affiliated companies		—			455,605			135,581
Purchase of equity investment in subsidiaries and an affiliated company		(53,000	)		(18,346	)		—
Net increase in loans to subsidiaries		(1,682,576	)		(2,112,711	)		(1,547,178	)
Other—net		(4,361	)		(9,009	)		(12,572	)
Net cash used in investing activities		(1,739,937	)		(1,684,461	)		(1,184,169	)
Financing activities:
Net decrease in short-term borrowings from subsidiaries		(41,402	)		(194,300	)		(164,272	)
Proceeds from issuance of long-term debt		1,872,986			2,043,677			1,844,488
Repayment of long-term debt		(112,184	)		(314	)		(214,994	)
Repayment of long-term debt to affiliated companies		(1,090	)		(500	)		(241,000	)
Proceeds from sales of treasury stock		1			3			2
Payments for acquisition of treasury stock		(200,038	)		(150,277	)		(50,022	)
Dividends paid		(241,067	)		(276,279	)		(304,538	)
Other—net		(9,677	)		(15,490	)		(7,791	)
Net cash provided by financing activities		1,267,529			1,406,520			861,873
Net increase (decrease) in cash and cash equivalents		(43,819	)		88,929			(18,045	)
Cash and cash equivalents at beginning of fiscal year		158,603			114,784			203,713
Cash and cash equivalents at end of fiscal year	¥	114,784		¥	203,713		¥	185,668

33. SUBSEQUENT EVENTS

Approval of Dividends

On June 29, 2020, the shareholders approved the payment of cash dividends of ¥12.5 per share of Common stock, totaling ¥160,919 million, that were payable on June 30, 2020, to the shareholders of record on March 31, 2020.

* * * * *

F-164

EXHIBIT INDEX

Exhibit	Description
1(a)	Articles of Incorporation of Mitsubishi UFJ Financial Group, Inc., as amended on July 6, 2018 (English translation)*
1(b)	Board of Directors Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on June 25, 2015 (English translation)*
1(c)	Corporation Meetings Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on July 1, 2018 (English translation)*
1(d)	Share Handling Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on June 25, 2015 (English Translation)**
1(e)	Charter of the Audit Committee of Mitsubishi UFJ Financial Group, Inc., as amended on July 1, 2018 (English translation)*
1(f)	Charter of the Compensation Committee of Mitsubishi UFJ Financial Group, Inc., as amended on July 1, 2018 (English translation)*
1(g)	Charter of the Nominating and Governance Committee of Mitsubishi UFJ Financial Group, Inc., as amended on July 1, 2018 (English translation)*
1(h)	Charter of the Risk Committee of Mitsubishi UFJ Financial Group, Inc., as amended on July 1, 2018 (English translation)*
2(a)	Form of American Depositary Receipt*
2(b)	Form of Deposit Agreement, amended and restated as of December 22, 2004, among Mitsubishi Tokyo Financial Group, Inc. (subsequently renamed Mitsubishi UFJ Financial Group, Inc.), The Bank of New York Mellon and the holders from time to time of American Depositary Receipts issued thereunder*
2(c)	Description of Securities
8	Subsidiaries of the Company—see “Item 4.C. Information on the Company—Organizational Structure.”
11	MUFG Group Code of Conduct, Compliance Rules, Compliance Manual, and Rules of Employment of Mitsubishi UFJ Financial Group, Inc. applicable to its principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions (English translation of relevant sections)
12	Certifications required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a))
13	Certifications required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
15(a)	Consent of independent registered public accounting firm (Deloitte Touche Tohmatsu LLC)
15(b)	Consent of independent registered public accounting firm (Deloitte & Touche LLP)
99(a)	Capitalization and Indebtedness of Mitsubishi UFJ Financial Group, Inc. as of March 31, 2020***
99(b)	Unaudited Reverse Reconciliation of Selected Financial Information of Mitsubishi UFJ Financial Group, Inc. as of and for the fiscal year ended March 31, 2020****
99(c)	Financial Statements and Supplementary Data of Morgan Stanley*****
101.INS	Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document

Exhibit	Description
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	The cover page for the Company’s Annual Report on From 20-F for the year ended March 31, 2020, has been formatted in Inline XBRL

Notes:

* Incorporated by reference to our annual report on Form 20-F (File No. 000-54189) filed on July 12, 2018.

** Incorporated by reference to our registration statement on Form S-8 (File No. 333-230590) filed on March 29, 2019.

*** Deemed to be incorporated by reference into the registration statement on Form F-3 (No. 333-229697) of Mitsubishi UFJ Financial Group, Inc. and to be a part thereof.

**** Deemed to be incorporated as Annex A to the registration statement on Form F-3 (No. 333-229697) of Mitsubishi UFJ Financial Group, Inc. and to be a part thereof.

***** Incorporated by reference to Morgan Stanley’s annual report on Form 10-K (File No. 001-11758) filed on February 27, 2020.

Signature

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

MITSUBISHI UFJ FINANCIAL GROUP, INC.
By:	/s/    Hironori Kamezawa
Name:	Hironori Kamezawa
Title:	President & Group Chief Executive Officer

Date: July 10, 2020