Sumitomo Mitsui Financial : Business Report for the 22nd Fiscal Year (1,770KB) (47pages)

This document has been translated from a Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. Sumitomo Mitsui Financial Group, Inc. assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.

Documents Attached to the Notice of Convocation of the Ordinary General Meeting of Shareholders

Business Report for the 22nd Fiscal Year

April 1, 2023 to March 31, 2024

Sumitomo Mitsui Financial Group, Inc.

(Documents Attached to the Notice of Convocation of the Ordinary General Meeting of Shareholders)

Business Report for the 22nd Fiscal Year

(April 1, 2023 to March 31, 2024)

1. Matters Regarding the Current Condition of the Company

1. Business Progress and Results of the Group

Economic and Financial Environment

During fiscal 2023 (fiscal year ended March 31, 2024), the global economy saw a slowdown in its recovery pace that had continued from the previous fiscal year, stemming from a decline in household purchasing power due to persistent inflation and high interest rates resulting from monetary policies tightening. However, in the U.S. favorable environment for employment and income supported personal consumption, leading to a steady economic recovery.

As for the Japanese economy, capital investment increased, mainly in software for labor-saving and digitalization, underpinned by solid corporate earnings. On the other hand, although personal consumption saw a recovery owing to the normalization of economic activities following the lifting of restrictions related to the impact of 2019 novel coronavirus disease (COVID-19), it continued to grow at a sluggish pace due to prolonged high prices.

In the Japanese financial and capital markets, although negative interest rates were maintained on a portion of private financial institutions' current accounts under the Bank of Japan (BOJ)'s Quantitative and Qualitative Monetary Easing with Yield Curve Control, long-term market interest rates increased to the 0.9% level in early November following the BOJ's decision in July and October 2023 to facilitate more flexible operation of long- term and short-term interest rates, and then temporarily declined to the 0.5% level during the year-end and New Year as long-term interest rates fell in the U.S. After that, with growing expectations that the BOJ will revise its monetary policy, long-term market interest rates rose again to the 0.7% level since late January 2024, and following the BOJ's decision to review the framework of Quantitative and Qualitative Monetary Easing with Yield Curve Control and terminate the negative interest rate policy in March 2024, short-term market interest rates which had been ranging from minus 0.1% to 0% turned positive, reaching the 0.07% level by the end of the fiscal year. In the areas of foreign exchange, the yen depreciated against the dollar, reaching the 151 yen per dollar level at the end of the fiscal year, influenced by rising interest rates in the U.S. in the first half of the fiscal year and the retreat of speculation on early interest rate cuts in the U.S. in the second half of the fiscal year. Although the Nikkei Stock Average saw a sluggish growth in the mid-year, it recorded an all-time high in late February 2024 and remained above 40,000 yen toward the end of the fiscal year due to heightened expectations for improved performance by domestic companies and rising stock prices in the U.S. market.

Regarding financial-related laws and regulations, the Act Partially Amending the Financial Instruments and Exchange Act, etc. was enacted in November 2023, stipulating matters such as the best interest obligation that requires a broad range of parties concerned, including financial services providers and corporate pension providers, etc. to be in good faith and fair in the performance of their services taking into consideration the best interests of the customers, etc., and accountability corresponding to attributes of the customers.

Business Progress and Results

Under these economic and financial circumstances, Sumitomo Mitsui Financial Group, Inc. (hereinafter, "the Company") and its subsidiaries (hereinafter, collectively with the Company, "the Group"), which mainly engage in commercial banking and other financial services, including leasing, securities, and consumer finance, have been working towards the realization of the vision of becoming "a trusted global solution provider committed to the growth of our customers and advancement of society, " and in 2023, formulated the Medium- Term Management Plan "Plan for Fulfilled Growth" for the three years starting from fiscal 2023.

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During fiscal 2023, the first year of the Medium-Term Management Plan, the Group made advancements in various initiatives based on the three core policies aiming for "Growth with Quality" as set out in the Medium-Term Management Plan.

(1) Create Social Value: Contribute to "Fulfilled Growth"

The Group made progress on initiatives to solve the following five priority issues in an aim to contribute to the realization of "Fulfilled Growth," where people feel fulfilled as economic growth accompanies the resolution of social issues.

(Note 1)A concept that combines three elements: "Diversity," "Equity," and "Inclusion." A company provides proper support depending on each individual situation and characteristic and designs an environment where diverse group of people can perform their ability to the maximum extent.

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During the current fiscal year, the Company and Sumitomo Mitsui Banking Corporation established the Fulfilled Growth Department in an aim to promote specific actions towards creation of social value. To ensure that each and every employee takes initiatives in engaging with the priority issues, the Group focused on facilitating dialogues within the organization to instill a sense of participation by setting up opportunities for the exchange of opinions between management and employees and sharing good practices related to social value creation, all while working to address a wide range of social issues. Specifically, in an effort to contribute to the decarbonization of the real economy, the Group formulated the "Transition Finance Playbook," which outlines the Company's definitions and criteria for transition finance (Note 2), and supported the customers' efforts towards net-zero emissions of greenhouse gases. Furthermore, with an objective to provide educational opportunities for children who will be major players in the next generation, the Group collaborated with Chance for Children, Inc. and issued "SMBC Group Study Coupon," which can be used for cram school lessons and extracurricular activities outside of school, and worked in cooperation with Kumon Institute of Education Co., Ltd. to offer financial literacy education to children in children's homes to support their future independence.

(Note 2)Refers to a financing method which aims to support companies undertaking efforts to reduce greenhouse gas emissions as part of a long-term strategy to achieve a decarbonized society. The Group defines it as "financial services provided to clients aiming to support them align their business and/or operations with pathways in line with the objectives of the Paris Agreement."

(2) Pursue Economic Value: Transformation & Growth

In order to realize further profitability growth accompanied by enhanced capital efficiency, the Group has engaged in steadily realizing the benefits of existing growth investments and initiatives that it has carried out thus far as well as transforming our business portfolio in the following seven key strategic areas.

(Note 3)"Corporate and Investment Banking," a business model for corporate customers in which commercial banking business such as deposits and loans, and investment banking business such as fund raising in capital markets and M&A advisory are collectively developed.

(Note 4)"Sales & Trading," business to provide solutions using marketable financial products such as foreign exchange, bonds, and derivatives to business corporations and institutional investors.

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Specifically, the following initiatives were advanced in the Retail, Wholesale, Global, and Global Markets Business Units.

1. Retail Business Unit
   The Retail Business Unit engages mainly in business aimed at individual customers.
   Sumitomo Mitsui Banking Corporation and Sumitomo Mitsui Card Company, Limited worked to expand customer bases and build digital-based business models, centered on "Olive," a comprehensive financial service for individual customers. Specifically, in collaboration with LIFENET INSURANCE COMPANY, Sumitomo Mitsui Card Company, Limited started offering the life insurance product "V- Point Accumulating Insurance" and worked on expanding services offered through "Olive". In addition, Sumitomo Mitsui Banking Corporation developed "STORE," a store exclusively for individual customers to provide specialized consultations related to "Olive," wealth management and other issues. In the wealth management business, to meet the diverse needs of individual customers, Sumitomo Mitsui Banking Corporation, SMBC Nikko Securities Inc., and SMBC Trust Bank Ltd. expanded client assets and enhanced profitability by strengthening their collaboration and providing services on a group-wide basis.

1. Wholesale Business Unit
   The Wholesale Business Unit engages in business mainly aimed at corporate clients in Japan.
   First, with regard to virtually interest-free and unsecured loans, which support customers whose cash flow were adversely affected by COVID-19, the Wholesale Business Unit worked thoroughly and carefully to support customers, including flexible responses to changes in term of the loans as full-scale repayment commenced.
   The Group also promoted to propose solutions to the various business challenges of customers. For customers at turning points in their business, the Group collectively provided solutions including revitalization finance and equity investments. In addition, to foster the creation of unlisted companies in Japan with a market capitalization exceeding 100 billion yen (known as the "Unicorn Companies"), Sumitomo Mitsui Banking Corporation in collaboration with Global Brain Corporation and SMBC Venture Capital Management Co., Ltd. established a growth fund and provided support for startup companies. Furthermore, to assist DX (digital transformation) efforts of customers, Sumitomo Mitsui Banking Corporation and Sumitomo Mitsui Card Company, Limited launched the web payment service "iB-tle," which enables centralized management of business-to-business settlements, while Sumitomo Mitsui Banking Corporation began offering new services to improve the efficiency of bank account management and payments for condominium management associations in collaboration with NTT Data NJK Corporation.

1. Global Business Unit
   The Global Business Unit engages in business aimed at Japanese and non-Japanese corporate clients and financial institutions operating business overseas, and foreign corporate clients operating inside Japan. In the CIB business, in order to further develop the collaboration with Jefferies Group LLC, a U.S. general securities firm, the Group strengthened its strategic capital and business alliance and expanded the businesses and regions covered by the collaboration. In our "Multi-franchise Strategy" with the objective of "establishing a second and third franchise in Asia," the Global Business Unit expanded its business base in Asia by making SMFG India Credit Company Limited, a leading non-bank in India, a wholly-owned subsidiary, and making PT Oto Multiartha and PT Summit Oto Finance subsidiaries to capture the growth in the Indonesian automobile and motorcycle sales finance market. In addition, to build a platform for the U.S. retail business and sustain growth in the U.S. operations, SMBC MANUBANK, located in Los Angeles, launched "Jenius Bank," a digital-based retail banking business, which began offering personal loans and savings accounts to U.S. residents.

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IV. Global Markets Business Unit

The Global Markets Business Unit carries out ALM operations (Note 5) that comprehensively manage the liquidity risk and interest rate risk, and provides customers with services through marketable financial products such as foreign exchange, derivatives, bonds, and stocks.

While interest rate hikes ceased in the U.S. and Europe, Japan steered towards the normalization of monetary policy, and interest rates and stock prices in advanced economies are significantly fluctuated due to market participants' speculations. Even under such market conditions, the Global Markets Business Unit secured profits through its equity and bond portfolios management which steadily captured investment opportunities and appropriately controlled risks. In Sales & Trading operations, in order to meet the diverse needs of corporate and institutional customers, the Global Markets Business Unit worked to strengthen its global-basis collaboration and further enhanced its ability to make proposals tailored to customers' needs. Furthermore, with regard to foreign currency funding, in order to continuously support customers' overseas businesses, the Global Markets Business Unit diversified their funding methods and expanded its investor base while proactively responding to changes in the funding environment, thus carried out balanced operations between maintaining stability and improving efficiency.

(Note 5)"Asset Liability Management," a risk management method that optimizes future asset and liability balance and seeks to maximize revenue.

In addition to the efforts of each business unit, in order to become an "asset management solution provider" that offers optimal plans tailored to meet the diversifying needs of customers regarding asset management and contribute to promoting Japan as a leading asset management center, Nikko Global Wrap Ltd. was made into a wholly-owned subsidiary, which plays a key role in providing solutions on a group-wide basis. Furthermore, Sumitomo Mitsui DS Asset Management Company, Limited strengthened its asset management business by beginning full-scale operation of the new fund "SMDAM Global Macro Absolute Return Fund," utilizing the comprehensive management capabilities of the Group.

(3) Rebuild Corporate Infrastructure: Quality builds Trust

The Group has worked to further strengthen its management base to earn the trust of diverse stakeholders. In the previous year, following the incident that resulted in the Company, SMBC Nikko Securities Inc. and Sumitomo Mitsui Banking Corporation being issued Administrative Disposition, the Company, SMBC Nikko Securities Inc. and Sumitomo Mitsui Banking Corporation formulated an improvement plan. In the current year, the Group steadily implemented measures based on the improvement plan, and made progress on validation of each measure by internal audits and external attorneys. In addition, to further penetrate and instill a sound organizational culture, the Group enhanced training programs for executive officers and employees and promoted various initiatives such as distributing messages from the Group CEO at the annual policy

meeting.

In addition, to continuously strengthen the internal control of the Group, the Group advanced the compliance and risk management framework across the Group and global basis and made efforts to strengthen the monitoring to detect early signs of significant risk events, thereby establishing a system to respond flexibly to changes in the environment.

Furthermore, the Group worked to strengthen its corporate infrastructure to support business expansion and the advancement of its business model by focusing on advancing human capital management by setting up human resources portfolio management in line with our business strategy and supporting independent and diverse career development for employees, and expanding its system infrastructure using advanced technologies, including the introduction of the AI assistant tool SMBC-GAI (Note 6).

(Note 6)"Generative artificial intelligence," technology that interprets the intention of a text and generates natural language sentences. It is capable of advanced text processing by training on large amounts of textual data.

As a result of these initiatives, the Group recorded consolidated ordinary profit and consolidated profit attributable to owners of parent of 1,466.1 billion yen and 962.9 billion yen, respectively, in fiscal 2023.

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Issues to be Addressed

The current situation is undergoing various changes, such as the termination of the negative interest rate policy in Japan, the actualization of geopolitical risks, and transformations in life due to the spread of digital technologies including generative AI. The Group, in response to these changes and based on the three core policies described above in the Medium-Term Management Plan, aims to achieve "Growth with Quality" by further advancing past initiatives through leveraging the collective strengths of the Group, while further paying attention to the trends of its customers and in society.

(1) Create Social Value: Contribute to "Fulfilled Growth"

The Group will contribute to realizing "Fulfilled Growth" where people feel fulfilled as economic growth accompanies the resolution of social issues. Centered on Sustainability Division for Fulfilled Growth, which was newly established to enhance the capability of execution towards creation of social value, the Group will establish frameworks that enable each and every employee to actively participate and contribute to resolving issues faced by customers, local communities, and industries. In addition, the Group will intensify group-wide basis efforts to address the aforementioned five issues which was designated as priority issues for the Group, focusing on strengthening businesses for resolution, creating new businesses, and initiatives to reduce risks through enhancing the management system against environmental and social risks.

(2) Pursue Economic Value: Transformation & Growth

By focusing on capital efficiency, engaging in the dynamic reallocation of business resources and carrying out its respective initiatives in a speedy manner, the Group aims to exponentially strengthen profitability. The Group will engage in "continuous reform of business model" which reflects major changes in the environment and efforts to "establish franchises in key strategic areas" while steadily realizing the benefits of existing growth investments and initiatives. Through the efforts, the Group will transform its business portfolio and realize steady growth in profitability that is accompanied by enhanced capital efficiency.

Furthermore, the Group shall carry out initiatives focusing on the tireless pursuit of synergies through further alignment among the Group, risk taking at opportune times, the pursuit of new challenges, and innovation.

Specifically, in domestic business, the Group will implement business reforms taking into consideration the potential for future yen interest rate hikes. In the business for individual customers, the Group aims to acquire customer bases and deposits in an effective manner while maintaining the competitive advantages of its products and branch structure through promotion of "Olive" and the development of "STORE" by Sumitomo Mitsui Banking Corporation. In the business for corporate customers, the Group will also rebuild an efficient business model and improve profitability by revising the structure for Wholesale business through digitization and enhancing payment business. In addition, the Group will enhance its capital efficiency by not relying solely on the support of finance for the customers, but by also enhancing the Group's fee-based business. In overseas business, the Group will enhance its capital efficiency through a review of the business portfolio and a dynamically shift of management resources, further expand our U.S. operations based on collaboration with Jefferies Group LLC, and strive to realize robust growth that will drive the growth of the Group by steadily advancing collaboration with the investees through its "Multi-franchise Strategy" in Asia.

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(3) Rebuild Corporate Infrastructure: Quality builds Trust

The Group will engage in tireless efforts to rebuild its corporate infrastructure in order to win the trust of customers and other stakeholders which forms the basis of its various activities.

First, based on the Administrative Disposition issued to the Group, the Group will continue efforts for the further fostering and instilling of a sound corporate culture and the enhancement of governance and compliance capabilities, while continuing to strengthen its internal control through IT investments and personnel deployment on a both the Group and global basis.

In addition, in order to expand and upgrade our business model even in an uncertain environment, the Group will establish a personnel system to secure and develop diverse and talented human resources, and promote investment in human capital and enhancement of human resource management. Furthermore, to promote the digitalization necessary for enhancing the Group's competitiveness and strengthening governance, the Group strengthen its management foundation by enhancing its corporate infrastructure through unprecedentedly large and aggressive IT investments.

The Group aims to respond to shareholder expectations by showing steady results regarding the initiatives described above. The Group looks forward to the continued understanding and support of its shareholders.

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1. Changes in Financial Position and Results of Operations (Consolidated Basis and Non-Consolidated

Basis)

a. Changes in Financial Position and Results of Operations (Consolidated Basis)

				Unit: millions of yen
	FY2020	FY2021	FY2022	FY2023
	(Fiscal year ended	(Fiscal year ended	(Fiscal year ended	(Fiscal year ended
	March 31, 2021)	March 31, 2022)	March 31, 2023)	March 31, 2024)
Ordinary income	3,902,307	4,111,127	6,142,155	9,353,590
Ordinary profit	711,018	1,040,621	1,160,930	1,466,128
Profit attributable to	512,812	706,631	805,842	962,946
owners of parent
Comprehensive income	1,465,014	561,887	1,031,712	2,629,723
Net assets	11,899,046	12,197,331	12,791,106	14,799,967
Total assets	242,584,308	257,704,625	270,428,564	295,236,701

(Notes) 1. Amounts less than one million yen have been rounded down.

2. The Company has 175 consolidated subsidiaries and 317 unconsolidated subsidiaries and related companies accounted for by the equity method as of March 31, 2024.

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b. Changes in Financial Position and Results of Operations (Non-Consolidated Basis)

						Unit: millions of yen
			FY2020	FY2021	FY2022	FY2023
			(Fiscal year ended	(Fiscal year ended	(Fiscal year ended	(Fiscal year ended
			March 31, 2021)	March 31, 2022)	March 31, 2023)	March 31, 2024)
Operating income	483,459	616,052	701,653	936,815
	Dividends received	304,866	422,366	453,801	580,175
		Dividends
		received from	272,952	376,756	437,849	542,929
		banking
		subsidiaries
		Dividends
		received from	23,440	37,611	7,708	21,100
		other subsidiaries
Net income	281,966	395,167	400,380	545,114
Earnings per share	(yen)	(yen)	(yen)	(yen)
205.78	288.29	293.37	410.16
Total assets	15,025,382	16,253,088	17,046,916	19,745,893
		Investments in
		banking	4,613,790	4,613,790	4,613,790	4,613,790
		subsidiaries
		Investments in
		other	1,533,207	1,764,090	1,756,890	2,131,647
		subsidiaries

(Notes) Amounts less than one million yen have been rounded down.

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