SMFG s Management Strategy

Transcription

1 Bank of America Merrill Lynch 217 Japan Conference SMFG s Management Strategy Takeshi Kunibe President and Group CEO Sumitomo Mitsui Financial Group, Inc. September 7, 217

2 Agenda I Business environment and SMFG s Medium-Term Management Plan (FY3/218-FY3/22) II III 1Q, FY3/218 performance Progress of our initiatives Discipline, Focus, Integration IV Capital policy 1

3 I. Business environment and SMFG s Medium-Term Management Plan Business environment and SMFG s initiatives Real GDP growth rate (%) Emerging countries World Developed countries Slowdown in economic growth China Shock Steady economic recovery Business environment Difficult earnings environment Tightening of international financial regulations Emergence of protectionism Rise of geo-political risks Negative interest rates in Japan Higher foreign currency funding costs SMFG s initiatives Business Opportunities Shift from savings to asset building, inheritance/business successions Investment needs under the lowinterest rate environment M&A activity and acceleration of global expansion of large companies Emergence of growth companies and industries Growth of the Asian middle class Strengthening of corporate governance Digitalization Previous Medium-Term Management Plan (FY3/215-FY3/217) Top-line growth Upfront investments for future growth Reform domestic and international business models Globalization and group cooperation of management, organizations, and HR Shifted to focus on our bottom line profit in mid-fy215 because of the change in environment New Medium-Term Management Plan (FY3/218-FY3/22) Rates/Forex assumptions for FY3/ Discipline Disciplined business management Focus Focus on our strengths to generate growth Integration Integration across the Group and globally to achieve sustainable growth (Japan) Short-term rate (.1)% JPY/USD JPY 11. (US) FF rate 2.25% JPY/Euro JPY 115. Mid- to long-term vision To be a global financial group that leads growth in Japan and Asia by earning the highest trust of our customers 2

4 I. Business environment and SMFG s Medium-Term Management Plan Overview of Medium-Term Management Plan (FY3/218-FY3/22) To achieve sustainable growth by combining the Group s strengths with more focused business management Core Policy 1 Discipline Disciplined business management FY3/22 Financial Targets Focus 2 3 Focus on our strengths to generate growth Integration Integration across the Group and globally to achieve sustainable growth Business Environment Challenging earnings environment Tighter international regulations New opportunities from technology and social trends Key considerations Improve capital, asset, and cost efficiencies Healthy risk-taking versus credit cost control Balance among financial soundness, enhancing shareholder returns, and growth investments Capital Efficiency Cost Efficiency Financial Soundness ROE 7~8% OHR 1% reduction compared with FY3/217 Maintain at least 7% notwithstanding accumulation of capital Reduce to around 6% at the earliest opportunity (FY3/217: 62.1%) Maintain capital in line with CET1 1% likely raised requirement ratio *1,2 (FY3/ %) Shareholder Return Policy *1 Calculated with RwA inflated by 25% compared to the current level based on our assumption of the final impact of Basel III reforms *2 CET1: excludes net unrealized gains on other securities RwA: excludes RwA associated with net unrealized gains on stocks Adopt a progressive dividend policy targeting payout ratio of 4% Dividend per share forecast for FY3/218 is 16 yen, a 1 yen increase year on year Policy for share buybacks will be laid out after the finalization of Basel III reforms 3

5 Non-consolidated Consolidated II. 1Q, FY3/218 performance 1Q, FY3/218 performance Showed steady performance in 1Q, FY3/218 Income statement Apr.-Jun. 217 YOY change *1 Consolidated gross profit USD 6.6 bn H FY3/18 target General and administrative expenses (453.9) (1.7) Overhead ratio 61.6% (.3)% Equity in gains (losses) of affiliates *1 USD Consolidated net business 2.7 bn profit *2 27% * ,13 Total credit cost (14.8) (4.1) (11) (21) Gains (losses) on stocks Others (1.2) (4.8) *1 Ordinary profit USD 2.8 bn *1 Profit attributable to owners USD 2.2 bn of parent 38% *3 *1 Gross banking profit USD 3.2 bn (12.3) Expenses *4 (25.7) (1.2) Banking profit *2 *1 USD 1.4 bn (13.5) 28 6 Total credit cost 14.6 (3.9) (45) (8) Gains (losses) on stocks *1 Ordinary profit USD 1.7 bn *1 Net income USD 1.5 bn Consolidated gross profit increased mainly due to the increase of a) profits from equity index-linked investment trusts at SMBC b) fees from equity brokerage and investment trusts at SMBC Nikko General and Administrative expenses increased mainly due to the consolidation of SMAM (consolidated in Jul. 216) Equity in gains (losses) of affiliates increased because The Bank of East Asia recorded gains on sale of its subsidiary Contribution of subsidiaries to Profit attributable to owners of parent *5 Apr.-Jun. 217 YOY change SMBC Nikko * SMBCCF 14 + SMFL 9 +1 Cedyna 6 (2) SMCC 3 + SMBC Friend 1 + SMAM 1 + SMBC Trust (3) +2 Reduction of strategic shareholdings (book value) Reduction results for the 1Q: approx. JPY 25 bn Consent of sales from clients (outstanding) as of Jun. 217: approx. JPY 11 bn *1 Converted into USD at period-end exchange rate of USD 1 = JPY *2 Before provision for general reserve for possible loan losses *3 Ratio to full-year target *4 Excludes non-recurring losses *5 in round numbers *6 Excludes profit from overseas equity-method affiliates of SMBC Nikko (consolidated subsidiaries of SMFG) 4

6 III. Progress of our initiatives - Discipline, Focus, Integration Transformation of business/asset portfolio and quality of earnings base Discipline Prioritize business fields when allocating resources to enhance capital efficiency Maintain our competitive advantage in the domestic retail and wholesale businesses and generate stable earnings Business portfolio transformation Review of group operations SMFG s competitive advantage Enhance Mortgage loans Domestic retail business Japan mid-sized enterprises Credit card Global large corporations Asia-centric Grow Wealth management Global products Turning Kansai Urban Banking Corporation and THE MINATO BANK to equity method affiliates Business integration of SMCC and Cedyna Yahoo! JAPAN to consolidate The Japan Net Bank Changing shareholder composition of POCKET CARD (ITOCHU and FamilyMart to raise its shareholdings) Interest/non-interest income ratio (consolidated gross profit) Increase corporate value by leveraging outside business partners resources Breakdown of consolidated net business profit by business unit Businesses competing with domestic regional banks Trust banking / Asset management Sales & Trading 53% Noninterest income Treasury 21% FY3/217 JPY 1,427.3 bn WS 33% Transform Build Business growth for SMFG 47% FY3/217 Interest income FY3/22 26% Inter. 2% RT 5

7 III. Progress of our initiatives - Discipline, Focus, Integration Focus on Seven Core Business Areas Focus Concept Strategic Focus Enhance Enhance business base in domestic market 1 Hold the number one retail banking franchise in Japan 2 Build on our lead position in the Japanese medium-sized enterprise market Grow Sustainable growth of US/EMEA businesses Make Asia our second mother market 3 4 Increase market share in Corporate & Investment Banking in key global markets Establish a top-tier position in product lines where we are competitive globally 5 Accelerate our Asia-centric strategy Digitalization Build 6 Strengthen sales & trading capability Build our new strengths for future growth 7 Develop asset-light businesses: trust banking and asset management 6

8 III. Progress of our initiatives - Discipline, Focus, Integration Retail business Focus Increase the balance of stock-based assets by enhancing our wealth management business through bank-securities integration Balance of stock-based assets (SMBC+SMBC Nikko) (JPY tn) JPY 2.8 tn compared with Mar. 17 Inflow of clients assets (SMBC Nikko) SMBC Nikko Nomura Daiwa Mar. 17 Jun. 17 Mar. 2 target SMBC/Amundi protect & switch fund, the first investment fund with a protect line in Japan was released in Jul. 217 Net asset: JPY 87.5 bn (as of Aug. 31, 217) Balance of fund wrap (SMBC+SMBC Nikko) (2) (4) 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Balance of foreign currency deposits (SMBC (retail)+smbc Trust) * (USD bn) FY3/16 FY3/17 FY3/18 1,5 Nikko fund wrap 15 SMBC Trust SMBC fund wrap SMBC 1, 1 Merger of PRESTIA (Nov. 215) 5 5 Mar. 14 Mar. 15 Mar. 16 Mar. 17 Jun. 17 * Converted into USD at respective period-end exchange rates Mar. 14 Mar. 15 Mar. 16 Mar. 17 Jun. 17 7

9 III. Progress of our initiatives - Discipline, Focus, Integration Wholesale business, International business Focus Increase cross-selling through bank-securities collaboration in the wholesale business Strengthen products that we hold competitive advantages in the international business Wholesale business Bank-securities collaboration (Thousand) 4 2 Asset management 4Q 3Q 2Q 1Q (Hundred) 1 5 Investment banking 4Q 3Q 2Q 1Q International business Portfolio of international business (as of Jun. 217) Japanese/ non-japanese large corporate clients approx. 6% High profit assets: approx. 2% PF TF: approx. 2% Rank # % 5 FY3/15 FY3/16 FY3/17 FY3/18 FY3/15 FY3/16 Y3/17 FY3/18 FY3/15 FY3/16 FY3/17 FY3/18 Lead arranger of Japanese corporate bonds (League Table) #4 17.4% #3 17.4% #5 15.1% 1Q 2% FY3/2 target Target to allocate around 45% to high profit assets and PF/TF under disciplined operation High profit assets Aircraft leasing/ financing Jun. 212: Acquired SMBC AC *1 Railcar leasing in North America Dec. 213: Acquired SMBC RS *2 Jun. 217: Acquired ARL LBO finance Sep. 215: Acquired European loan portfolio from GE Subscription finance, etc. Acquisition of American Railcar Leasing (ARL) p.48 *1 Acquired aircraft leasing business (current SMBC Aviation Capital) from RBS *2 Acquired US railcar leasing company, Flagship Rail Services (current SMBC Rail Services) 8

10 III. Progress of our initiatives - Discipline, Focus, Integration Digitalization Integration Promote digitalization in areas including enhancing the customer experience, generating new businesses, improving productivity and efficiency and upgrading management infrastructure Biometric authentication platform (launched Jul. 217) The first approval of the Banking Act revision Retail branch reorganization Face Voice Finger Can be used in various smartphone apps 3 ways to authenticate User :no need to manage IDs for every service Provider :no need for own authentication function Comprehensive alliance with Yahoo! JAPAN (Aug. 217) Provide customers with value-added financial services by utilizing expertise and resources of SMFG and Yahoo! JAPAN through a joint venture JV Plan and develop apps and services Data analysis Digital marketing Establishment of an open innovation base Established hoops link tokyo in Shibuya (Sep. 217) Paperless counter Workstyle reform utilizing public cloud/ai (Jun. 217) Adopted integrated information sharing cloud service of Microsoft 9

11 III. Progress of our initiatives - Discipline, Focus, Integration Improving productivity and efficiency Discipline Improve productivity and efficiency through various measures including digitalization Aim for a mid-term cost reduction of JPY 1 bn Key initiatives Business reform to improve efficiency Annual cost reduction 3 years during Medium-Term Management Plan: JPY 5 bn plus Utilize technology to improve efficiency of head office business processes Consolidate head office functions and infrastructure of group companies Retail branch reorganization Enhance self/remote transactions and administration processes Productivity and efficiency improvement through branch reforms Reorganization of group companies JPY 2 bn Group-wide productivity improvements JPY 2 bn Retail branch reorganization JPY 1 bn Merger of securities subsidiaries Aiming for a mid-term cost reduction of JPY 1 bn Merge SMBC Nikko and SMBC Friend Strengthen business integration of SMCC and Cedyna (Clarification of roles and sharing of management resources) Headcount streamlining (%) 65 SMFG s overhead ratio Overhead ratio *1 comparison (%) (1Q, FY3/218) , positions *2 as the result of improving productivity and efficiency (2, core workers) 6 4Q 1Q 2Q 3Q 4Q 1Q FY3/16 FY3/17 FY3/ SMFG MUFG Mizuho FG Staff relocation and enhancement (strategic business fields, overseas, etc.) *1 G&A expenses on consolidated financial results (kessan tanshin) divided by Consolidated gross profit *2 Core positions are on a 3 year basis, other positions are on a 4 year basis 1

12 III. Progress of our initiatives - Discipline, Focus, Integration Management that maximizes business potential, enhancement of governance framework Integration Introduced Group-wide business units and CxO system to maximize business potential for the Group on a global basis Enhance governance framework by transforming into a Company with Three Committees Revised the executive pay system that has a stronger link to financial results in order to ensure the management is well aligned with the shareholder perspective New Group-wide operational structure Introducing Group-wide business units and CxO system SMFG President Head of Business Unit CxO Objectives Group Management Committee SMBC President SMBC Nikko President Major subsidiaries Business units (RT, WS, International, Global Markets) Head office functions Strengthen ability to support clients Optimize overall resource usage President Sophisticate planning and management functions New governance framework, Review of the executive pay system Transforming into a Company with Three Committees Objectives Establish standard G-SIFI governance framework Strengthen the supervisory function of the Board of Directors Expedite execution of operations Outside directors Increased the number of Outside directors from five to seven (its ratio against the total number of Directors increased from 36% to 41%) Arranged a small meeting of Outside director and investors Introduction of New Stock Compensation Plans for Executives utilizing restricted stock Introduced compensation that is linked to financial targets of the medium-term management plan and to our stock performance The targeted ratio of the variable compensation component corresponding with performance is 4% Raise the ratio of stock-based compensation The targeted ratio is 25% Strengthen risk management through the introduction of a system for (a) partial deferral of bonuses and (b) reducing or returning compensation (Malus and Clawback) 11

13 IV. Capital policy Basic capital policy Balance securing financial soundness, enhancing shareholder returns, and investing for growth Adopt a progressive dividend policy, and target payout ratio of 4% Policy for share buybacks will be laid out after the finalization of Basel III reforms (Taking into consideration; capital level, earnings forecasts, stock price, and opportunities of investments for growth) Securing financial soundness CET 1 ratio Target *1 : 1% Progressive dividend policy Payout ratio Target 4% Sustainable growth of corporate value ROE target* 2 7~8% Investment criteria Fits with our strategy ROE *3 of over 8% after synergies and excluding amortization of goodwill Risk is manageable Enhancing shareholder returns Investing for growth *1 Calculated with RwA inflated by 25% compared to the current level based on our assumption of the final impact of Basel III reforms. CET1: excludes net unrealized gains on other securities RwA: excludes RwA associated with gains on stocks CET1 ratio on a Basel III fully-loaded basis (including net unrealized gains on other securities) exceeds CET1 ratio Post-Basel III reforms basis by 4% *2 On a stockholders equity basis *3 Managerial accounting basis with RwA calculated assuming Basel III reforms are finalized 12

14 IV. Capital policy Capital position Common Equity Tier 1 capital (CET1) ratio target (Post-Basel III reforms basis) 1% CET1 ratio Net unrealized gains on other securities (%) 12 8 Basel III fully-loaded basis * (%) 12 8 Post-Basel III reforms basis * Target 1% 4 4 (JPY tn) Risk-weighted assets (RwA) [Excludes RwA associated with net unrealized gains on stocks] CET1 capital (of which net unrealized gains on other securities) Mar. 14/3 末 16 Mar. 15/3 末 17 Jun. 16/3 末 [85.5] 7.9 (1.35) 8.68 (1.54) 8.95 (1.6) Mar. 17/3 末 17 Jun. 17/6 末 (1.54) 88.7 [85.4] 8.95 (1.6) Accumulation of CET1 ratio Accumulation of retained earnings +around 5 bp / year Regional banks subsidiaries turned into equity method affiliates +4bp 5bp *1 Based on the definition applicable for March 31, 219 *2 RwA inflated by 25% compared to current levels. CET1 excludes net unrealized gains on other securities. RwA excludes RwA associated with net unrealized gains on stocks 13

15 IV. Capital policy Ref: Estimated inflation of RwA at the time of finalization of Basel III reforms JPY tn Capital floor 75% JPY 7.6 tn For corporates For retail Stocks, etc. Credit risk 7% Increase rate against current Basel III basis +25% Ref: Based on internal models before capital floor Other credit risk Market risk Operational risk Current Basel III (Mar.17) * Basel III standardized approach (post reforms) RwA * We adopt floors based on FIRB. No capital floor adjustments are currently made 14

16 IV. Capital policy Dividend policy Progressive dividend policy, and target payout ratio of 4% Note: Progressive dividend policy means not to reduce dividends, and will maintain or increase dividends Dividend per share forecast for FY3/218 is 16 yen, a 1 yen increase year on year Dividends per share *1, 2 (JPY) Commemorative dividend Ordinary dividend E (FY) Payout ratio *3 3.4% 12.5% 2.5% % 3.% 26.8% 21.3% 2.3% 26.2% 32.7% 29.9% 35.8% ROE *4 22.8% 13.8% 15.8% - 7.5% 9.9% 1.4% 14.8% 13.8% 11.2% 8.9% 9.1% *1 SMFG implemented a 1 for 1 stock split of common stock on January 4, 29. Figures shown above reflect the stock split, assuming that it had been implemented at the beginning of FY3/26 *2 Common stock only *3 Consolidated payout ratio *4 On a stockholders equity basis 15

17 Key takeaways To achieve sustainable growth by combining the Group s strengths with more focused business management Made a good start of the Medium-Term Management Plan that focuses on improving capital, asset and cost efficiencies to become a financial group with high quality Evolving our group-based operations through the introduction of Group-wide business units and CxO system Showed steady performance in 1Q, FY3/218 Our basic capital policy is to balance securing financial soundness, enhancing shareholder returns, and investing for growth. Continue to monitor the discussion of the finalization of Basel III reforms 16

18 Appendix

19 Group structure *1 Sumitomo Mitsui Financial Group Consolidated total assets Consolidated Common Equity Tier 1 capital ratio Credit ratings *2 1% JPY 198 tn % Moody s S&P Fitch R&I JCR A1/P-1 A-/ - A/F1 A+/ - AA-/ - Sumitomo Mitsui Banking Corporation 6% 3% 1% 1% Sumitomo Mitsui Finance and Leasing 6% SMBC Aviation Capital Became a wholly-owned subsidiary in Apr % SMFL Capital *3 Became a direct subsidiary of SMFG in Oct. 216 Became a wholly-owned subsidiary in Oct. 29 Securities Services SMBC Nikko Securities No. of accounts: approx. 2.8 mn SMBC Friend Securities 4% 1% Became a subsidiary in Jun. 212 Leasing Sumitomo Corporation SMBC Nikko Securities and SMBC Friend Securities expected to merge in Jan. 218 Assets Deposits Loans No. of retail accounts No. of corporate loan clients Credit ratings *2 JPY 162 tn JPY 16 tn JPY 76 tn approx. 27 mn approx. 84, Moody s S&P Fitch R&I JCR A1/P-1 A/A-1 A/F1 AA-/a-1+ AA/J-1+ 1% Became a wholly-owned subsidiary in Oct. 213 SMBC Trust Bank Acquired Citibank Japan s retail banking business in Nov % 1% 66% 1% SMFG Card & Credit Sumitomo Mitsui Card Cedyna 34% Consumer Finance NTT docomo 1% Other business Japan Research Institute 6% Became a wholly-owned subsidiary in May 211 No. of card holders: approx. 26 mn No. of existing customers: approx. 17 mn Became a wholly-owned subsidiary in Apr. 212 SMBC Consumer Finance No. of accounts of unsecured loans : approx. 1.3 mn Became a subsidiary in Jul. 216 Sumitomo Mitsui Asset Management Became a direct subsidiary of SMFG in Oct. 216 *1 As of Mar. 31, 217 for figures *2 As of Jul. 31, 217 *3 Changed name from GE Japan GK to SMFL Capital Company, Limited in Sep

20 Peer comparison ROE *1 Domestic loan-to-deposit spread *3 (%) 14 (%) SMFG MUFG Mizuho FG Proportion of loans to individuals & SMEs 62.5%(*) 61.7% 58.2% (*) Proportion of loans to individuals & SMEs decreased due to a) an increase in loans to the Japanese government, etc. and b) loans to holding company SMFG s definition turned into Large corporation from SME. Proportion of loans to individuals & SMEs excluding SMFG as of Mar. 31, 216 was 65.2% *1 Based on each company s disclosure. FY3/17 results for SMFG, MUFG and Mizuho FG. Jan. - Dec. 216 results for others *2 ROTCE: Return on tangible common equity *3 FY3/17 results. Based on each company s disclosure. The figures shown in the graph are: non-consolidated figures of SMBC for SMFG, non-consolidated figures of The Bank of Tokyo-Mitsubishi UFJ for MUFG and non-consolidated figures of Mizuho Bank for Mizuho FG 19

21 ROE In order to comply with regulations, accumulation of capital will be prioritized for the time being. However, we will secure at least 7% of ROE. In addition, by steadily enacting initiatives of the Medium-Term Management Plan, we will pursue upsides when business environment including regulations turns favorable Steadily increase bottom-line profit despite expected profit decline due to structural factors ROE *1 Net income After eliminating special factors *2 8% 7.8% Pursue upsides when business environment turns favorable Financial targets 7 8% 6 After eliminating special factors *2 6 S&T 7% Bottom line RT bank securities International 5 Structural factors *3 WS noninterest FY3/217 FY3/22 *1 On a stockholders equity basis *2 Excluding special factors, such as the effects of implementing the consolidated corporatetax system FY3/217 FY3/22 *3 Effects of negative interest rates, decline of domestic loan spreads and higher foreign currency funding costs 2

22 Overhead ratio Improve productivity on a group-wide basis and start reducing the overhead ratio Establish downward trend of overhead ratio and aim at around 6% at the earliest opportunity after FY3/22 Overhead ratio (%) Changes in expenses Effects of initiatives 6 Previous Mid-Term Plan 62.1 New Mid-Term Plan Down to 6% at the earliest opportunity 1,9 1,812.4 Strategic investments / investments for optimization (5) Mid- to long-term effects (1) plus Reorganization of regional bank subsidiaries (8) Improvement over FY3/217 1,8 Costs for past investments and revenue-linked variable cost Impact including acquisition of Citibank Japan s retail banking business 54.2 FY3/214 FY3/217 FY3/22 FY3/217 FY3/22 21

23 Projections by business unit ROE Net business profit RwA (JPY tn) FY3/22 target FY3/217 comparison Three year plan FY3/22 target FY3/217 comparison FY3/217 [of which credit RwA] Retail 7% Expenses will initially increase due to initiatives such as branch reorganization. The cost reduction effects of the initiatives and the merger of SMBC Nikko and SMBC Friend will appear in the latter of the period Reduce overall RwA while strengthening businesses such as credit cards and consumer finance [12.8] Wholesale 1% While net business profit will increase by strengthening securities business, etc, net income will slightly decrease with the normalization of credit costs Reduce RwA through sales of strategic shareholdings [2.4] International 9% Expenses will initially increase with costs of past investments and strategic investments in the securities business, but in the latter of the period, profits will increase by generating returns on the investments/initiatives that have been made Reduce the growth rate of RwA in three years by half compared to the previous three years (+22%). Control the increase in the latter of the period [2.4] Global Markets Increase in profit is expected by enhancing the Sales & 39% Trading business Reduce RwA through nimble portfolio management [4.6] Notes: 1 ROE for each unit is managerial accounting basis with RwA calculated assuming Basel III reforms are finalized. ROE for the International Business Unit excludes the mid- to long-term foreign currency funding costs. ROE for the Global Market Business Unit does not include interest-rate risk associated to the banking account. The objectives on RwA written in the three year plan are determined based on the current regulation 2 FY3/217 comparison for ROE is image of three-year developments of ROE from FY3/217 estimates when formulating the Medium-Term Management Plan 3 FY3/217 comparisons for ROE and Net business profit are after adjustments for interest rate and exchange rate impacts 4 FY3/217 results for each unit are managerial accounting basis, pursuant to current regulation 22

24 Transformation of business/asset portfolio and quality of earnings base As RwA will inflate resulting from tighter regulations, we will maintain the RwA calculated based on the current regulations We will reduce low-margin assets while investing in more profitable and asset efficient businesses in order to control the RwA. In addition, we will pursue inorganic reductions (JPY tn) Japan International Treasury and others Reduce strategic shareholdings Improve quality of lending portfolio Asset transition based on overall profitability Portfolio control Asset increase in line with previous Medium-Term Management Pan Securities, lease cards, consumer finance, etc. S&T and others Regulatory impact * Regulatory impact* Inorganic reductions 7.6 Mar.217 Results Mar. 22 Mar. 22 organic basis * Made under assumption that RwA will be inflated by 25% compared to current levels 23

25 Strategic shareholdings Aim to halve the ratio* of stocks to CET1 during the five years starting from the end of Sep Reduce the book value of domestic listed stocks of up to about 3%, or about JPY 5 bn (JPY 1 bn per year) - Made reductions of JPY 1 bn in FY3/217. Reduction results for 1Q, FY3/218 is in line with the annual reduction target * SMFG consolidated basis: Book value of domestic listed stocks/cet1 capital (Basel III fully-loaded basis, excluding net unrealized gains on other securities) Strategic shareholdings and reduction plan (Consolidated basis) (JPY tn) Reduction results 28% 27% 24% Sep. 15 Mar. 16 Mar. 17 Reduction plan (announced Nov. 215) Reduce the ratio by half within 5 years To 14% by around 22 Toward a level appropriate for G-SIFIs FY3/217 : approx. JPY 1 bn 1Q, FY3/218 : approx. JPY 25 bn (Total reduction from Sep. 215 Jun. 217: approx. JPY 14 bn) Consent of sales from clients Outstanding, Jun. 217: approx. JPY 11 bn CET1 (Basel III fully-loaded basis, excluding net unrealized gains on other securities) Book value of domestic listed stocks within other securities Ratio of stocks to CET1 capital 24

26 Non-consolidated Consolidated Progress and earnings target for FY3/218 FY3/17 results Apr.-Jun 217 results 1H target FY3/18 target YOY change Consolidated net business profit *2 1, ,13. (2.9) Total credit cost (164.4) (14.8) (11.) (21.) (45.6) Ordinary profit 1, (35.9) Profit attributable to owners of parent *1 USD 1.1 bn *1 USD 9. bn *1 USD 6.3 bn *1 USD 7.5 bn (76.5) Banking profit * (246.7) Consolidated net business profit Expected to earn almost the same level as FY3/17 by increasing non-interest income and expanding the overseas business in spite of impacts from the negative interest rates and declining spreads of domestic loans Total credit cost Expected to increase because of smaller gains on reversal of reserves for possible loan losses at SMBC and the continuing uncertain market environment Profit attributable to owners of parent Expected to increase on an year-on-year basis excluding the impact of an one time profit push up of approx. JPY 1 bn in FY3/17 because of implementing the consolidated corporate-tax system Assumptions of earnings target Total credit cost (61.1) 14.6 (45.) (8.) (18.9) FY3/17 actual FY3/18 *1 USD 7.7 bn Ordinary profit (314.) 3M TIBOR.6%.6% Federal funds target rate 1.% 1.25% *1 USD 6.1 bn Net income (251.8) Exchange rate JPY/USD JPY/EUR *1 Converted into USD at period-end exchange rate of USD 1 = JPY *2 Before provision for general reserve for possible loan losses 25

27 Loans (JPY tn) Loan balance (Non-consolidated) Overseas offices and offshore banking accounts Domestic offices (excluding offshore banking account) *1, * *1, Domestic loan-to-deposit spread (Non-consolidated) Interest earned on loans and bills discounted Interest paid on deposits, etc. (%) FY3/17 FY3/18 1Q 2Q 3Q 4Q 1Q Loan-to-deposit spread [1.3] *3 [3.5]*3 Mar.14 Mar.15 Mar.16 Mar [3.2] *3 [3.1] *3 Jun.16 Jun.17 (Ref) Excludes loans to the Japanese government, etc. Interest earned on loans and bills discounted Loan-to-deposit spread Average loan balance *4 (JPY tn, %) FY3/17 Balance YOY change Domestic loans (Non-consolidated) Excluding loans to the Japanese government, etc. and SMFG of which Large corporations * Mid-sized corporations & SMEs * Individuals 14.1 (.1) IBU s interest earning assets *7, 8 (USD bn, %) *9 Average loan spread *4 (JPY tn, %) FY3/17 Spread YOY change Domestic loans (Non-consolidated).83 (.8) Excluding loans to the Japanese government, etc. and SMFG of which.88 (.5) Large corporations *5.57 (.2) Mid-sized corporations & SMEs *6.75 (.7) Individuals 1.5 (.2) IBU s interest earning assets *7, 8 (USD bn, %) *1 Exchange rates using TTM as of Jun. 216: USD 1 = JPY 12.96, EUR 1 = JPY , Mar. 217: USD 1 = JPY , EUR 1 = JPY , and Jun. 217: USD 1 = JPY , EUR 1 = JPY *2 Balance since Mar. 217 includes balance of SMBC Canada Branch which was newly opened in Nov. 216 and took over business of wholly-owned subsidiary SMBC of Canada *3 Of which loans to the Japanese government, etc. and SMFG *4 Managerial accounting basis *5 Global Corporate Banking Division *6 Sum of Corporate Banking Division and Small and Medium Enterprises Banking Division *7 Sum of SMBC, SMBC Europe and SMBC (China). Based on location of banking office *8 Sum of loans, trade bills, and securities *9 After adjustments for exchange rates, etc. 26

28 NPLs and Total credit cost NPLs and NPL ratio *1 Total credit cost and Total credit cost ratio *2 1,373.3 NPLs (Consolidated) NPLs (Non-consolidated) NPL ratio (Consolidated) NPL ratio (Non-Consolidated) Total credit cost (Consolidated) Total credit cost (Non-consolidated) Total credit cost ratio (Consolidated) Total credit cost ratio (Non-consolidated) 1, bp 18bp % 1.39% % % % % (6)bp (49.1) 7.8 1bp (1)bp ()bp (3.2) 7bp (18.5) (14.6) 1.21%.97%.78%.65%.73%.62% (17)bp (123.9) (8.1) Mar.14 Mar.15 Mar.16 Mar.17 Jun.16 Jun.17 FY3/14 FY3/15 FY3/16 FY3/17 1Q, FY3/17 1Q, FY3/18 Total claims(top: Consolidated, bottom: Non-consolidated) (JPY tn) Main contributors to variance FY3/217 YOY change SMBCCF 73 5 SMCC 13 2 FY3/217 YOY change Cedyna 13 1 SMBC Europe 1 (9) *1 NPL ratio = NPLs based on the Financial Reconstruction Act (excluding normal assets) / Total claims *2 Total credit cost ratio = Total credit cost / Total claims 27

29 Performance by business units of which Retail Business Unit of which Wholesale Business Unit of which International Business Unit of which Global Markets Business Unit Total *1 Apr.-Jun. 216 FY3/17 *1 Apr.-Jun 217 YOY change *2 Gross Profit , Expenses (257.7) (1,15.4) (255.8) (3.7) Others (.1) Net business profit Gross Profit Expenses (8.9) (346.7) (85.5) (4.5) Others Net business profit (2.4) Gross Profit (1.8) Expenses (59.8) (251.9) (71.2) (3.7) Others Net business profit Gross Profit (11.9) Expenses (13.1) (5.3) (13.2) (.2) Others Net business profit (11.3) Gross Profit , Expenses (443.2) (1,812.4) (453.9) (1.7) Others Net business profit , *1 Figures are shown in the new group-wide business units basis *2 After adjustments of interest rates and exchange rates, etc. 28

30 Retail business Wealth management business Digitalization Balance of stock-based assets (SMBC+SMBC Nikko) Utilization rate for digital channels (SMBC) *2 (JPY tn) JPY 2.8 tn compared with Mar. 17 (%) % compared with FY3/ Mar. 17 Jun. 17 Mar. 2 target FY3/17 1Q, FY3/18 FY3/2 target Credit card business Consumer finance (JPY tn) Credit card sales handled (SMCC+Cedyna) *1 FY 1Q +JPY 4.8 tn compared with FY3/17 2, 1,5 1, 5 Balance of unsecured card loans (Group total) +JPY 19 bn compared with Mar. 17 FY3/17 FY3/18 FY3/2 target Mar. 17 Jun. 17 Mar. 2 target *1 Handling balance for credit and debit cards *2 Clients using digital channels / (clients using physical branches + clients using digital channels) 29

31 Wholesale business (JPY tn) 16 Loan balance of Wholesale Banking Unit *1, 2 (Non-consolidated) Mid-sized corporations and SMEs (CBD*) Large corporations (GLCBD*) Bank-securities collaboration *4 Asset Management Investment banking (Thousand) (Thousand) * CBD : Corporate Banking Division * GLCBD : Global Corporate Banking Division % 1.2% 1.%.8%.6%.4% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q FY3/15 FY3/16 FY3/17 FY3/18 Domestic corporate loan spread *1, 3 Mid-sized corporations and SMEs (CBD, SMEBD*) Large corporations (GLCBD) * SMEBD : Small and Medium Enterprises Banking Division (Non-consolidated) League tables (Apr. -Jun. 217) *5 Rank Mkt share Global equity & equity-related (book runner, underwriting amount) *6 #6 9.9% JPY denominated bonds (lead manager, underwriting amount) *7 #1 19.5% Financial advisor (M&A, No. of deals) *8 #1 5.5% Financial advisor (M&A, transaction volume) *8 #2 14.8% IPO (lead manager, No. of deals) *9 #3 15.4% Mar. Apr. 14 Sep. 14 Mar. 15 Sep. 15 Mar. 16 Sep. 16 Mar. 17 Jun. 17 *1 Managerial accounting basis. Excludes loans to the Japanese government, etc. *2 Quarterly average *3 Monthly average loan spread of existing loans *4 Accumulated no. of cases via referral / intermediary services from SMBC to SMBC Nikko *5 SMBC Nikko Securities for Global equity & equity-related and JPY denominated bonds. SMFG for Financial advisor and IPO. Source: SMBC Nikko, based on data from Thomson Reuters *6 Japanese corporate related only. Includes overseas offices *7 Consisting of corporate bonds, FILP agency bonds, municipality bonds for proportional shares as lead manager, and samurai bonds *8 Japanese corporate related only. Group basis *9 Excludes REIT IPO. Includes overseas offices 3

32 International business Overseas loan balance (includes trade bills) *1, 2 (USD bn) EMEA Americas Asia [YOY (exclude impact of changes in exchange rates) *3 ] [+18] [(1)] [+11] <+8> [+7] Overseas deposit balance *1, 2 (USD bn) [YOY (exclude impact of changes in exchange rates) *3 ] CDs & CP : less than 3 months CDs & CP : 3 months or more Deposits * [+14] [(6)] [(6)] [+26] <+24> Mar.14 Mar.15 Mar.16 Mar.17 Jun % 1.2% 1.%.8%.6% Overseas loan spread *1, 4 Jun.17 Mar.14 Mar.15 Mar.16 Mar.17 Foreign currency bonds outstanding *6 (USD bn) Jun.16 Jun.17 Senior Subordinated Benchmark issues of foreign currency bonds (since Apr. 217) Senior TLAC bonds issued in overseas market targeting institutional investors EUR 1.25 bn (5y FRN, 1y FIX) (Jun. 217) USD 4.25 bn (5y FIX, 1y FIX, 5y FRN) (Jul. 217) AUD.75 bn (5.5y FIX, 5.5y FRN) (Sep. 217).4% Sep.8 Sep.9 Sep.1 Sep.11 Sep.12 Sep.13 Sep.14 Sep.15 Sep.16 Jun. 17 *1 Managerial accounting basis. Sum of SMBC, SMBC Europe and SMBC (China). Balance since Mar. 217 includes balance of SMBC Canada Branch which was newly opened in Nov. 216 and took over business of wholly-owned subsidiary SMBC of Canada *2 Converted into USD at respective period-end exchange rates *3 Year-on-year changes exclude impact of changes in local currency / USD. Figure in < > is an YoY change excluding the balance of SMBC Canada Branch *4 Monthly average loan spread of existing loans *5 Includes deposits from central banks *6 Bonds issued by SMFG and SMBC 31

33 SMBC Nikko Financial results (consolidated) Product sales *4 Net operating revenue FY3/17 Apr.-Jun. 217 YOY change , 3, Variable annuities/insurances Subscription of equities Domestic bonds Foreign bonds Fund wrap Investment trusts SG&A expenses (25.9) (62.3) (3.5) Ordinary income * , 1, Profit attributable to owners of parent *1, Q, FY3/17 2Q 3Q 4Q 1Q, FY3/18 Net operating revenue *3 Earnings of overseas offices (Overseas offices total) * Others Net trading income Underwriting commissions Subscription commissions on investment trust, Fund wrap fee and agency commissions on investment trusts Equity brokerage commissions Q, FY3/17 2Q 3Q 4Q 1Q, FY3/18 *1 Includes profit from overseas equity-method affiliates of SMBC Nikko (consolidated subsidiaries of SMFG) etc. *2 Recorded loss of JPY 12. bn as extraordinary loss at SMBC Nikko in FY3/17 on restructuring and liquidation of business alliance with Barclays *3 Fund wrap fee is separated from Others and presented as Fund wrap fee and agency commissions on investment trusts from 1Q, FY3/18. FY 3/17 figures are adjusted retrospectively *4 Includes sale of fund wrap from 1Q, FY3/18 *5 Managerial accounting basis. Overseas offices total is defined as the total of : Earnings of SMBC Nikko s consolidated subsidiaries: SMBC Nikko Securities (Hong Kong) and SMBC Nikko Securities (Singapore); and Earnings of SMBC Nikko s affiliated companies: Securities Product Group of SMBC Nikko Capital Markets and SMBC Nikko Securities America 1Q, FY3/17 2Q 3Q 4Q 1Q, FY3/18 32

34 SMBCCF Financial results (Consolidated) Loan guarantee / overseas businesses FY3/17 Apr.-Jun. 217 YOY change Operating income , Consumer loans outstanding (domestic) SMBCCF non-consolidated Mobit ,2 Loan guarantee amount 1, , ,211.7 Operating expenses (191.6) (5.2) (1.8) , 8 Expenses for loan losses (54.6) (18.8) (1.3) Ordinary profit Profit attributable to owners of parent Mar. 16 Jun. 16 Sep. 16 Dec. 16 Mar. 17 Consumer loans outstanding (overseas) * Jun Mar. 16 Jun. 16 Sep. 16 Dec. 16 Mar. 17 No. of interest refund claims Jun. 17 Consumer loans outstanding 1,74.6 1,89.6 Allowance on interest repayments Effect of implementing the consolidated corporate-tax system +JPY 5 bn (Thousand) 1 FY212 FY214 FY216 FY213 FY215 FY217 Loan guarantee 1, ,231.1 for regional banks, etc No. of companies with guarantee agreements: 189 (as of Jun. 217) 4 2 Mar. 16 Jun. 16 Sep. 16 Dec. 16 Mar. 17 Jun Jun. Sep. Dec. Mar. * Converted into Japanese yen at respective period-end exchange rates 33

35 Non-consolidated Consolidated FY3/217 financial results Income statement FY3/17 YOY change vs Nov. target Consolidated gross profit *1 USD 26. bn 2, General and administrative expenses (1,812.4) (87.6) Equity in gains (losses) of affiliates Consolidated net business *1 profit *2 USD 1.1 bn 1,132.9 (1.1) Total credit cost (164.4) (61.6) Gains (losses) on stocks 55. (14.) Others (17.6) Ordinary profit *1 USD 9. bn 1, Extraordinary gains (losses) (26.6) (21.4) Income taxes current and deferred (171.) *1 Profit attributable to owners USD 6.3 bn of parent *1 Gross banking profit USD 14.8 bn 1, Expenses *3 (816.9) (11.5) (1.9) Banking profit *2 *1 USD 7.5 bn Total credit cost (61.1) (64.3) (11.1) Gains (losses) on stocks Ordinary profit *1 USD 7.7 bn Net income *1 USD 6.1 bn Consolidated gross profit increased in spite of an impact of negative interest rates, mainly led by revenue growth at SMBC Nikko and the new consolidation of SMFL Capital General and Administrative expenses increased due in part to IT investments in the past years and the enhancement of overseas business despite our continuous efforts to control expenses Equity in gains (losses) of affiliates increased due mainly to the absence of a goodwill impairment loss of BTPN recorded in FY3/16 Total credit cost increased primarily due to worsened business results of an obligor with large exposure Gains (losses) on stocks from sales of shareholdings was approx. JPY 6 bn (reduction of strategic shareholdings in FY3/17 was approx. JPY 1 bn) Others increased due mainly to the absence of provisions for losses on interest repayments at SMBCCF recorded in FY3/16 Extraordinary gains (losses) includes JPY 43. bn of goodwill impairment loss of SMBC Friend and JPY 29.3 bn of gains on step acquisitions from the consolidation of SMAM Income taxes includes the effect of implementing the consolidated corporate-tax system (approx. JPY 1 bn) Contribution of subsidiaries to Profit attributable to owners of parent FY3/17 YOY change SMBCCF SMBC Nikko * SMFL 3 +3 Cedyna FY3/17 YOY change SMCC 16 (1) SMBC Friend 1 (3) SMBC Trust (4) +7 BEA *5 11 (3) *1 Converted into USD at period-end exchange rate of USD 1 = JPY *2 Before provision for general reserve for possible loan losses *3 Excludes non-recurring losses *4 Excludes profit from overseas equity-method affiliates of SMBC Nikko (consolidated subsidiaries of SMFG) *5 The Bank of East Asia 34

36 Net fees and commissions FY3/16 FY3/17 YOY change Consolidated *1 1,3.8 1, of which: SMBC (9.7) SMCC SMBC Nikko Cedyna SMBCCF SMBC Friend (7.) (Ref) Gross banking profit of SMBC s Marketing units *2 FY3/16 FY3/17 YOY Change *3 Loan syndication Structured finance Asset finance * Sales of derivatives products (5.4) Income related to domestic corporate business Investment trusts (5.6) Pension-type insurance (6.2) Single premium type permanent life insurance (15.8) Level premium insurance (.6) Income related to domestic consumer business (28.2) of which: Money remittance, electronic banking Foreign exchange Domestic Non-interest income of which: IBU s loan related income * IBU s Non-interest income * Non-interest income of which: Income on domestic loans (12.1) Income on domestic yen deposits (2.9) IBU s interest related income * (4.1) Interest income (17.8) Gross banking profit of SMBC s Marketing units 1, ,211.2 (6.7) *1 Numbers excluding SMBC are rounded *2 Managerial accounting basis *3 After adjustments of interest rates and exchange rates, etc. *4 Profit from real estate finance, securitization of monetary claims, etc. *5 International Banking Unit 35

37 Gains (losses) on bonds Non-consolidated Gains (losses) on bonds Gross banking profit of SMBC s Treasury Unit FY3/16 FY3/17 YOY Change FY3/16 FY3/17 YOY change Gains (losses) on bonds (1.3) Domestic operations International operations (25.1) Gross banking profit of SMBC s Treasury Unit (21.2) Interest rate, stock price and exchange rate Interest rate of JGB, US Treasury and Bund Nikkei Stock Average Exchange rate JPY / USD (%) (JPY) (JPY/USD) 5 1Y US Treasury yields 13 2, 1Y JGB yields Y German Bund yields 18, 3 16, , , 9 1, 8 (1) 8, 7 FY3/15 FY3/16 FY3/17 FY3/18 FY3/15 FY3/16 FY3/17 FY3/18 FY3/15 FY3/16 FY3/17 FY3/18 36

38 Expenses Consolidated Overhead ratio comparison *3 FY3/17 YOY change (%) 1 Expenses 1, Overhead ratio 62.1% +2.7% 8 83 By company (major Group companies) *1 FY3/17 YOY change SMBC * SMBC Nikko SMCC Cedyna SMBCCF 15. (.) SMFL SMBC Trust SMBC Friend 37. (1.) Apr. 216, New consolidation (SMFL Capital) Nov. 215, New consolidation (PRESTIA) 1 *1 Numbers excluding SMBC are rounded *2 Excludes non-recurring losses *3 Consolidated basis. Based on each company s disclosure. G&A expenses (for Japanese banks, includes non-recurring losses of subsidiary banks) divided by top-line profit (net of insurance claims). FY3/17 results for SMFG, MUFG and Mizuho FG. Jan. - Dec. 216 results for others 37

39 千 Changes in our business mix 3,5 3, 2,5 2, BOJ's policy interest rate Consolidated Gross profit 2,92.7 1,5 1, % 3/3 3/4 3/5 3/6 3/7 3/8 3/9 3/1 3/11 3/12 3/13 3/14 3/15 3/16 3/17 Breakdown of contribution to Gross profit.5%.1% 3-tier system for BOJ s account;.1% / % / (.1)%.4 FY3/3 FY3/17 SMBC s domestic loan / deposit related revenue. International business (banking) 35%.% 17%.%.% Mar. 11 Mar. 12 Mar. 13 Mar. 14 Mar. 15 Dec. 15 Proportion of International Business Unit within 5% Consolidated net business profit: 16% 32% Group companies 18% 38% 38

40 Initiatives for negative interest rate policy Control deposit balance Lowered interest rates Ordinary deposits.1% since Feb. 16, 216 Time deposits.1% since Mar. 1, 216 Initiatives against inflow of large funds from corporations (especially financial institutions) Charge fees for correspondent accounts of foreign banks Promote shifts from savings to asset building Foreign deposits; raised interest rates, launched marketing campaigns Increase sales of wrap accounts and low risk and low return investment products BOJ s negative interest rate policy Introduction of Quantitative and Qualitative Monetary Easing with a Negative Interest Rate (Feb. 216) *1 BOJ s current account balance Jun. 217 JPY 25 tn JPY 113 tn JPY 29 tn Diversify revenue sources Initiatives to secure loan margin Strengthen commission business Expand non-banking business Initiatives to increase high value-added loans by providing solutions Introduction of Quantitative and Qualitative Monetary Easing with Yield Curve Control (Sep. 216) *2 Yield curve control Inflation-overshooting commitment *1 Source: The Bank of Japan ( Key Points of Today s Policy Decisions on Jan. 29, 216) BOJ Current Account Balances by Sector (Jun. 217) on Jul. 18, 217 for BOJ s current account balance *2 Source: The Bank of Japan ( New Framework for Strengthening Monetary Easing: Quantitative and Qualitative Monetary Easing with Yield Curve Control on Sep. 21, 216) 39

41 Balance sheet Non-consolidated Balance in the BOJ s current account Mar. 31, 217 JPY 36.2 tn FY3/17 average JPY 31.4 tn Non-consolidated Domestic loans outstanding JPY 54.5 tn Others (Loans denominated in foreign currencies, overdraft, etc.) Prime-rate-based (consumer) 18% 18% Spread-based (repriced within 1 year) 47% Prime-rate-based Spread-based 5% (more than 1 year) 12% By domestic Marketing units *1 (JPY tn) Consolidated B/S (Mar. 31, 217) Cash and due from banks 46.9 Loans 8.2 Deposits (includes NCD) Non-consolidated Domestic deposits outstanding JPY 87.7 tn Foreign currency deposits 3% Current deposits 11% Time deposits 21% Others (Sundry deposits, etc.) 4% Ordinary deposits 61% (Ref) By type of depositor (JPY tn) Sep.15 Mar.16 Sep.16 Mar.17 Total Individuals Corporates (JPY tn, at period-end) Mar. 217 Change from Mar. 216 Large corporations * Mid-sized corporations & SMEs *3 Individuals Consolidated Of which Stocks *5 JPY 3.8 tn Of which JGBs *5 JPY 7.3 tn Of which Foreign bonds *5 JPY 7.1 tn *4 Securities 24.6 Other assets 46.1 Total assets Other liabilities 56.8 Total net assets 11.2 (Ref) Non-JPY B/S items *6 *1 Managerial accounting basis *2 Global Corporate Banking Division *3 Sum of Corporate Banking Division and Small and Medium Enterprises Banking Division *4 After adding back the portion of housing loans securitized in FY3/17 of approx. JPY 32 bn *5 Other securities *6 Managerial accounting basis. Sum of SMBC + SMBCE + SMBC (China) *7 Sum of loans, trade bills, and securities of Marketing units (Wholesale Banking Unit, Retail Banking Unit and International Banking Unit). *8 Deposit placed with central banks, etc. (USD bn) Interest earning assets *7 Others *8 (consists mainly of highly liquid assets) Foreign bonds, NCD Deposits (incl. deposits from central banks) Mid-to long-term funding (incl. Corporate bonds, Currency swaps, etc.) CDs & CP Interbank (incl. Repo) Assets Liabilities 399 4

42 Yen bond portfolio Non-consolidated (Total balance of Other securities with maturities and bonds classified as held-to-maturity total of JGBs, Japanese local government bonds and Japanese corporate bonds) (JPY tn) 35 3 More than 1 years 5 to 1 years to 5 years 1 year or less Mar.2 Mar.3 Mar.4 Mar.5 Mar.6 Mar.7 Mar.8 Mar.9 Mar.1 Mar.11 Mar.12 Mar.13 Mar.14 Mar.15 Mar.16 Mar.17 Jun.17 of which JGBs (JPY tn) Average duration (years) *1 Unrealized gains (losses) (11.9) 7.7 (282.2) (151.4) (129.5) (1.2) *2 *1 Excludes bonds classified as held-to-maturity, bonds for which hedge-accounting is applied, and private placement bonds. Duration of 15-year floating rate JGBs is regarded as zero. Duration at Mar. 2 is for JGB portfolio only *2 15-year floating-rate JGBs have been evaluated at their reasonably estimated price from Mar. 9 41

43 Non-consolidated Consolidated Bond portfolio Mar. 213 Mar. 216 Mar. 217 Jun. 217 (JPY tn) Balance sheet amount Net unrealized gains (losses) Balance sheet amount Net unrealized gains (losses) Balance sheet amount Net unrealized gains (losses) Balance sheet amount Net unrealized gains (losses) Yen-denominated bonds of which JGB Held-to-maturity Others Foreign bonds (Other securities) (.11) 6.5 (.1) Yen-denominated bonds of which JGB Held-to-maturity Others Foreign bonds (Other securities) (.1) 5. (.9) 42

44 Corporate, sovereign and bank exposures Domestic Overseas [as of Mar. 31, 217] PD *1 LGD *2 Risk Weight (JPY tn) (JPY tn) Internal Rating (Certainty of debt repayment) [as of Mar. 31, 217] PD *1 LGD *2 Risk Weight.6% 35.23% 18.61% (Very high - Satisfactory).14% 28.86% 17.11%.75% 33.65% 5.28% (Likely - Currently no problem) 2.89% 24.89% 72.27% 13.7% 39.83% % 7 (excl. 7R) 7(excl.7R) (Borrowers requiring caution) 14.91% 24.2% % 1.% 48.12% 12.44% 7R, 8-1 (Substandard Default(7R, 8-1) borrowers - Bankrupt borrowers) Mar. 31, 214 Mar. 31, 215 Mar. 31, % 63.82% 52.63%.84% 44.1% 56.29% Others Others Mar. 31, % 24.72% 26.21%.% 35.31%.1% Japanese JGB, Government, etc. etc JPY 11.4 trillion Total (as of Mar. 31, 217) JPY 43. trillion (Consolidated) *1 Probability of Default. Probability of becoming default by obligor during one year *2 Loss Given Default. Percentage of loss assumed in the event of default by obligor; ratio of uncollectible amount of the exposure owned in the event of default 43

45 Overseas loan balance classified by borrower type *1 Total *2 By region (Mar. 217) *2 (USD bn) Non-Japanese corporations and others (product type lending) Japanese corporations 211 Non-Japanese corporations and others (product type lending) Japanese corporations 1% % % % % Total Asia Americas EMEA 1 5 Major marketing channels in Asia (Mar. 217) *2, 3 1% 75% 5% Non-Japanese corporations and others (product type lending) Japanese corporations 25% Mar. 13 Mar. 14 Mar. 15 Mar. 16 Mar. 17 % Sydney Hong Kong Singapore Indonesia China Bangkok Seoul *1 Geographic classification based on booking office *2 Managerial accounting basis. Sum of SMBC, SMBC Europe and SMBC (China). Includes trade bills after Mar. 215 *3 Sum of SMBC and SMBC Indonesia 44

46 Loan balance in Asian countries/areas *1, 2 Australia Hong Kong Singapore 1,6 1, , Mar.13 Mar.14 Mar.15 Mar.16 Mar.17 1,6 1,2 8 4 Mar.13 Mar.14 Mar.15 Mar.16 Mar.17 Indonesia China Thailand Mar.13 Mar.14 Mar.15 Mar.16 Mar.17 1, Mar.13 Mar.14 Mar.15 Mar.16 Mar.17 India Taiwan Korea 1,6 1, , Mar.13 Mar.14 Mar.15 Mar.16 Mar.17 Mar.13 Mar.14 Mar.15 Mar.16 Mar.17 1, Mar.13 Mar.14 Mar.15 Mar.16 Mar.17 1, Mar.13 Mar.14 Mar.15 Mar.16 Mar.17 1, Mar.13 Mar.14 Mar.15 Mar.16 Mar.17 *1 Geographic classification based on borrowers domicile *2 Managerial accounting basis. Sum of SMBC, SMBC Europe, SMBC (China) and SMBC Indonesia. Loan balances are translated into JPY from each country s local currency at the exchange rate of Mar. 31,

47 SMFG s network in Asia : Banking business offices : Overseas offices of SMFG group companies excluding banking business offices : Equity method affiliates Red dotted outline indicates offices opened or joined SMFG group after Apr. 216 Banking Leasing Securities M&A advisory < Asia and Oceania > 14 countries/areas, 41 offices *1 Beijing Bangkok Shanghai Kuala Lumpur Chengdu Singapore Guangzhou Jakarta Hong Kong Hong Kong Sydney Shanghai Hong Kong Singapore Jakarta Singapore Jakarta Prepaid card services Seoul *2 Consulting Market research Shanghai Singapore Auto loans Ho Chi Minh *3 Australia Consumer finance Loan management and collection Consulting Hong Kong Shenzhen Shenyang Tianjin Chongqing Taipei Shanghai Chengdu Wuhan Shanghai Bangkok *4 System integration Shanghai Singapore *1 As of Apr. 3, 217. Includes SMBC, SMBC s banking subsidiaries and equity method affiliates. Excludes offices planned to be closed *2 Prepaid cards targeted at travelers to Korea from Japan offered through an alliance with Hana SK Card Co., Ltd. since Nov. 212 *3 Expanded auto loan business through alliance with Vietnam Eximbank since May 213 *4 SMBC made OTO/SOF equity method affiliates in Mar

48 BNI Mandiri BCA BRI BTPN BTPN BCA BRI BNI Mandiri Indonesia strategy (Multi-Franchise strategy) We will accelerate pursuing synergies among the Group in Indonesia Asia Retail Innovation Department is newly established in Singapore to expand the digital banking business in Asia Expanding business to provide full-banking service Bank Tabungan Pensiunan Nasional (BTPN) Branchless banking service (Wow!) has successfully acquired about 4 million customers as of June 217 In August 216, BTPN launched smartphone-based digital banking service (Jenius) and acquired about 3K customers as of June 217 OTO/SOF (Automotive Finance Companies) Appointed a director (OTO) and a commissioner (OTO/SOF) from SMBC Wholesale Retail Financial results of BTPN *2 (IDR billion) YOY Gross banking profit 8,41 9, % Operating expenses (5,156) (5,984) +16% Net profits (*) 1,72 1,752 +3% ROE 13.3% 11.7% - Gross loans 58,587 63,168 +8% Customer deposits 6,273 66,22 +1% Total assets 81,4 91, % (*) Net profit from existing business (excluding the investment for digital banking) increased 19% YOY in FY216 (*1) SMEs Large corporations Mid-sized corporations Micro business owners Productive poor High-net-worth Middle-class Mass market 15.% 1.% 5.%.% Net Interest Margin *3 Higher NIM compared to other banks % 4.% 3.% 2.% 1.%.% NPL ratio *3 Sound credit policy *1 Indonesia Infrastructure Finance *2 TTM as of Dec. 215: IDR 1 = JPY.88, Dec. 216 : IDR 1 = JPY.87 *3 Based on each company s disclosure (FY216 results) 47

49 Products that we have strengths overseas Aircraft-related business Providing solutions to domestic and overseas aircraft investors and offering aircraft leasing on a Group basis led by SMBC Aviation Capital SMBC Aviation Capital results / Number of owned and managed aircraft *1 Aircraft leasing companies (USD mn) FY3/17 FY3/16 Total revenue *2 1, Net income Aircraft asset 1,963 1,515 Net asset 1,967 1,627 Country # owned/managed 1 GECAS USA 1,441 2 AerCap Netherlands 1,16 3 Avolon Ireland 626 *3 4 SMBC AC Ireland Nordic Aviation Capital Denmark 374 Railcar leasing SMBC Rail Services (a wholly-owned consolidated subsidiary in the U.S.) U.S. based mid-sized railcar leasing company, leased assets: USD 1,647 mn (as of Dec. 31, 216) Strengths Well-diversified portfolio management Young age of railcars Well-diversified client base by industry Acquisition of American Railcar Leasing (ARL) SMBC Rail Services acquired ARL, the 6th largest railcar leasing company in the U.S. Asset size: approx. USD 2.2 bn (approx. 34 thousand railcars) Purchasing price of the entity was lower than the appraisal value of the railcars conducted by a third party. Therefore, impact to SMFG CET1 capital ratio is minimal Subscription finance, Americas / EMEA middle market business Extending loans to funds based on commitments from investors Credit balance: approx. USD 21 bn, spread: approx. 15bp (as of Mar. 217) Sponsor finance for mid-sized corporations, loan for acquisition finance Accounts for around 2% of our overseas loan balance. Carefully select profitable transactions *1 As of Dec. 31, 216 (Source: Ascend Airline Business ) *2 Leasing revenue + gains (losses) on sales of aircraft etc. Excludes redelivery adjustment *3 Includes an acquisition of CIT Aerospace closed in Apr

50 Ref: Exposure to resource-related sectors *1 (JPY tn) Mar. 16 Ratio to total exposure Mar. 17 Ratio to total exposure Jun. 17 Ratio to total exposure Integrated Oil & Gas * % % % Services (Drilling, field services).5.4%.4.4%.5.4% Upstream (E&P *3 ) % % % Midstream (Storage/Transportation) % % % Downstream (Refining).7.6%.9.7%.8.7% Oil and gas % % % Other resources (Mining) %.9.8% 1..8% Non-Japanese *4 (Resource-related sectors) % % % o/w Upstream.2.2%.2.2%.2.1% Oil and gas % % % Other resources (Mining).2.2%.2.2%.2.2% Japanese (Resource-related sectors) % % % Resource-related sectors % % % Oil and gas % % % Other resources (Mining) % 1.1.9% % Non-Japanese * % % % Japanese % % % SMFG total exposure % % % Oil and gas does not include petrochemical; Japanese Other resources (Mining) does not include general trading companies Non-Japanese (resource-related sectors) : Corporate finance approx. 7%; Project finance approx. 3% Japanese (resource-related sectors) : Corporate finance 1%. No NPLs Exposure to resource-related sectors excluding project finance which are unaffected by resource prices is JPY 7. tn; Exposure at default (EAD) to the sectors is JPY 6.2 tn as of Jun. 217 *1 Loans, commitment lines, guarantees, investments, etc. *2 Majors, state-owned companies, etc. *3 Exploration & Production *4 Exchange rates using TTM as of Mar. 216: USD 1 = JPY , Mar. 217: USD 1 = JPY and Jun. 217: USD 1 = JPY

51 Breakdown of exposure to Non-Japanese oil & gas/other resources as of Jun. 217 (USD bn) [1] Exposure [2] Drawn amount [3] NPLs *1,2 [5] Reserve for possible loan losses Percentage of 1-3 Percentage of 1-3 [4] Ratio to drawn amount [3]/[2] [6] Collateral, guarantees, etc. [7] Coverage ratio ([5]+[6])/[3] Asia % %.72.5%.19-26% Americas % 7. 75% % % EMEA % % % % Total % % % % Oil and gas % % % % Integrated Oil & Gas (Majors, state-owned companies, etc.) % % Services (Drilling, field services) 4. 47% 2. 31% % % Upstream (E&P) Midstream (Storage/Transportation) Downstream (Refining) % % % % % % %.1-1% % % Other resources (Mining) % % % % Oil and gas : Corporate finance approx. 7%; Project finance approx. 3% Other resources (Mining) : Corporate finance approx. 85%; Project finance approx. 15% *1 NPLs based on the Financial Reconstruction Act, excluding Normal assets *2 The balance of Claims on borrowers requiring caution are USD.2 bn in Asia, USD 1.7 bn in Americas, and USD.8 bn in EMEA. They are mainly included in Oil and gas 5

52 Loan and exposure to the UK / China / Russia Loan balance in the UK *1, 2, 3 Loan balance in China *1, 2, 3, 4 Mar. 16 Mar Japanese (corporates) Non-Japanese (corporates, project finance) (JPY tn) Mar. 16 Mar Non-Japanese (corporates, project finance) Japanese (corporates) (JPY tn) Our operation in EMEA Most borrowers are classified as 1-3 *5 in our internal rating Exposure to Russia *6, 7 Offices in the UK and EU SMBC Europe Head Office : London 6 branches : Dublin, Amsterdam, Paris, Prague, Milan, Madrid SMBC s branches 3 branches : Brussels, Dusseldorf, Frankfurt Booking of loans Loan balance in EMEA regions: Approx. JPY 6 tn - of which around 2% is booked at SMBC Europe London Mar. 16 Mar % of SMFG s total exposure of approx. USD 1tn Others Japanese corporates (Aircraft leasing, etc.) Project finance Financial institutions Non-Japanese corporates (USD bn) *1 Sum of SMBC, SMBC Europe and SMBC (China) *2 Geographic classification based on borrowers domicile *3 Loan balance are converted into JPY from each country s local currency at the exchange rate of Mar. 31, 217 *4 Based on borrowers domicile for loan balance, booking office for classification of borrowers *5 Certainty of debt repayment is in the range of Very high - Satisfactory *6 Loans, commitment lines, guarantees, investments, etc. *7 SMFG consolidated 51

53 Capital and risk-weighted assets, consolidated Capital ratio (transitional basis) Mar. 31, 217 Jun. 3, 217 Common Equity Tier 1 capital (CET1) 8,68.5 8,872.6 of which: Total stockholders equity related to common stock 8,13.3 8,255.1 Accumulated other comprehensive income *1 1,29. 1,37.6 Regulatory adjustments related to CET1 *1 (898.1) (893.) Tier 1 capital 9, ,182.7 of which: Additional Tier 1 capital instruments Eligible Tier 1 capital instruments (grandfathered) * Regulatory adjustments *1, 2 (172.9) (172.1) Tier 2 capital 2,27.5 2,2.5 of which: Tier 2 capital instruments Eligible Tier 2 capital instruments (grandfathered) * Unrealized gains on other securities after 55% discount and land revaluation excess after 55% discount * Regulatory adjustments *1, 2 (7.6) (71.3) Total capital 11, ,185.2 Risk-weighted assets 7, ,721. Common Equity Tier 1 capital ratio 12.17% 12.54% Tier 1 capital ratio 14.7% 14.39% Total capital ratio 16.93% 17.23% Common Equity Tier 1 capital ratio (fully-loaded *4, pro forma) Preferred securities which become callable in FY3/18 SMFG Preferred Capital JPY 1 Limited Issue date Amount outstanding Mar. 31, 217 Dividend rate *6 First call date *7 Feb. 28 JPY 135. bn 3.52% Jan. 218 Jun.3, 217 Variance with CET1 on a transitional basis * of which: Accumulated other comprehensive income of which: Net unrealized gains on other securities of which: Non-controlling interests (subject to be phased-out) (27.8) (28.5) Regulatory adjustments related to CET1 (224.5) (223.3) Common Equity Tier 1 capital 8, ,947.8 Risk-weighted assets 7, ,682. Common Equity Tier 1 capital ratio 12.2% 12.6% Ref: Common Equity Tier 1 capital ratio (excluding net unrealized gains) Leverage ratio (transitional basis, preliminary) Jun. 3, 217 Tier1 Capital 1,182.7 Leverage exposure 214,333.5 Leverage ratio 4.75% 1.% 1.3% LCR (transitional basis) Average Apr. Jun % Type Non Step-up *1~3 Subject to transitional arrangements. Regulatory adjustments of Tier 1 and Tier 2 include items that are either phased-in or phased-out as described in *1 and *2 below *1 8% of the original amounts are included *2 8% phase-out is reflected in the figures *3 Cap is 5% *4 Based on the Mar. 31, 219 definition *5 Each figure represents 2% of the original amounts that are not included due to phase-in or included due to phase-out in the calculation of CET1 on a transitional basis *6 Until the first call date. Floating rate thereafter *7 Callable at any dividend payment date on and after the first call date, subject to prior confirmation of the FSA 52

54 TLAC requirements TLAC and capital buffer requirements for SMFG Minimum external TLAC requirements Minimum external TLAC requirements (RWA basis) After % 18% Plus capital buffers *1 19.5% 21.5% Factoring treatment of access to Deposit Insurance Fund Reserves Minimum external TLAC requirements (Leverage ratio denominator basis) 17.% 18.% 6% 6.75% Meeting TLAC requirement Issuance amount of SMFG senior unsecured debt *2 Issuance amount through the period Amount outstanding at period end (JPY tn) FY3/216 FY3/ Total capital plus SMFG senior debt to RWA *3 (Consolidated) Based on current calculations, we expect that the TLAC requirements based on RWA will be more constraining than requirements based on the leverage ratio denominator Contribution of Japanese Deposit Insurance Fund Reserves The FSA plans to allow Japanese G-SIBs to count the amount equivalent to 2.5% of RWA from Mar. 219 and 3.5% of RWA from Mar. 222 as external TLAC 2% 15% 1% 5% Senior Debt: 2.9% (JPY 2.1 tn) Tier 2: 2.8% (JPY 2. tn) AT1: 1.9% (JPY 1.3 tn) CET1: 12.1% (JPY 8.6 tn) SMFG Total capital *4 + Senior debt RWA = 19.8% % Mar. 217 *1 Excludes countercyclical buffer. As for the G-SIB buffer, SMFG was allocated to bucket 1 (1.%) according to the list published by the FSB in Nov. 216 *2 Translated at the exchange rate as of Mar. 31, 216 (FY3/216) and as of Mar. 31, 217 (FY3/217) *3 This figure is not the same as TLAC ratio *4 Transitional basis. We expect the calculation for TLAC ratio, when the TLAC requirements in Japan are finalized, will differ from the one for total capital ratio. For example, some items in total capital will not be included in TLAC capital and vice versa 53

55 ESG SRI Indices on which SMFG is listed SMBC assessment loans / private placement bonds Included in ESG Indices (Broad index) selected by GPIF (Jul. 217) (JPY tn) * Accumulated transaction amount Mar.1 Mar.11 Mar.12 Mar.13 Mar.14 Mar.15 Mar.16 Mar.17 Ratio of female managers (SMBC) (%) (target) Mar.14 Mar.15 Mar.16 Mar.17 Jul. 17 Mar.21 54