Financial Results in FY2003 & Management Policies and Strategies. June 2, 2004 Sumitomo Mitsui Financial Group

Transcription

1 Financial Results in FY23 & Management Policies and Strategies June 2, 24 Sumitomo Mitsui Financial Group

2 Agenda Part I (P1-16) Part II (P17-32) 1. Summary of FY3 financial results 2. Performance by business unit 3. Loans (1) 4. Loans (2) 5. Non-interest income 6. Expenses 7. Reduction of Non-performing loans 8. Credit cost 9. Gains (losses) on stocks 1. Non-recurring gains (losses) / Extraordinary gains (losses) 11. Securities portfolio and Derivatives 12. B/S as of 4/3 13. Deferred tax assets 14. BIS capital ratio 15. Highlights of consolidated financial results 16. Earnings forecast for FY4 1. Summary of FY3: (1) Progress in Management Commitment (2) Progress in strategic actions 2. Management policy in FY4: (1) Complete Intensive Resolution Period (2) Take the offensive in strategic businesses further 3. Plan and actions in FY4: (1) Increase loans the top priority issue in FY4 (2) SME loans (3) Financial consulting to individuals (4) Investment banking business (5) Reinforce consumer finance drastically 4. Path for the sustainable growth Appendix (P33-55) [Non-consolidated]: indicates non-consolidated figures of Sumitomo Mitsui Banking Corporation ( SMBC ). Figures for FY22 include the former SMBC s figure before merger*, between Apr. 1, 22 to Mar.16, 23 [Consolidated]: consolidated figures of Sumitomo Mitsui Financial Group ( SMFG ) *The former SMBC and the former Wakashio Bank merged on Mar. 17, 23 to form the current SMBC

3 Part I 1. Summary of FY3 financial results 2. Performance by business unit 3. Loans (1) 4. Loans (2) 5. Non-interest income 6. Expenses 7. Reduction of Non-performing loans 8. Credit cost 9. Gains (losses) on stocks 1. Non-recurring gains (losses) / Extraordinary gains (losses) 11. Securities portfolio and Derivatives 12. B/S as of 4/3 13. Deferred tax assets 14. BIS capital ratio 15. Highlights of consolidated financial results 16. Earnings forecast for FY4

4 1. Summary of FY3 financial results (1) Achieved Banking profit of more than JPY 1 trillion for 3 consecutive years (2) Substantially reduced Non-performing loans and Stockholdings -NPLs: reduced JPY 2,45.1 billion -Stockholdings: sold approximately JPY 93 billion (3) Recorded JPY 31.1 billion in Net income Gross banking profit Expenses Banking profit* Total credit cost Gains on stocks Ordinary profit Net income <BIS capital ratio> SMBC Non-consolidated SMFG Consolidated FY3 1,584.1 (584.) 1,.1 (83.4) / % 11.37% Year change (176.5) 63. (113.5) Year change.87% 1.27% Change from the plan** (1.9) (13.4) - (14.9) 11.1 Gross banking profit JPY billion decrease Profit increase Decrease Expenses JPY 63. billion decrease Personnel expenses 32.6 Marketing Units 15.6 Headquarters (76.4) Treasury Unit (25.7) Non-personnel expenses & Taxes 3.4 * excluding transfer to general reserve for possible loan losses. **announced in November 23 [Non-consolidated] 1 Expense decrease Expense increase

5 2. Performance by business unit FY3 Year change* Major factors for year-over-year change in Gross banking profit Middle Market Banking Unit Corporate Banking Unit International Banking Unit Community Banking Unit Marketing Units Treasury Unit Headquarters** Total Consumer Banking Unit Gross Banking profit Expenses Banking profit Gross Banking profit Expenses Banking profit Gross Banking profit Expenses Banking profit Gross Banking profit Expenses Banking profit Gross Banking profit Expenses Banking profit Gross Banking profit Expenses Banking profit Gross Banking profit Expenses Banking profit Gross Banking profit Expenses Banking profit Gross Banking profit Expenses Banking profit (241.3) (174.1) (27.7) (44.3) (7.3) 3.5 1,216.6 (494.7) (19.3) (8.3) (7.) (78.3) 1,584.1 (584.) 1, (25.7) 4.6 (21.1) (76.4) 19.2 (57.2) (176.5) 63. (113.5) (1) (2) (3) (4) (5) (6) (1) Consumer: Investment trust related fees Pension-type insurance related fees (2) Middle Market: Income related to derivatives products sales Money remittance & EB related fees Loan syndication related fees (3) Corporate: Income related to derivatives products sales (4) International: Arrangement fees (5) Treasury: ALM operations (213.2) (25.7) Trading (6) Headquarters: Establishment of the U.K.subsidiary (76.4) Decrease in interest income of loans to problematic borrowers Decrease in dividend income Adjustment related to fluctuations in interest rates and foreign exchange rates, etc. * Excluding changes in Marketing Units profits caused by fluctuations of interest rates and foreign exchange rates, etc. Those changes are adjusted in the account of Headquarters. **Headquarters include Asset Restructuring Unit. [Non-consolidated] 2

6 3. Loans (1) Loan volume (Trillions of yen) Domestic lendings Term-end balance 4/3 48. Year change (5.8) Change from 3/9 (4.1) Average balance FY3 5.5 Year change (3.4) Excluding loans to the Government and Risk-monitored loans (Managerial accounting basis) Small-and medium sized enterprises (Middle Market Banking Unit) Large corporations (Corporate Banking Unit) Mortgage loans for residential purpose (Consumer Banking Unit) (.1).1 (.3).5 (.1).6 (.5) (1.) (.9) Loan spread Small-and medium sized enterprises (Middle Market Banking Unit) Large corporations (Corporate Banking Unit) FY3 Change of termend loan spread (2bp) (5bp) FY2 Change of termend loan spread 24bp 13bp FY3 Average loan spread 158bp 94bp Year change 1bp 6bp [Non-consolidated] 3

7 4. Loans (2) Mortgage loans* origination / balance New unsecured loans* origination / balance (Trillions of yen) * for residential purpose (Trillions of yen) * Business select loan (BSL), N-fund, etc. (Origination) Origination** Term-end balance (Balance) (Origination) Origination Term-end balance (Balance) FY1 FY2 FY3 FY1 FY2 FY3 **Excluding bridge loans to HLC s loans [Non-consolidated] 4

8 5. Non-interest income 1,4 1,2 1, Trend of non-interest income Proportion of Non-interest income in Marketing Units profits (b/a) 1,144. 1, % % FY1 FY2 FY (+47.) Profits from Marketing Units---a Total of Gross banking profits from Consumer, Middle market, Corporate, International, and Community Banking Unit Non-interest income---b Fees and commissions, Income related to sales of derivative products, etc. a 32.8% 1,216.6 b (%) (1) Investment trusts & Pension-type insurances FY1 FY2 FY3 <Balance> 3/3 4/3 Investment trusts*: Pension-type insurances**: * For individuals (trillions of yen) **Accumulated amount of sales at branches (billions of yen) (3) Sales of derivative products FY1 FY2 FY3 -Actively responded to clients needs to make interest rate payments fixed under the rise of long-term interest rate. -75% of increase in FY3 is interest rate derivatives (2) Loan syndication FY1 FY2 FY3 <Domestic loan syndication> FY2 FY3 # of transaction Amount arranged 4, ,473.5 (4) Remittance, Electric Banking, etc FY1 FY2 FY3 FY2 FY3 Remittance fees: EB fees: [Non-consolidated] 5

9 6. Expenses Expense reduction Major factors for year-over-year change Personnel expenses Non-personnel expenses & Taxes 647. Personnel expenses: JPY 32.6 billion decrease - Reduction of headcount (1,676) Number of employees- 3/3: 24, /3: 22,348 - Reduction of bonus fund (13.4%) 4 [(32.6)] 3 Non-personnel expenses & Taxes: JPY 3.4 billion decrease [(3.4)] FY1 FY2 FY3 Realization of the following effects -Completion of branch integration Number of domestic branches at 4/3: 435 -Completion of systems integration Overhead ratio 36.4% 36.7% 36.9% [Non-consolidated] 6

10 7. Reduction of Non-performing loans Problem assets based on the Financial Reconstruction Law 6, 5, 4, 3, 2, 1, Problem asset ratio 5,92.3 2, , Substandard loans Doubtful assets Bankrupt and quasi-bankrupt assets 5, ,66.9 2, , ,246.9 [(1,36.)] 1,22.7 [(926.8)] /3 3/3 4/3 8.9% 8.4% 5.% *Claims to Borrowers Requiring Caution excluding claims to Substandard Borrowers. Major factors for year-over-year change Substandard loans: (1,36.) (1) Decrease -Corporate recovery, etc. -Sell-outs, Collection, etc. -Migration to lower categories (2) Increase -Migration from Doubtful assets or lower -Migration from Special mention* or upper (1) Decrease -Sell-outs, Collection, etc. -Migration to lower categories (2) Increase Doubtful assets: (926.8) -Migration to upper categories, etc. -Migration from Substandard Loans or upper (1,56.) (61.) (21.) (74.) (1,55.) (44.) (62.) (49.) Bankrupt and quasi-bankrupt assets: (163.3) [Non-consolidated] 7

11 8. Credit cost Total credit cost FY2 (1,74.5) FY3 (83.4) Change Breakdown of credit cost: Change from the forecast announced in 3/11 Transfer to general reserve for possible loan losses (238.1) Non-recurring gains (losses) (836.4) (869.2) (32.8) FY2 FY3 Write-off of loans Transfer to specific reserve (284.4) (375.4) (566.3) - (281.9) Result Forecast Result Transfer to reserve for losses on loans sold (15.2) Losses on loans sold to CCPC Losses on sale of delinquent loans (16.4) (148.9) (.8) (32.1) 15.6 (153.2) Cost for "off-balancing" Transfer to loan loss reserve for specific overseas countries Extraordinary gains (losses) Write-back of loan loss reserves Transfer to specific reserve for possible loan losses (276.4) (3.9) (276.4) Cost related to deterioration of borrowers' financial condition Write-back of general reserve for possible loan losses Write-back of loan loss reserve for specific overseas countries Total 1, Write-back of reserve for losses on loans sold [Non-consolidated] 8

12 9. Gains (losses) on stocks FY2 FY3 Change Gains (losses) on stocks Gains on sales of stocks Losses on sales of stocks (635.7) 51.2 (159.4) (36.6) Losses on devaluation of stocks (527.5) (1.7) Balance of listed and OTC stocks classified as Other securities 7, 6, 5, 4, 3, 2, 1, 5, ,11.7 5, , ,68.8 2,916.5 Acquisition cost Market value 2,83.3 2, /4 * 2/3 3/3 4/3 1,2 1, Sales of stockholdings 1, FY1 FY2 FY3 2nd Half 1st Half <Measures> -Sales to the market -Sales to the Bank of Japan -Sales to issuers as their treasury stock, etc. * Figures on April 2, 21, after the merger of Sakura Bank and Sumitomo Bank [Non-consolidated] 9

13 1. Non-recurring gains (losses) / Extraordinary gains (losses) Non-recurring gains (losses) Credit related costs Gains (losses) on stocks Enterprise tax by Local Governments Other non-recurring gains (losses) Ordinary profit (loss) Change from the forecast announced in 3/11 Extraordinary gains (losses) Gains (losses) on disposition of premises and equipment Amortization of net transition obligation from initial application of the new accounting standard for employee retirement benefits Write-back of loan loss reserves Write-back of reserve for losses on loans sold Refund of enterprise tax from the Tokyo Government and interest on refund Gains on return of the entrusted portion of employee pension fund Income (loss) before income taxes Income taxes, current Income taxes, deferred Net income Change from the forecast announced in 3/11 FY2 (1,472.7) (836.4) (635.7) (7.8) 7.2 (597.2) (73.8) (26.2) (2.2) (671.) (4.3) 233. (478.3) FY3 (815.) (869.2) 13.9 (8.5) (41.2) (14.9) (133.7) (11.9) (19.5) (12.7) (5.) (1) (2) (3) (4) (5) (6) Change (32.8) (.7) (48.4) (238.) Details (1) Tokyo Government tax rate*.9% : (5.5) Osaka Government tax rate*.9% : (3.) * after the revision of the ordinances (2) Amortization of unrecognized obligation of employee retirement benefits: (28.5) (3) Losses on disposition of branches by branch integration and closure, etc. (4) Straight-line amortization over five years from FY (5) Refund of enterprise tax (for FY 2): 38.2 Interest on refund: 2.2 (6) Change in Deferred tax assets: (7.6) Decrease in Deferred tax liabilities related to land revaluation excess: 2.6 [Non-consolidated] 1

14 11. Securities portfolio and Derivatives As of 4/3 Stocks Bonds Others Total Unrealized gains (losses) on Other securities Net unrealized gains(losses) (11.9) 6.9 Gains Losses (6.4) (118.1) (22.4) (2.9) Change from 3/ (21.6) (18.9) Derivative transactions on Deferred hedge accounting basis As of 4/3 Interest rate swaps Currency swaps Others Total Net assets (14.9) (7.5) (2.4) (5.) Assets Liabilities ( Billions of yen) Net deferred Gains (losses) (59.1) (52.8) As of 4/3 Bonds JGBs Japanese local government bonds Japanese corporate bonds Others Total One year or less 2,71. 2, ,11.4 Change from 3/3 (649.4) (637.6) (4.9) (6.9) 87.3 (562.1) Balance of securities held, classified by maturity One to five years 8, , , , ,85.9 Change from 3/3 1,431. 1, , ,75.6 Five to ten years 3,95. 3, ,331.4 Change from 3/ (14.1) (313.2) (81.1) More than ten years 1,15.3 1, ,491.4 Change from 3/ (.1) 1.1 (321.7) , , , , ,92.1 Total Change from 3/3 1, , ,734.2 [Non-consolidated] 11

15 12. B/S as of 4/3 3/3 4/3 Change Major factors for year-over-year change Assets Loans and bills discounted Securities Deferred tax assets Liabilities Deposits NCDs Bonds 97, , , , , ,61.7 4, , ,19.1 5, , , , ,67.4 3, ,177.7 (3,782.1) (6,472.3) 2,936.2 (224.1) (4,373.7) 1,456.7 (1,324.1) Loans: Overseas Domestic = decrease JPY.6 trillion: -yen appreciation (JPY.3 trillion) -reduction in low-profitable assets, etc. = decrease JPY 5.8 trillion: -decrease in loans to the Government, -reduction of Risk-monitored loans, etc. [Excluding loans to the Government and Risk-monitored loans] decrease JPY.1 trillion Securities: JGBs = increase JPY 1.5 trillion Foreign currency denominated bonds =increase JPY.8 trillion Stockholders equity Capital stock Capital surplus Retained earnings 2, , , , Deferred tax assets: <please refer to the next page> Deposit: Liquid deposits = increase JPY 1.7 trillion Individual clients deposits: increase JPY.9 trillion Corporate clients deposits: increase JPY.8 trillion Land revaluation excess (4.2) Retained earnings: Net income JPY 31.1 billion Net unrealized gains (losses) on Other securities (17.9) Net unrealized gains (losses) on Other securities: Increase in unrealized gains on stocks [Non-consolidated] 12

16 13. Deferred tax assets Temporary differences 4, Not tax deductible amounts, etc. (=Taxable reserves, Write-offs) 2,467. -Net operating loss carryforwards 2,325.5 Recognition of DTA X Effective tax rate (4.63%) Temporary differences Deferred tax assets Reserve for possible loan losses Write-off of loans Write-off of securities Net operating loss carryforwards Deferred tax liabilities Net unrealized gains on Other securities Assets DTA 1, /3 4, ,45.5 1, , B/S Valuation allowance Year change (85.7) (324.2) (989.1) (11.1) (555.4) 1, Liabilities Stockholders equity A B Estimation based on future taxable income Banking profit* Income before income taxes Adjustments to taxable income** Taxable income before adjustments (A+B) * Excluding Transfer to general reserve for possible loan losses **Excluding Reversal of temporary differences as of Mar.31,4 Amounts corresponding to the estimated taxable income before adjustments After deducting Deferred tax liabilities Change from 3/3: (224.1) -Main factor: increase of Deferred tax liabilities by Change from 3/3: (97.5) -Main factor: decrease of temporary differences due to record of Net income Estimation of next 5 years 5,45. 3,9. 1, , , ,59.5 [Non-consolidated] 13

17 14. BIS capital ratio 3/3 4/3 <Preliminary> Change Tier I Tier I 3, , Consolidated net income: 33.4 Retained earnings Net unrealized losses on Other securities (24.2) Tier II Preferred stock Preferred securities issued by SPCs Tier II* 45% of unrealized gains on other securities 1, , , , (26.1) Subordinated bonds on public offering -Overseas perpetual subordinated bonds (3/8): USD 85 million < Mainly targeted Asian retail market > 45% of land revaluation excess General reserve for possible loan losses (3.2).5 -Domestic dated subordinated bonds (3/8, 4/2): JPY 11 billion Perpetual subordinated debt Dated subordinated debt , , Risk-adjusted assets Subtraction items Disposition of NPLs Approx. (1,7) BIS capital Risk-adjusted assets BIS capital ratio Tier I ratio 5, , % 5.5% 6, , % 6.3% %.53% Increase of Mortgages and New unsecured loans to SMEs Consolidation of Kansai Sawayaka Bank Approx. 8 Approx. 5 * Amounts counted as the BIS capital. [Consolidated] 14

18 15. Highlights of consolidated financial results Consolidated gross profit FY2 2,184. FY3 2,69.5 Change (114.5) Difference from SMBC Nonconsolidated results Difference from SMBC Non-consolidated results (1) 2 subsidiary banks: 44% of the difference (Minato Bank, Kansai Urban Banking Corporation) Sumitomo Mitsui Card: 15% of the difference Net interest income 1, ,281.1 (118.4) (1) 194. (2) Sumitomo Mitsui Card: 46% of the difference Trust fees Net fees and commissions Net trading profit (2) (3) SMBC Leasing: 97% of the difference (4) Guarantee companies, Minato Bank, SMBC Finance Service, etc. Net other operating profit (166.) (3) 7.4 (5) Daiwa Securities SMBC, etc. General and administrative expenses Total credit cost Gains (losses) on stocks Equity in earnings of affiliates Ordinary profit (loss) Extraordinary gains (losses) Net income (loss) Consolidated net business profit (889.2) (1,2.9) (621.5) 5.7 (515.7) (75.2) (465.4) 1,131. (866.5) (956.6) , (4.4) (4) (5) (282.5) (153.2) (2.4) (71.7) Financial results of SMFG s subsidiaries and Daiwa Securities SMBC Ordinary profit Net income Sumitomo Mitsui Card SMBC Leasing Japan Research Institute Daiwa Securities SMBC (Note) Consolidate net business profit = (SMBC non-consolidated banking profit) + (other consolidated subsidiaries Ordinary profit) + (Affiliates Ordinary profit) X (Ownership ratio) (Internal transactions (dividends, etc.)) International transactions within the accounts on international Gross profit are adjusted (Please refer to P34 (Appendix 2)) [Consolidated] 15

19 16. Earnings forecast for FY4 *Excluding transfer to general reserve for possible loan losses *Excluding transfer to general reserve SMBC for possible loan losses FY3 Result FY4 Forecast [Non-consolidated] Banking profit* Gross banking profit Expenses Ordinary profit Net income Total credit cost 1,.1 1,584.1 (584.) (83.4) 4/ (295.) (25.) 98. 1,565. ( 585.) (45.) Year change ( 2.1) ( 19.1) (1.) ( 21.1) * Excluding transfers to general reserve for possible loan losses. SMFG FY3 Result FY4 Forecast [Consolidated] [Non-consolidated] Ordinary income Ordinary profit Net income Operating profit Ordinary profit Net income 3, /9 1, , Year change ( 152.5) 37.2 (.4)

20 Part II Summary of of FY3: FY3: (1) (1) Progress Progress in in Management Commitment (2) (2) Progress Progress in in strategic strategic actions actions Management policy policy in in FY4: FY4: (1) (1) Complete Intensive Resolution Period Period (2) (2) Take Take the the offensive offensive in in strategic strategic businesses further further Plan Plan and and actions actions in in FY4: FY4: (1) (1) Increase Increase loan loan volume volume the the top top priority priority issue issue in in FY4 FY4 (2) (2) SME SME loans loans (3) (3) Financial Financial consulting to to individuals (4) (4) Investment banking banking business business (5) (5) Reinforce consumer finance finance drastically Path Path for for the the sustainable growth growth

21 1. Summary of FY3: (1) Progress in Management Commitment Commitment 1: Halve Problem asset ratio Commitment 2: Decrease Stockholdings further Reduced Problem asset ratio drastically from 8.4% to 5.% Sold for over JPY 93 billion 6, 5,92.3 6, 15% 5, , % 4, Original plan [3,9] 4, 1% 2, Actual 2, , 3,68.8 Book value Book value / Tier I (right scale) 2, % 5% Problem asset ratio 2/3 3/3 4/3 8.9% 8.4% 5.% 2/3 3/3 4/3 25% *Problem assets: Based on the Financial Reconstruction Law. Stocks: Other securities with market value. Tier I capital: SMBC Consolidated basis. 17

22 1. Summary of FY3: (1) Progress in Management Commitment (Establish strong business portfolio) Commitment 3: Establish earnings structure to ensure Banking profit of JPY 1 trillion Boost Marketing Units profits Banking profit: Exceeded JPY 1 trillion for 3 consecutive years Banking profit Gross banking profit 1,8 1,5 1, Ratio of Treasury Unit s profit* FY1 1,186.5 FY2 FY3 1, ,.1 1, ,76.6 1, % 34.% Others 23.6% Treasury Unit s profit Marketing Units profit 4 Increase in FY3 Gross banking profit in FY BSL SME loans Loan syndication Securitization of monetary claims / Trusts Structured finance Investment banking business Investment trusts Pension-type insurances Financial consulting to individual clients *Treasury Unit s profit / (Marketing Units profit + Treasury Unit s profit). Figures of FY1 are the sum of the former SMBC and the former Wakashio Bank. 18

23 1. Summary of FY3: (2) Progress in strategic actions Consumer Banking Unit Major actions Drastic expansion of business through improving consulting skills and strengthening channels SMBC Consulting Plaza 6 offices <Newly established> Loan Plaza offices Launched new mortgage loan products Credit grade-linked pricing Long-term fixed rate loans Improved efficiency through business process reform Thorough area-marketing conducted by Block station Clients segments Channels Private banking segment (including company owners) Private banker Private Banking Dept. Asset management segment Financial consultant Block station 36 Loan planner Loan Plaza 19 Asset building segment Money-Life Consultant & Low-counter teller* Consulting Plaza 6 Branch 41 Mass segment One s Direct & ATM Investment trusts Pension-type insurances Mortgage loans Exceeded JPY 2 trillion in balance Reached nearly JPY 5 billion in accumulated sales amount exceeded the original plan large increase in origination (approx. 3% year-over-year increase) Achievement in FY3: JPY 92.4 billion in Banking profit (JPY 53.7 billion year-over-year increase) * Low-counter teller is a teller who serves customers at low counters to provide more personal services. 19

24 1. Summary of FY3: (2) Progress in strategic actions Middle Market Banking Unit Reformed credit approval system Introduced new product: N fund Wider authority given to General Managers of sales offices Further strengthened origination through substantially expanded sales channels -Effectively introduced small and specialized channels, external human resources (HR), etc. SME channels Corporate Business Offices Corporate Sales Offices BSO & sub-offices Total SME channels Major actions FY3 Newly established Number of channels (Mar. 31, 4) Mission Acquire new SME clients in untapped urban and suburban markets Acquire new SME clients in untapped regional markets Acquire small enterprises Client segments Channels Upper-middle Corporate Business Office 18 Middle Internal HR Corporate Business Office dealing with SME 76 Lower-middle Corporate Sales Office 8 Small External HR Business Support Office & sub-office 8 Product Departments (Investment Banking Unit, etc.) Business offices and Product Departments both commit to profit target Double-front system Origination of New unsecured loans JPY 2,854.9 billion Largely exceeded the original plan of JPY 2,3 billion Achievement in FY3: JPY 43.1 billion in Banking profit (JPY 63.6 billion year-over-year increase) 2

25 2. Management policy in FY4 Final stage of the financial base reinforcement Take the offensive in strategic businesses further Balance sheet (NPLs, Stockholdings) Complete Intensive Resolution Period Business resources To the final stage of optimizing the level of expenses and the size of headcounts Strengthen competitive advantage further SME loans Financial consulting to individuals Investment banking business Establish solid earnings structure early Consumer finance Business in Asia mainly in China Balance Sheet 5/3 NPLs to less than JPY 2 trillion (Problem asset ratio: below 4%) Stockholdings: further reduction Financial targets Profitability FY4 Banking profit: JPY 98 billion 21

26 2. Management policy in FY4: (1) Complete Intensive Resolution Period Halve Problem asset ratio To achieve the target half a year ahead of the original plan FY3 FY4 Actions in FY4 NPLs* (term-end) Problem asset ratio Credit cost Cost for off-balancing 2, % 83.4 approx. 25 1H/4 2H/4 less than 2,5 less than 2, below 4.5% below 4% 45 approx. 15 Corporate recovery and prevention of deterioration of borrowers financial conditions ex. Initiative for corporatevalue improvement business (establishment of Corporate Advisory Dept.) Cost related to deterioration of borrowers financial conditions approx. 55 approx. 3 Accelerate Off-balancing Further reduce Stockholdings Continue to reduce toward the mid-term target of around 5% of Tier 1 capital *Problem assets based on the Financial Reconstruction Law 22

27 2. Management policy in FY4: (2) Take the offensive in strategic businesses further SME loans Financial consulting to individuals Investment banking business Strengthen competitive advantages further Business Select Loan (BSL) N fund, etc. Investment trusts & Pension-type insurances Mortgage loans Loan syndication Securitization of monetary claims Structured finance Expand loan volume Collaboration with Daiwa Securities SMBC Establish solid earnings structure early Consumer finance Unsecured loans Revolving credits Business in Asia mainly in China Capturing business opportunity through start-up support Cash management service Advisory business 23

28 3. Plan and actions in FY4 Boost Marketing Units profits FY4 Plan for boosting Marketing Units profits Main drivers Marketing Units SME loans Approx. +9. Financial consulting to individuals SME loans Investment banking business Earnings forecast for FY4 <SMBC Non-consolidated> Gross banking profit Marketing Units Treasury Unit Expenses Banking profit FY4 1,565 Approx. 1,27 Approx. 28 (585) 98 Change* (19.1) Approx. +9. Approx. (1.) (1.) (2.1) Financial consulting to individuals Investment banking business Others *Excluding changes due to fluctuation of interest rates and foreign exchange rate. 24

29 3. Plan and actions in FY4: (1) Increase loan volume the top priority issue in FY4 FY3 2 nd half: loan balance bottomed out FY4: toward the steady increase trend New unsecured loans (origination) SME loans to new corporate clients (origination) Mortgage loans (origination) FY3 FY4 JPY 2,854.9 billion Approx. JPY 1,4 billion (Number of origination: approx. 17,) Approx. JPY 1.7 trillion Loan balance bottomed out in FY3 2nd half Domestic lending <term-end balance> Excluding loans to the Government and Risk-monitored loans Change in loan balance /3 Change from 3/3 ( 5.8) (.1) (Trillions of yen) Change from 3/9 ( 4.1) (.1) New unsecured loans (origination) SME loans to new corporate clients (origination) Mortgage loans (origination) JPY 3,6 billion JPY 1,84 billion (Number of origination: 2,) Approx. JPY 2 trillion (Managerial accounting basis, term-end balance) SMEs (Middle Market Banking Unit) Large corporations (Corporate Banking Unit) (.3) +.6 (.5) Toward the steady increase trend Residential purpose mortgage loans (Consumer Banking Unit)

30 3. Plan and actions in FY4: (2) SME loans Plan for FY4 Improve risk-taking capability through further reform and extending product line -Widen target client segments for N fund -Launch new-type unsecured loans - Turnaround Loan - Receivable-based Loan - V-fund (loans to high-growth companies) -Strengthen promotion systems -Expand channel network (urban, suburban and regional) -Additionally adopt contract employees, ex-employees, etc. -Strengthen promotions to Middle and Lower-middle segments Origination 1, Origination 3, 2,5 2, BSL Term-end balance (right scale) Term-end balance (right scale) 2, , FY2 result FY3 result FY4 plan N-fund, etc. Balance (Trillions of yen) Balance (Trillions of yen) 3 2,6 2 Origination of New unsecured loans JPY 3,6 billion (JPY 2,854.9 billion in FY3) BSL JPY 1, billion N fund, etc. JPY 2,6 billion 1,5 1, FY2 result FY3 result FY4 plan 26

31 3. Plan and actions in FY4: (3) Financial consulting to individuals mortgage loans Plan for FY4 Strengthen marketing ability by effectively allocating business resources SMBC Consulting Plazas Loan Plazas -Expand SMBC consulting plazas FY4: 5 channels ( 4/3: 6 channels) FY5: establish 1 channels structure -Increase sales staff at Loan Plazas for consumer clients for house dealers Origination of mortgage loans (plan): approx. JPY 2 trillion (FY3: approx. JPY 1.7 trillion) (Trillions of yen) (Trillions of yen) 2.5 Origination (left scale) Total balance of residential mortgage (right scale) FY result FY1 result FY2 result FY3 result FY4 plan (Trillions of yen) Mortgage loans Peer comparison* of balance /3 3/3 4/3 -Also increase mortgage loans for investment purpose by strengthening relationship with large developers *include mortgage loans for non-residential purpose and in trust account. Source: each company s reports. 7 5 SMBC Group A Group B Group C 27

32 3. Plan and actions in FY4: (3) Financial consulting to individuals Sales of investment trusts & pension-type insurances Plan for FY4 -Increase sales staff -Improve productivity -Strengthen marketing capability by expanding products and services -Share the know-how of best practices in marketing through Sales Process Reengineering (SPR) (FY3: implemented at branches FY4: to be implemented among financial consultants at Block stations) -Expand investment products for private banking segment 6 (Trillions of yen) Balance of investment trusts Related profits Pension-type insurances Investment trusts Peer comparison FY result FY1 result FY2 result FY3 result FY4 plan Accumulated sales amount of pension-type insurances Expanding sales of investment trusts & pension-type insurances to JPY 5 billion profit size business SMBC Group A Group B Group C SMBC Bank A Bank B Bank C <Source> Balance of investment trusts: Nikkin Toushin Nenkin Joho. Pension-type insurances: News papers. (accumulated sales amount from 2/1 (when sales by banks started) to 3/9) 28

33 3. Plan and actions in FY4: (4) Investment banking business (SMBC) Plan for FY4 Strengthen loan syndication further -Capitalize brand equity as a pioneer of Debt IR -Strengthen financial solution providing approach -Through new products and diversification Cross-sell to existing clients Further promotions to new clients -Reallocation of human resource to growing areas 4 Profit (left scale) 3 Origination (right scale) Loan syndication FY2 result FY3 result FY4 plan Securitization of monetary claims (profit) FY2 result FY3 result FY4 plan 11 9 Structured finance (profit) Total profit in Investment banking business JPY 2 billion year-over-year increase in Investment banking business (Gross banking profit basis) 1 FY2 result FY3 result FY4 plan 7 5 FY2 result FY3 result FY4 plan 29

34 3. Plan and actions in FY4: (4) Investment banking business (collaboration with Daiwa Securities SMBC) Further collaboration with Daiwa Securities SMBC FY4: further collaboration -In addition to existing areas, further promote collaboration in the business fields for corporate clients, taking advantage of the deregulation of securities intermediation business for banks Areas for collaboration Underwriting stocks / bonds Bond trading M&A Asset securitization Derivatives Corporate recovery business -SMFG Corporate Recovery Servicer Co., Ltd. (Joint venture with Daiwa SMBCPI, GS, Development Bank of Japan) SMFG SMBC Customer base Profits through collaboration* FY1 result FY2 result FY3 result Collaboration in corporate business Collaboration Daiwa Securities Group, Inc. Daiwa Securities SMBC Solution providing capability Daiwa Securities Regional network Securities intermediation business Target clients Issuers (corporates) Investors (corporates) Investors (individuals) Businesses Financing arrangement Securities brokerage * SMBC s managerial accounting basis. 3

35 3. Plan and actions in FY4: (5) Reinforce consumer finance drastically Reinforce collaboration among Group companies Collaboration among group companies Expand group-wide market share in mid-term by increasing consumer finance volume drastically Sales credit market QUOQ Collaboration in credit card business Sumitomo Mitsui Card Sales credit market Group-wide expansion plan (unsecured consumer finance) 1,2 1, Collaboration Approach to in loan business Corporate clients Approach to corporate clients Expand sales of One s Style /3 result 5/3 plan 7/3 plan Consumer finance Loan Cooperative promotion Individual clients base: 26 million Corporate clients base: 15 thousand SMBC Number of payments from ATM: 2 million / month Consumer banking market 31

36 4. Path for the sustainable growth Growth of the group-wide profits <SMBC + Sumitomo Mitsui Card + SMBC Leasing + Japan Research Institute> Complete intensive resolution period + Take the offensive In strategic businesses further 1,5 1,158 1, 5 1, , , Strengthen competitive advantage further -Establish solid earnings structure early -5 (453.3) (563.7) Total net business profits Ordinary profit Net income -1, Toward the sustainable growth FY2 result FY3 result FY4 plan* FY6 plan* *Based on the Plan for Strengthening the Financial Base. 32

37 Appendix 1. Financial highlights of recent years 2. Gross banking profit 3. Average balance and yield of major items (domestic) 4. Expenses and domestic branch network & workforce 5. Disclosed problem assets based on the Financial Reconstruction Law 6. Disclosed problem assets based on the Financial Reconstruction law & coverage ratios 7. Progress of off-balancing 8. Loan portfolio and Disclosed problem assets, classified by industry 9. Unrealized gains (losses) on securities 1. Equity portfolio - composition by industry 11. Segmentation of corporate clients & channels 12. Business Select Loan 13. N fund, etc. 14. Loan portfolio of new unsecured loans 15. Consumer banking 16. Segmentation of individual clients 17. Domestic channels for individuals ATMs, etc. 18. Sales of investment trusts and pension-type insurances 19. Remote banking ( One s Direct ) 2. Sumitomo Mitsui Card 21. SMBC Leasing 22. Japan Research Institute 23. Daiwa Securities SMBC

38 (Appendix 1) Financial highlights of recent years FY98 FY99 FY FY1 FY2 FY3 Gross banking profit 1, , ,53.2 1, ,76.6 1,584.1 Expenses (778.9) (727.6) (7.1) (678.4) (647.) ( 584.) Banking profit * , , ,.1 Total credit cost (2,95.9) (1,13.6) (819.1) ** (1,546.2) ( 1,74.5) ( 83.4) Ordinary profit (1,495.2) ( 521.6) ( 597.2) Net income (749.4) (322.9) ( 478.3) 31.1 * Excluding transfers to general reserve for possible loan losses. ** Including credit cost of JPY.8 bil. for the former Wakashio Bank, booked in extraordinary items. (Note) Figures for FY and before are combined figures for the former Sakura Bank and Sumitomo Bank, not including the former Wakashio Bank. [Non-consolidated] 33

39 (Appendix 2) Gross banking profit FY2 FY3 Change Major factors in increase / decrease Gross domestic profit Excluding gains (losses) on bonds Net interest income Gains on interest rate swaps Trust fees Net fees and commissions Net trading income Net other operating income Gains (losses) on bonds Gross international profit* 1, ,18.8 1, , , (1.3) (117.3) (45.5) (77.9) (25.1) (3.8) (62.2) (71.8) (59.2) Domestic net interest income: (77.9) -Decrease in loan volume Domestic net fees & commissions: Increase in fees related to investment trusts and pension-type insurances -Increase in fees related to loan syndication, and other Investment banking business International net interest income: (64.7) -Decrease in Treasury Unit s profits International net trading income: Increase related to sales of derivatives products to clients Excluding gains (losses) on bonds Net interest income Gains on interest rate swaps Net fees and commissions Net trading income Net other operating income Gains (losses) on bonds (18.) (64.7) (13.5) (13.9) (41.2) (Reference) Adjustments related to the items consisting of gross international profit Net interest income Net trading income Net other operating income FY2 8.4 (66.4) 58. FY3 2. (141.1) Change (6.4) (74.7) 81.1 * After adjustments related to the items consisting of gross international profit. [Non-consolidated] 34

40 (Appendix 3) Average balance and yield of major items (domestic) Interest earning assets FY2 FY3 Change Average balance Yield Average balance Yield Average balance Yield Interest earning assets 74, % 7, % (4,637.2) (.2%) Loans and bills 53, % 5, % (3,383.5).2% Securities 18, % 18, % (248.4) (.6%) Interest bearing liabilities FY2 FY3 Change Average balance Yield Average balance Yield Average balance Yield Interest bearing liabilities 74, % 71, % (2,259.4) (.1%) Deposits,etc. 57, % 56,81.9.2% (588.6) (.2%) Expense ratio*.78%.74% (.4%) Total cost of funding.88%.83% (.5%) Overall interest spread FY2 Change Interest spread 1.69% 1.73%.4% FY3.59%.62%.3% *Expense ratio is calculated by yield of total cost of funding minus yield of interest bearing liabilities. [Non-consolidated] 35

41 (Appendix 4) Expense and domestic branch network & workforce Expenses 7.1 Merger FY97 FY98 FY99 FY FY1 FY2 FY3 Number of domestic branches* Number of employees *Excluding Sub-branches, agencies, etc. 735 Merger /3 99/3 /3 1/3 2/3 3/3 4/3 34, 32, 3, 28, 26, 24, 22, 2, 32,531 31,325 Merger 29,298 27,142 25,27 24,24 22,348 98/3 99/3 /3 1/3 2/3 3/3 4/3 (Note) Figures for FY1 and before exclude those for the former Wakashio Bank. [Non-consolidated] 36

42 (Appendix 5) Disclosed problem assets based on the Financial Reconstruction Law As of 4/3 Category of Borrowers under Self-Assessment Bankrupt Borrowers Effectively Bankrupt Borrowers Potentially Bankrupt Borrowers Borrowers Requiring Caution Normal Borrowers Problem Assets based on the Financial Reconstruction Law Bankrupt and Quasi-Bankrupt Assets (I) (Change from 3/3: ) Doubtful Assets 1,22.7 (ii) (Change from 3/3: ) Substandard Loans 1,246.9 (iii) (Change from 3/3: 1,36.) (Claims to Substandard Borrowers) Normal Assets 52,874.4 Total 55,685.6 (iv) A=(i)+(ii)+(iii) 2,811.2 (v) (Change from 3/3: -2,45.1) <Problem asset ratio ((v)/(iv)) 5.%> Classification I Portion of Substandard Loans secured by collateral or guarantees, etc (c) Claims to Normal Borrowers B: Portion secured by collateral or guarantees, etc. (a)+(b)+(c) 1,53.5 Classification under Self-Assessment Classification II Portion of claims secured by collateral or guarantees, etc (a) Portion of claims secured by collateral or guarantees, etc (b) Claims to Borrowers Requiring Caution, excluding claims to Substandard Borrowers Classification III Fully reserved 11.9 Necessary amount reserved ,28.7 Classification IV Direct Writeoffs (*1) C: Unsecured portion (A-B) Reserve for possible loan losses Specific Reserve 18.3 (*2) (*2) General Reserve for Substandard Loans General Reserve 769. Loan Loss Reserve for Specific Overseas Countries 7.8 D: Specific Reserve + General Reserve for Substandard Loans (*2) % (*3) 4.2% [1.8%] (*4) Reserve ratio 1% (*3) 83.6% (*3).2% (*4) Reserve ratio: D/C (*5) = 59.5% 22.4% (*3) Coverage Ratio: (B+D)/A = 81.5% *1 Includes direct reduction amounts to JPY billion. *2 Includes reserves for assets that are not subject to disclosure based on the Financial Reconstruction Law standards. (Bankrupt/Effectively Bankrupt Borrowers: JPY 6.4 billion, Potentially Bankrupt Borrowers: JPY 9.5 billion) *3 Reserve ratios to Bankrupt Borrowers, Effectively Bankrupt Borrowers, Potentially Bankrupt Borrowers, Substandard Borrowers and Borrowers Requiring Caution including Substandard Borrowers are the proportion to reserve of the possible loan losses to each category's total unsecured claims. *4 Reserve ratios to Normal Borrowers and Borrowers Requiring Caution excluding Substandard Borrowers are the proportion of the reserve to the respective claims of each category. The reserve ratio of unsecured claims on Borrowers Requiring Caution (excluding claims to Substandard Borrowers) is shown in brackets. *5 The proportion of the reserve to the claims, excluding the portion secured by collateral or guarantees, etc. [Non-consolidated] 37

43 (Appendix 6) Disclosed problem assets based on the Financial Reconstruction Law & coverage ratios Substandard Loans Doubtful Assets 6, 5, 4, 3, 2, 1, Bankrupt and Quasi- Bankrupt Assets Total 5,92.3 1, ,162. Reserve ratios 21.8%** 75.9% 1.% 49.9% * Coverage ratio 76.7% 5, ,49.9 2, , ,231.5 Reserve ratios 33.7% 79.2% 1.% 54.9% Disclosed problem assets based on the Financial Reconstruction Law Reserve for possible loan losses Collateral or guarantees, etc. Unsecured portion 2, /3 3/3 4/3 * Coverage ratio 76.7% 1.% 59.5% , Reserve ratios 39.% 83.6% * Coverage ratio 81.5% (Note) Reserve ratio: the proportion of the reserve to the claims, excluding the portion secured by collateral or guarantees, etc. Coverage ratio: the proportion of the reserve and collateral or guarantees, etc. to the claims. * partially include the reserve to the assets which are not disclosed problem assets based on the Financial Reconstruction Law (<4/3> Bankrupt and Effectively Bankrupt Borrowers: JPY 6.4 billion, Potentially Bankrupt Borrowers: JPY 9.5 billion) **excluding the former Wakashio Bank. [Non-consolidated] 38

44 (Appendix 7) Progress of off-balancing Term-end balance of problem assets* Accumulated amount of off-balancing results** Progress ratio as of 16/3 Off-balanced amount in FY3: (JPY billion) Existing borrowers as of /9 Newly deteriorated borrowers in 2H FY 3, (3,25.3) (69.) 98.7% 97.% 1) Disposition by borrowers liquidation 2) Reconstructive disposition 3) Improvement in debtor performance due to reconstructive disposition (55.9) (284.4) (158.3) Newly deteriorated borrowers in FY1 2,146. (1,881.5) 87.7% 4) Loan sales to market (1,96.5) Newly deteriorated borrowers in FY2 1,212.2 (1,472) 86.4% 5) Direct write-offs 6) Collection / repayment, etc (585.9) Newly deteriorated borrowers in FY (119.5) 12.5% 7) Improvement in debtors performance (12.2) * Total balance of problem assets classified as Doubtful Assets or lower under the Financial Reconstruction Law. ** Off-balanced amount includes the result of measures regarded as off-balancing. [Non-consolidated] 39

45 (Appendix 8) Loan portfolio and Disclosed problem assets, classified by industry Domestic offices (excluding offshore banking account) Loans and bills discounted 4/3 (a) 47,951.5 (5,844.4) 53, ,74.3 Manufacturing 5,794.2 (237.1) 6, % Agriculture,forestry, fisheries,and mining (59.) % (3.4) 4.6 Construction 1,717.2 (668.1) 2, % (614.4) Transportation,Communications and public enterprises 3, , % (5.3) Wholesale and retail 5,492.2 (32.3) 5, % (171.2) 54. Finance and insurance 4,892.5 (527.1) 5, % (113.3) 168. Real estate 6,995.1 (1,245.3) 8,24.3 1, % (1,4.9) 2,57.6 Various services 5,47.9 (151.8) 5, % (427.3) Municipalities Others 13,632.8 (2,981.5) 16, % (57.2) 3.5 Oversees offices and offshore banking accounts 2,858.6 (627.9) 3, % (78.4) Public sector 63.7 (55.8) % (.2) 11.6 Financial institutions (8.7) (.7) 1.4 Commerce and industry 2,396. (549.1) 2, % (77.5) Others (14.2) Total 5,81.1 (6,472.2) 57, , % (2,45.1) 5,261.3 Reserve Ratio 59.3% 1. Disclosed Problem Assets Based on the Financial Reconstruction Law" include loans and bills discounted, acceptances and guarantees, suspense payments, and other credit-type assets. 2. Reserve Ratio = (Reserve for possible loan losses) / (Problem assets excluding amounts recoverable due to collaterals and guarantees) Reserve for possible loan losses is sum of general reserve for Substandard loans and specific reserve. (a)-(b) 3/3 (b) Problem Assets Based on the Financial Reconstruction Law 4/3 (c) (c) -(d) (2,371.7) 3/3 (d) 5,112. [Non-consolidated] 4

46 (Appendix 9) Unrealized gains (losses) on securities 4/3 Unrealized gains Unrealized losses Change from 3/3 3/3 Unrealized gains Unrealized losses SMBC non-consolidated Held-to-maturity purpose Stocks of subsidiaries and affiliates Other securities Stocks Bonds Others Other money held in trust Total Stocks Bonds Others (7.6) (11.9) (11.4) (1.3) - (2.9) (6.4) (118.1) (22.4) (.1) (211.3) (6.4) (128.4) (22.5) (11.4) (21.6) (18.9) (221.9) (18.8) 3.8 (2.4) (17.9) (152.4) (.) (34.5) (172.8) (.1) (21.1) (275.5) (257.6) (3.7) (14.2) (.6) (297.3) (278.7) (3.7) (14.9) SMFG consolidated Held-to-maturity purpose Other securities Stocks Bonds Others Other money held in trust Total Stocks Bonds Others (7.4) (13.3) (111.8) (1.3) (211.9) (67.1) (121.8) (23.) (.1) (222.3) (67.1) (132.1) (23.1) (13.3) (214.4) (14.6) (227.8) (14.3) 5.9 (3.6) (165.4) (.) (24.8) (165.4) (.1) (33.6) (278.4) (5.9) (19.3) (.6) (34.2) (278.4) (5.9) (19.9) 41

47 Retail trade Banks Securities Insurance Other financing business Real estate Services (Appendix 1) Equity portfolio composition by industry 2% 15% 1% 5% % [Non-consolidated] 42 Wholesale trade As of 4/3 composition by industry (Market value basis) (26%) ~~ SMBC portfolio TOPIX Nikkei average Fishery, agriculture & forestry Mining Construction Foods Texiles & apparel Pulp & paper Chemicals Pharmaceutical Oil & coal products Rubber products Glass & ceramics products Iron & steel Nonferrous metals Metal products Machinery Electric appliance Transportation equipments Precision instruments Other products Electric power & gas Land transportation Marine transportation Air transportation Warehousing & harbor transportation services Communication

48 (Appendix 11) Segmentation of corporate clients & channels Client segments Company size (annual sales) Products Channels (as of 4/3) Corporate Business Office Business Support Office Corporate Sales Office Sub-office In proportion to total loans of Middle Market Banking Unit General business enterprises, etc. Upper-middle Middle Lowermiddle Small Company s growth JPY 1 billion or more JPY 3 billion or more JPY 1 billion or more Less than JPY 1 billion Ordinary loans N fund Business Select Loan Mainly for Upper-middle and Middle Clients Mainly for Middle Clients Mainly for Middle and Small Clients Mainly for Small Clients Total SME channels: % 25% 1% 6% <Total channels of Middle Market Banking Unit> Corporate Business Office: 184, Corporate Sales Office: 8, Sub-office: 34, Business Support Office: 46 Public institutions (Government, municipalities) Specialized office for public institutions 4 11% 43

49 (Appendix 12) Business Select Loan Origination and Balance -Accumulated number of origination: approx. 61, -Accumulated amount of origination: approx. JPY 1,2 billion (March 23) -New clients ratio: 5% (approximately 12, new clients) Origination 4 2 No. of origination Origination Balance 1H FY2 2H FY2 1H FY3 2H FY3 1, 14, 15, 2, Balance 1, 5 Product outline (as of March 24) Quick approval using SMBC original credit scoring model Targeted at corporate clients with annual sales of JPY 1 billion or less Unsecured, no third party guarantee Risk control based on diversified loan portfolio Product launch Risk evaluation Loan amount Interest rate Loan term Collateral Guarantee Fee Channels Business Select Loan (BSL) March 23 SMBC s original credit scoring model JPY 5 million maximum (with monthly repayment) 2.75% ~ - Determined according to the level of credit risk - Discounted according to the overall transaction volume with SMBC Within 5 years Not required (loan term 3 years or less) Not required (guarantee by representative director required) New clients: JPY 5, Existing clients: JPY 1, 164 domestic offices Business Support Offices & Sub-offices: 8 Corporate Business Offices: 76 Corporate Sales Offices: 8 [Non-consolidated] 44