Business context and reporting period
Sumitomo Mitsui Financial Group, Inc. (SMFG) filed an annual Form 20-F for the fiscal year ended March 31, 2023, with comparative results for the year ended March 31, 2022. Although the request metadata says “2022 Q4,” this is a full-year annual filing, not a standalone quarterly report. Figures are consolidated, prepared under IFRS, and stated in Japanese yen unless noted otherwise.
SMFG is the holding company of the SMBC Group, a diversified Japanese financial group spanning banking, securities, leasing, cards, consumer finance and asset management.
Financial performance and condition
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total operating income | ¥3,790.7bn | ¥3,137.5bn | +21% |
| Net interest income | ¥1,755.1bn | ¥1,443.9bn | +22% |
| Net fee and commission income | ¥1,039.8bn | ¥1,038.5bn | +0.1% |
| Net trading income | ¥626.0bn | ¥280.3bn | +123% |
| Impairment charges on financial assets | ¥148.5bn | ¥280.0bn | −47% |
| Operating expenses | ¥2,467.8bn | ¥2,170.2bn | +14% |
| Profit before tax | ¥1,261.9bn | ¥676.5bn | +87% |
| Net profit | ¥935.8bn | ¥515.1bn | +82% |
| Profit attributable to SMFG shareholders | ¥911.8bn | ¥499.6bn | +82% |
| Basic EPS | ¥668.12 | ¥364.46 | +83% |
Net profit was approximately 24.7% of total operating income, versus 16.4% in FY2022 (calculated from reported figures; not a disclosed operating margin). Growth in operating income was principally driven by higher interest income and trading income; lower impairment charges also supported operating results. Higher expenses and tax partly offset these gains.
Interest income more than doubled to ¥3,696.1bn, while interest expense rose to ¥1,941.0bn from ¥303.7bn, reflecting higher market rates, particularly in overseas businesses. The average rate on foreign loans and advances increased to 4.37% from 2.22%; on foreign deposits, it increased to 2.54% from 0.33%.
Cash flows were uneven: operating activities used ¥5,239.9bn, investing activities provided ¥5,799.3bn, and financing activities used ¥459.5bn. Cash and cash equivalents increased ¥1,000.3bn to ¥75,344.2bn. Operating cash flow was affected by banking balance-sheet movements, including loan growth, deposit growth, and changes in short-term funding and securities.
Balance sheet, funding and capital
- Total assets were ¥257,687.0bn, up 4% year over year; loans and advances were ¥111,891.1bn, up 7%.
- Total liabilities were ¥244,150.1bn, up 4%; deposits rose 6% to ¥172,927.8bn. Borrowings fell 25% to ¥15,371.8bn; debt securities in issue rose 5% to ¥11,985.0bn.
- Total equity increased 6% to ¥13,537.0bn, mainly reflecting retained earnings. The loan-to-deposit ratio was 65%; deposits exceeded loans by ¥61,036.7bn.
- Regulatory liquidity ratios at March 31, 2023: SMFG consolidated LCR 130.5% and NSFR 124.1%, above the 100% minimums stated in the filing.
- SMFG consolidated capital ratios were 15.98% total risk-weighted, 14.94% Tier 1 and 14.02% CET1, versus applicable minimums of 11.6%, 9.6% and 8.1%, respectively. The leverage ratio was 5.03%.
- Gross impaired loans were ¥1,170.7bn, down from ¥1,406.1bn; the gross impaired-loan ratio was 1.0%, versus 1.3%. The allowance for loan losses fell to ¥864.1bn from ¥993.1bn, while net charge-offs rose to ¥293.3bn from ¥153.2bn.
Material changes versus the prior comparable period
- Net profit rose ¥420.8bn, as higher operating income and lower impairment charges more than offset higher operating expenses and income tax expense.
- Net trading income increased ¥345.7bn, chiefly from interest-rate and foreign-exchange transactions. Net investment income fell to ¥15.6bn from ¥65.7bn, mainly due to increased losses on sales of foreign bonds.
- Net interest income increased ¥311.1bn, supported by higher foreign lending rates and loan balances. The increase in interest expense—especially on foreign deposits—was substantial.
- Investment securities declined 16% to ¥27,595.6bn, principally due to lower Japanese government bond holdings. Foreign debt securities had net unrealized losses of ¥700.2bn, compared with ¥458.7bn a year earlier, largely reflecting higher U.S. interest rates.
- General and administrative expenses increased 9%, reflecting Fullerton India, credit-card marketing, and yen depreciation. The share of post-tax profit of associates and joint ventures improved to ¥87.4bn from a loss of ¥10.8bn.
- Total comprehensive income was ¥1,173.6bn, up from ¥763.1bn; other comprehensive income was ¥237.8bn, slightly below ¥248.0bn.
Outlook, risks and unusual items
In May 2023, SMFG announced a medium-term management plan through March 2026 focused on social value, economic value, and rebuilding corporate infrastructure. It targets a progressive dividend policy and an aim to maintain or increase dividends annually; management also aims for a consolidated Japanese-GAAP dividend payout ratio of 40% by the end of the plan. The filing provides no specific quantified FY2024 earnings guidance.
- Regulatory and conduct matters: In October 2022, Japanese regulators imposed administrative actions relating to SMBC Nikko Securities’ block-offer stabilization conduct and information-sharing deficiencies. SMBC Nikko Securities was convicted in February 2023 and ordered to pay a ¥700m fine and forfeit ¥4,471m. Remediation and regulatory reporting continue; further action and reputational effects remain possible.
- U.S. compliance restrictions: SMBC and its New York branch remain subject to a 2019 Federal Reserve written agreement addressing anti-money-laundering and sanctions compliance deficiencies. SMFG says it currently does not meet financial-holding-company requirements and faces restrictions on certain new U.S. financial activities and acquisitions pending remediation; failure to resolve the issues could require divestitures or termination of activities.
- Russia exposure: Credit exposure to Russian borrowers was approximately ¥337bn, with ECL of ¥80.8bn. The company cites sanctions, payment and remittance difficulties, possible restructuring and potential asset-seizure impacts, including Russian operations and aircraft assets of an aviation-leasing affiliate.
- Market and credit risks: Rate, foreign-exchange and securities-price volatility may affect earnings, capital and liquidity. Further risks include economic deterioration, credit losses, counterparty stress, regulatory change, cyber incidents, litigation, climate and transition risks, and execution of overseas growth strategies.
- Capital return and unusual items: SMFG repurchased 26.619m shares for ¥139bn during FY2023 under a ¥200bn program; it completed the program in May 2023 and cancelled 37.640m shares in June 2023. The FY2023 dividend declared was ¥220 per share; the filing reports ¥240 per share paid in respect of FY2023.
- Accounting and audit: KPMG issued unqualified opinions on the IFRS financial statements and internal control over financial reporting. Critical audit matters included the allowance for corporate loan losses and the goodwill impairment assessment for SMBC Nikko Securities. All goodwill assigned to SMBC Nikko Securities was impaired; the FY2023 impairment loss was ¥109.6bn.
Most important facts for investors to verify
- Confirm that comparisons use the full fiscal year ended March 31, 2023—not calendar 2022 or a standalone fourth quarter—and distinguish IFRS results from Japanese-GAAP segment and capital disclosures.
- Assess how sustainable earnings growth is given the unusually strong trading contribution, rapid increase in funding costs, and higher operating expenses.
- Review credit quality and reserve adequacy, including increased charge-offs, Russian exposure, foreign rate-sensitive portfolios, and the assumptions behind ECL adjustments.
- Track remediation milestones, subsequent regulatory findings, and any financial or business consequences from the SMBC Nikko Securities case and the U.S. written agreement.
- Check current capital, LCR and NSFR figures against regulatory requirements and subsequent market or rule changes; the filing’s ratios are dated March 31, 2023.
- Verify the shareholder-return amounts and policy against subsequent board and shareholder approvals; distinguish dividends declared, paid, and attributable to the fiscal year.