Business context and reporting period
Sumitomo Mitsui Financial Group, Inc. (SMFG), a Japanese financial holding company, filed this Form 20-F annual report for the fiscal year ended March 31, 2022. The requested “2021 Q4” is not reported as a standalone quarter here; results below are primarily full-year comparisons with the fiscal year ended March 31, 2021. Consolidated financial statements use IFRS and Japanese yen unless otherwise noted.
The SMBC Group operates commercial banking, leasing, securities, consumer finance, credit card, asset management and related businesses. On November 30, 2021, it acquired 74.9% of India’s Fullerton India for approximately ¥230 billion.
Financial performance and position
Unless otherwise stated, amounts are yen. Income and cash-flow figures are for the fiscal year; balance-sheet figures are as of March 31. “B” means billion and “T” means trillion.
| Metric | FY2022 / March 31, 2022 | Prior comparable period | Change |
|---|---|---|---|
| Total operating income | ¥3.137T | ¥3.166T | Down ¥28.1B (about 1%) |
| Net interest income | ¥1.444T | ¥1.383T | Up ¥60.8B (about 4%) |
| Net fee and commission income | ¥1.038T | ¥972.7B | Up ¥65.8B (about 7%) |
| Net trading income | ¥280.3B | ¥237.7B | Up ¥42.6B |
| Net income from financial assets and liabilities at fair value through profit or loss | ¥200.2B | ¥280.0B | Down ¥79.8B |
| Net investment income | ¥65.7B | ¥153.8B | Down ¥88.1B |
| Impairment charges on financial assets | ¥280.0B | ¥282.5B | Down ¥2.5B |
| Operating expenses | ¥2.170T | ¥1.963T | Up ¥207.2B |
| Profit before tax | ¥676.5B | ¥956.5B | Down ¥280.0B |
| Net profit | ¥515.1B | ¥705.1B | Down ¥190.0B |
| Profit attributable to SMFG shareholders | ¥499.6B | ¥687.5B | Down ¥187.9B |
| Basic earnings per share | ¥364.46 | ¥501.73 | Down |
| Cash flow from operating activities | ¥5.101T | ¥18.322T | Lower |
| Cash flow from investing activities | (¥2.663T) | (¥7.781T) | Smaller outflow |
| Cash flow from financing activities | (¥597.9B) | (¥684.4B) | Smaller outflow |
| Net increase in cash and cash equivalents | ¥2.795T | ¥10.345T | Lower |
- Management attributed higher net interest income mainly to lower funding costs, particularly on foreign deposits, partly offset by lower loan yields. The reported net interest spread was 1.02% for FY2022.
- Higher fees reflected growth in credit card and investment trust businesses. Lower fair-value income primarily reflected reduced gains on equity index-linked investment trusts; lower investment income reflected fewer gains on foreign bond sales, including a net loss on disposal of debt instruments.
- General and administrative expenses rose 7%, partly because business activity and credit-card marketing costs increased. The prior year had also benefited from a pension-plan amendment that reduced personnel expense.
- Total assets were ¥248.161T, up ¥13.136T; loans and advances were ¥104.636T, up 7%; and deposits were ¥162.593T, up 5%. Total liabilities were ¥235.379T and total equity was ¥12.782T.
- Borrowings were ¥20.585T and debt securities in issue were ¥11.428T at March 31, 2022. Deposits exceeded loans by ¥57.958T; the loan-to-deposit ratio was 64%.
- Under Japanese GAAP regulatory measures, SMFG’s consolidated total capital, Tier 1 and Common Equity Tier 1 risk-weighted capital ratios were 16.56%, 15.46% and 14.45%, respectively. The stated minimums, including applicable buffers and the G-SIB surcharge, were 11.53%, 9.53% and 8.03%. The leverage ratio was 5.17%.
- Liquidity ratios exceeded the 100% regulatory minimum: consolidated LCR was 141.7% (three-month average) and NSFR was 125.0% at March 31, 2022.
Material changes versus the prior year
- Despite growth in net interest and fee income, total operating income edged down as investment and fair-value income declined. Net profit fell 27%, with higher operating expenses and lower associate and joint-venture results also weighing on earnings.
- Gross impaired loans and advances rose to ¥1.406T from ¥1.172T; the gross impaired-loan ratio increased to 1.3% from 1.2%. The ratio of impaired loans net of allowance to loans net of allowance was 0.8%, unchanged from the prior year.
- The allowance for loan losses increased to ¥993.1B from ¥849.3B. FY2022 provision expense was ¥269.1B; charge-offs were ¥166.6B.
- The Group reported approximately ¥334B of credit exposure to Russian borrowers and an associated loan-loss allowance of ¥62.9B. Foreign debt securities recorded substantially larger net unrealized losses, which the filing attributed mainly to rising U.S. interest rates.
- Foreign operations contributed 42% of revenue, versus 34% in FY2021. Yen depreciation contributed to the increase in translated foreign-operation reserves.
- FY2022 comprehensive income was ¥763.1B, down from ¥1.659T, primarily reflecting weaker other comprehensive income from debt securities compared with the prior year.
Outlook, commentary, risks and unusual items
- The medium-term management plan runs through March 2023 and emphasizes business transformation, growth and management quality, including payment services, asset-light businesses, overseas corporate banking, Asian expansion and digital solutions. The filing does not provide a clear numerical FY2023 earnings forecast in the supplied text.
- Management’s dividend policy is progressive: dividends are not to be reduced and are to be maintained or increased, subject to sustainable earnings growth. The target is a 40% consolidated net-profit payout ratio under Japanese GAAP by the end of the current medium-term plan. The FY2022 dividend declared was ¥200 per share; a further ¥105 per share, totaling ¥143.9B, was proposed after year-end and remained subject to shareholder approval.
- Management described Japan’s FY2022 recovery as slow and uneven amid COVID-19 restrictions. Russia’s invasion of Ukraine, sanctions, market volatility, supply-chain disruption and inflation add uncertainty. The report warns that these factors could increase credit costs, securities valuation losses, funding pressure and cyber risk.
- SMBC Nikko Securities and several current and former officers and employees face criminal proceedings over alleged illegal stabilization transactions. Possible monetary, administrative or regulatory penalties, private lawsuits and reputational effects remain uncertain.
- 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 no longer meets the requirements for financial-holding-company treatment while remediation is pending, restricting certain new U.S. financial activities and acquisitions; failure to remediate could require divestiture or termination of activities.
- Other material risks include economic deterioration, interest-rate and foreign-exchange changes, securities-price declines, credit-rating downgrades, liquidity and capital requirements, cyberattacks, climate-related transition and physical risks, deferred-tax-asset recoverability, and litigation. The report also describes continued exposure to certain Iran-related activity subject to applicable sanctions and disclosure requirements.
- FY2022 results included losses on leased aircraft assets in Russia at leasing associates or joint ventures, contributing to a ¥10.8B share of post-tax losses from associates and joint ventures, versus ¥36.4B of profit in FY2021. The audit identified the loan-loss allowance and impairment assessment for SMBC’s retail banking non-financial assets as critical audit matters. The independent auditor issued unqualified opinions on the IFRS financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Confirm the comparison is full-year FY2022 versus FY2021, not a standalone 2021 Q4 result.
- Review the drivers and durability of the 27% decline in net profit, especially lower investment and fair-value income and higher expenses.
- Assess the quality of loan growth, the increase in impaired loans and allowances, and the concentration and recovery prospects of Russian exposures.
- Check securities valuation sensitivity to further rate changes and the effect on earnings, equity and regulatory capital.
- Track remediation of the U.S. AML/sanctions agreement and the outcome and potential financial or regulatory consequences of the SMBC Nikko proceedings.
- Verify progress against the March 2023 management plan, the 40% payout-ratio target and the proposed post-year-end dividend.
- Review the full audited statements and notes for cash-flow drivers, funding maturities, contingent commitments, and assumptions used for credit-loss and impairment estimates.