SUMITOMO MITSUI FINANCIAL GROUP, INC. — Form 20-F Summary
Period clarification: This is the annual report for the fiscal year ended March 31, 2020, not a standalone 2019 fourth-quarter report. Financial statements are consolidated and prepared under IFRS, except where the filing specifies Japanese GAAP. Amounts below are yen unless noted.
Business context and reporting period
SMFG is the holding company for the SMBC Group, a large Japanese financial group with commercial banking, securities, leasing, card, consumer finance and other businesses. Japan generated 66% of operating income; foreign operations generated 34%. The reporting year ended as COVID-19 began to disrupt Japan and global markets.
Key financial metrics
| Metric | FY ended Mar. 31, 2020 | Prior comparable period |
|---|---|---|
| Total operating income | ¥2.704 trillion | ¥3.167 trillion |
| Net interest income | ¥1.316 trillion | ¥1.269 trillion |
| Net fee and commission income | ¥943.3 billion | ¥923.4 billion |
| Impairment charges on financial assets | ¥259.9 billion | ¥119.7 billion |
| Profit before tax | ¥282.8 billion | ¥831.9 billion |
| Net profit | ¥231.0 billion | ¥647.6 billion |
| Profit attributable to SMFG shareholders | ¥200.1 billion | ¥541.9 billion |
| Basic EPS | ¥145.48 | ¥387.76 |
| Return on average assets / equity | 0.1% / 1.9% | 0.3% / 5.3% |
- Balance sheet at March 31, 2020: Assets were ¥212.2 trillion, loans and advances ¥94.7 trillion, deposits ¥138.4 trillion, liabilities ¥201.2 trillion and total equity ¥10.9 trillion.
- Funding and liquidity: Deposits exceeded loans by ¥43.8 trillion; the loan-to-deposit ratio was 68%. Three-month average LCR was 125.6% for SMFG consolidated and 129.5% for SMBC consolidated.
- Borrowings and debt securities: Borrowings were ¥17.1 trillion, up 41%, primarily reflecting increased unsubordinated borrowings. Debt securities in issue were ¥11.0 trillion, down 2%.
- Capital: Japanese-GAAP Basel III total, Tier 1 and CET1 capital ratios were 18.75%, 16.63% and 15.55%, respectively. The leverage ratio was 4.31%.
- Cash flows: Reported net cash from operating activities was ¥8.8 trillion; investing activities used ¥3.0 trillion; financing activities used ¥1.0 trillion. Cash and cash equivalents increased ¥4.5 trillion to ¥61.2 trillion. Bank cash flows include large movements in loans, deposits and securities, so these figures are not directly comparable to nonfinancial companies’ operating cash flow.
- Shareholder returns: The filing reports an FY2020 dividend of ¥185 per share in respect of the year; a proposed year-end dividend of ¥100 per share was subject to shareholder approval. SMFG repurchased ¥100 billion of shares and cancelled them.
Material changes versus the prior comparable period
- Operating income declined 15%, mainly as net trading income fell ¥186.2 billion and other income fell ¥350.0 billion; increased net investment income partly offset the declines.
- Net profit fell 64%. Impairment charges rose ¥140.3 billion, chiefly due to higher loan-loss provisions incorporating COVID-19 and oil-price impacts. The provision for loan losses increased from ¥122.9 billion to ¥249.5 billion.
- Net interest income increased 4% and net fee and commission income increased 2%. Domestic loan yields declined, while foreign lending and investment securities supported interest income.
- Gross impaired loans declined to ¥845.3 billion from ¥882.0 billion; the gross impaired-loan ratio decreased to 0.9% from 1.0%. The allowance for loan losses increased to ¥706.4 billion.
- Assets increased 9%, with growth in cash and bank deposits, investment securities and loans. Equity declined ¥838.6 billion, mainly reflecting lower other reserves and non-controlling interests.
- Total comprehensive income was a loss of ¥109.9 billion, versus income of ¥625.4 billion, mainly reflecting losses in other comprehensive income, including equity instruments measured at fair value through OCI.
Outlook, commentary, risks and unusual items
- Management stated that COVID-19’s continuing effect on operations and financial performance was uncertain. Its ECL forecasts assumed Japanese and global GDP would fall approximately 2%–3% in calendar 2020, with gradual recovery thereafter; the filing emphasized substantial uncertainty around these assumptions.
- In May 2020, SMFG announced a three-year management plan through March 2023 focused on transforming existing businesses, pursuing growth—including in Asia, payments and asset-light businesses—and improving management quality. The filing does not provide quantified financial guidance for that plan.
- Unusual charges included ¥69.8 billion of impairment on railcars in the U.S. leasing business and ¥28.7 billion of impairment on SMBC Trust Bank retail-banking intangible assets. The Group also recorded a ¥174.8 billion impairment loss on investments in associates and joint ventures, primarily due to a decline in the share price of The Bank of East Asia.
- SMBC and its New York branch were subject to an April 2019 Federal Reserve written agreement to remediate anti-money-laundering and sanctions-compliance deficiencies. SMFG disclosed restrictions on certain new U.S. financial activities and acquisitions while remediation is pending; failure to remedy the conditions could require divestiture or termination of certain U.S. activities.
- Other material risks include COVID-related credit deterioration and market volatility, low interest rates, securities-price and foreign-exchange movements, capital and liquidity requirements, cyber and operational risks, LIBOR transition, litigation, consumer-finance refund claims and climate-related risks.
- SMFG adopted IFRS 16 leases from April 1, 2019 using the modified retrospective approach without restating comparatives. This increased reported assets and liabilities at adoption by approximately ¥388.6 billion and affects year-over-year expense comparability.
- The auditor issued unqualified opinions on the IFRS financial statements and internal control over financial reporting. The auditor identified loan-loss allowance estimation and impairment testing of SMBC Trust Bank retail-banking intangibles as critical audit matters.
Most important facts for investors to verify
- Whether COVID-related credit costs and ECL assumptions subsequently developed in line with management’s forecasts, and how loan quality and provisions changed after year-end.
- Progress and outcomes of the U.S. AML and sanctions remediation, including whether restrictions on U.S. activities were lifted or expanded.
- Capital and liquidity levels under applicable regulatory measures, particularly after balance-sheet growth and market movements.
- Drivers and sustainability of earnings after the sharp decline in trading and other income, and whether the announced medium-term plan delivers measurable results.
- Dividend approval and the basis for the reported FY2020 per-share dividend figures, given the filing’s separate amounts for the year’s dividend and proposed final payment.