ANNUAL REPORT ANNUAL REPORT 2010 2010 YEAR ENDED MARCH 31, 2010 Aiming to become a globally competitive financial services group with the highest trust We are a group of highly qualified professionals that can provide truly valuable financial services to our customers. Each of us thinks and acts with pride as experts in each business area in order to LEAD the competition in creating and delivering customer VALUE in a continually changing business environment. This material contains certain forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may materially differ from those contained in the forward-looking statements as a result of various factors. Important factors that might cause such a material difference include, but are not limited to, those economic conditions referred to in this material as assumptions. In addition, the following items are among the factors that could cause actual results to differ materially from the forward-looking statements in this material: business conditions in the banking industry, the regulatory environment, new legislation, competition with other financial services companies, changing technology and evolving banking industry standards and similar matters. CONTENTS • Message from the Management .............................. 2 • Business Overview .................................................. 10 Consumer Banking ................................................................. 10 Corporate Banking.................................................................. 12 Services for High Networth Individuals, Business Owners and Employees ....................................... 14 Investment Banking ................................................................ 15 International Banking .............................................................. 16 Treasury Markets .................................................................... 17 • Group Companies ................................................... 18 • Financial Highlights ................................................. 21 • Financial Review ...................................................... 25 • Risk Management .................................................... 34 • Corporate Social Responsibility (CSR) .................... 50 Initiatives for Enhancing Customer Satisfaction (CS) • and Quality ........................................................... 51 • Corporate Governance ............................................ 52 • Internal Audit System .............................................. 53 • Compliance ............................................................. 54 • Environmental Preservation Initiatives ..................... 56 • Social Contribution Activities ................................... 60 These activities are supported by our three core strengths: • Human Resources ................................................... 64 • Financial Section and Corporate Data .................... 69 Financial Section..................................................................... 69 Corporate Data ....................................................................... 205 Solution & Execution Spirit of Innovation We LEAD the business by using all the knowledge and experiences of We LEAD the market by our group to solve the issues of our Sumitomo Mitsui Financial Group, Inc. September 2010 providing innovative, customers, whether individuals Public Relations Department globally competitive services or corporates, identified through a 1-2, Yurakucho 1-chome, Chiyoda-ku, that meet customer needs. deep understanding of their needs Tokyo 100-0006, Japan and financial situations. TEL: +81-3-5512-3411 Sumitomo Mitsui Banking Corporation Public Relations Department Speed 1-2, Yurakucho 1-chome, Chiyoda-ku, Tokyo 100-0006, Japan We LEAD the pace by TEL: +81-3-3501-1111 providing our customers with desirable services in a timely manner with speed Notice of Address Change and determination. The head offices of Sumitomo Mitsui Financial Group, Inc. and Sumitomo Mitsui Banking Corporation will move to the following addresses on October 18, 2010. <New Addresses> We create new VALUE by forming teams of Sumitomo Mitsui Financial Group, Inc. Public Relations Department specialists in various fields and providing optimal services to 1-2, Marunouchi 1-chome, Chiyoda-ku, our customers through two-way communication. Tokyo 100-0005, Japan TEL: +81-3-3282-8111 As a result, we will be selected as a truly trusted partner. Sumitomo Mitsui Banking Corporation Public Relations Department 1-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005, Japan TEL: +81-3-3282-1111 SMFG 2010 1 Message from the Management We would like to thank you for your continued support and patronage. In this annual report, we review the initiatives implemented in fiscal 2009, ended March 31, 2010, and explain our management policies for fiscal 2010. Principal Initiatives in Fiscal 2009 policy of increasing dividends stably and continuously through sustainable growth in enterprise value and achieving a dividend Having designated fiscal 2009 as the year for “establishing the payout ratio of over 20% on a consolidated net income basis. As next foundation for future growth, while continuing to strengthen SMFG recorded consolidated net income in fiscal 2009 versus business consistent with our philosophy of ‘Follow the Basics,’” consolidated net loss of the previous fiscal year and the amount we have been implementing initiatives to control expenses, credit was higher than the forecast announced in November 2009, we costs and risk-adjusted assets in the core operation of our group have decided to increase the annual dividend for common shares companies. Additionally, to achieve growth over the medium and by ¥10 to ¥100 per share. long term, we continued to focus on two strategic initiatives: “real- Regarding our medium-term management plan, or “LEAD izing a solid financial base as a global player” and “strengthening THE VALUE” plan that ended in March 2010, the macroeco- targeted growth business areas.” nomic reality has diverged substantially from the plan’s original Specifically, at SMBC we reinforced our efforts to reduce assumptions, particularly since fiscal 2008, amid increasingly expenses during fiscal 2009, and kept the overhead ratio to uncertain business environment in domestic and overseas mar- below 50%. We also took measures to reduce credit costs mainly kets. Accordingly, we were unable to attain the originally targeted through measures tailored to the business circumstances of our level of earnings for fiscal 2009. We, however, have been making corporate borrowers. SMFG took steps to strengthen its capital steady progress in realizing the strategic initiatives – strengthen- base during fiscal 2009, principally through a common equity ing targeted growth business areas, and fortifying platforms to offering totaling ¥861.0 billion completed in July 2009, followed support sustainable growth. by another offering totaling ¥973.0 billion completed in February 2010. Consequently, our consolidated Tier I ratio at the end of March 2010 was 11.15%, an increase of 2.93% compared with Management Policies in Fiscal 2010 the end of March 2009. In addition, in October 2009 we laid the foundation for the next stage of strong growth by consolidating The business environment surrounding financial institutions is Nikko Cordial Securities into the Group as a wholly-owned subsid- changing greatly amid the global discussion about financial regu- iary of SMBC. latory and supervisory reform to prevent another financial crisis. As a result of these initiatives, consolidated ordinary profit Under these circumstances, we have designated our manage- for fiscal 2009 was ¥558.7 billion, a year-on-year increase of ment policies for fiscal 2010 as 1) “forward looking” - transforming ¥513.4 billion, while consolidated net income also increased, by our business model to grow steadily under a new regulatory and ¥645.0 billion year on year, to ¥271.5 billion. In view of the public competitive environment and 2) emphasizing return on risks and nature of our business, while enhancing the Group’s capital to costs, in order to improve asset quality and thoroughly control maintain a sound financial position, we have set a fundamental expenses and credit costs, so as to secure a resilient capital base and reinforce our business portfolio to achieve sustainable growth. (1) Securing a resilient capital base During fiscal 2009 we took steps to establish a resilient capital base through the issuance of new shares, among other measures. Teisuke Kitayama Moving forward, our focus will shift to steps such as reducing President stock price fluctuation risks associated with our stockholdings, Sumitomo Mitsui and building up retained earnings by reinforcing a business port- Financial Group, Inc. folio to achieve sustainable growth. Through these measures, we aim to maintain over around 10% of consolidated Tier I ratio. Meanwhile, as a result of the common equity offerings exe- cuted during fiscal 2009, the number of SMFG’s ordinary shares issued reached approximately 1.4 billion shares, or more than 90% of the authorized ordinary shares of 1.5 billion stipulated in SMFG’s Articles of Incorporation. We believe that securing strategic flexibility, which will enable us to further strengthen our targeted growth business areas, is essential to enhancing SMFG’s medium- to long-term enterprise value. For this reason,