ANNUAL REPORT ANNUAL REPORT 2012 YEAR ENDED MARCH 31, 2012 Beyond our boundaries. Beyond our imagination. We are qualified professionals to provide valuable financial services to our customers based on our three core strengths — “Spirit of Innovation,” “Speed” and “Solution & Execution.” Spirit of Innovation Solution & Execution We lead the market by providing innova- We lead the business by using all the tive, globally competitive services that knowledge and experiences of our meet customer needs. group to solve the issues of our custom- ers, whether individuals or corporates, identified through a deep understanding of their needs and financial situations. Our Three Core Strengths Speed We lead the pace by providing our cus- tomers with desirable services in a timely manner with speed and determination. CONTENTS CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This document contains “forward-looking statements” (as defined in • Message from Top Management ............................ 2 the U.S. Private Securities Litigation Reform Act of 1995), regarding the intent, belief or current expectations of us and our managements • Business Overview ................................................. 6 with respect to our future financial condition and results of operations. Consumer Banking ................................................................. 6 In many cases but not all, these statements contain words such as Corporate Banking ................................................................. 8 “anticipate,” “estimate,” “expect,” “intend,” “may,” “plan,” “probability,” “risk,” “project,” “should,” “seek,” “target” and similar expressions. Services for Business Owners, Such forward-looking statements are not guarantees of future High-Net Worth Individuals and Employees ......................... 10 performance and involve risks and uncertainties, and actual results Investment Banking ................................................................ 11 may differ from those expressed in or implied by such forward-looking International Banking .............................................................. 12 statements contained or deemed to be contained herein. The risks and uncertainties which may affect future performance include: Treasury Markets .................................................................... 13 deterioration of Japanese and global economic conditions and Transaction Business .............................................................. 14 financial markets; declines in the value of our securities portfolio; our ability to successfully implement our business strategy through our • Group Companies .................................................. 15 subsidiaries, affiliates and alliance partners; exposure to new risks as we expand the scope of our business; and incurrence of significant Financial Highlights ................................................. 19 • credit-related costs. Given these and other risks and uncertainties, you should not place undue reliance on forward-looking statements, Financial Review ..................................................... 23 • which speak only as of the date of this document. We undertake no obligation to update or revise any forward-looking statements. Risk Management .................................................. 32 • Please refer to our most recent disclosure documents such as our • Corporate Social Responsibility (CSR) .................... 46 annual report or registration statement on Form 20-F and other docu- ments submitted to the U.S. Securities and Exchange Commission, • Initiatives for Enhancing Customer Satisfaction (CS) as well as earnings press releases, for a more detailed description of the risks and uncertainties that may affect our financial conditions and and Quality ........................................................... 48 results of operations, and investors’ decisions. • Corporate Governance ........................................... 49 • Internal Audit System ............................................. 50 Sumitomo Mitsui Financial Group, Inc. September 2012 Public Relations Department • Compliance ............................................................ 51 1-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005, Japan Environmental Preservation Initiatives ..................... 53 • TEL: +81-3-3282-8111 • Social Contribution Activities .................................. 56 Sumitomo Mitsui Banking Corporation Human Resources .................................................. 60 Public Relations Department • 1-2, Marunouchi 1-chome, Chiyoda-ku, • Financial Section and Corporate Data .................... 67 Tokyo 100-0005, Japan Financial Section .................................................................... 68 TEL: +81-3-3282-1111 Corporate Data ...................................................................... 211 SMFG 2012 1 Message from Top Management Dear Fellow Stakeholders, We sincerely thank you for your continued support and patronage. In this annual report, we would like to present our initiatives implemented in fiscal 2011 (fiscal year ended March 2012) and our management policies going forward. In fiscal 2011, SMFG’s consolidated net income increased by ¥42.6 billion to ¥518.5 billion with a ROE of 10.4%. Fiscal 2011 was the first year of our medium-term management plan, and we made a good start toward achieving its targets, including better-than-expected results on financial targets (Table 1). Going forward, we will continue to focus on international business and synergies between SMBC and SMBC Nikko as our growth drivers and on the 3C – cross-selling, credit con- trol, and cost control. Principal Initiatives in Fiscal 2011 Against this backdrop, we dedicated ourselves to facilitating financing to our clients and ensuring the smooth In fiscal 2011, the U.S. and European economies started operation of our payment and settlement platform to help to decelerate in the summer of 2011, primarily due to the spur the post-disaster recovery. In addition, we launched our European debt crisis triggered by the financial problems medium-term management plan for the three-year period in Greece and tight monetary policies adopted in emerg- from fiscal 2011 to fiscal 2013, with the twin management ing countries, but there were signs of recovery in the U.S. targets of achieving top quality in strategic business areas, economy towards the fiscal year-end. Meanwhile, despite and a solid financial base and corporate infrastructure to setbacks in the aftermath of the March 2011 earthquake meet the challenges of financial regulations and highly com- and tsunami, the Japanese economy showed some signs petitive environment (Table 2). We have been proactively of recovery last summer as manufacturing activities recov- strengthening initiatives in order to achieve these targets. ered nearly to their pre-disaster levels. However, the pace As a result, SMFG’s consolidated ordinary profit of recovery slowed down thereafter due to factors such as increased by ¥110.1 billion to ¥935.6 billion, net income the stagnant global economy, consistent strong yen and increased by ¥42.6 billion to ¥518.5 billion with a ROE of damages caused by floods in Thailand. 10.4%, due mainly to the following achievements: - an increase in gross banking profit of SMBC’s Marketing Units led by International Banking Unit - a high level of profit generated by SMBC’s Treasury Unit as in the previous fiscal year - a decrease in total credit cost from an improvement in asset quality by SMBC and group companies At the same time, we made steady progress towards achieving the financial targets of the medium-term manage- ment plan. Koichi Miyata President Sumitomo Mitsui Financial Group, Inc. 2 SMFG 2012 Table 1: Progress of financial targets Management Policies in Fiscal 2012 in the medium-term management plan Fiscal 2012, the second year of the medium-term manage- Core Tier I ratio*1 FY3/2014 FY3/2011 FY3/2012 ment plan, is the year for us to move forward steadily toward (pro-forma) Target the achievement of the plan by fully capturing opportunities Based on the definition as at the full implementation above 6% nearly 7.5% 8% with proactive ideas and actions. While maintaining our focus of Basel III*2 on the development of international business and synergies Based on the definition as at the initial implementation above 8% above 9% between SMBC and SMBC Nikko as our growth drivers of Basel III and on the 3C, we will continue to strengthen initiatives in FY3/2014 FY3/2011 FY3/2012 strategic business areas and to establish a solid financial Target base and corporate infrastructure. Consolidated net income RORA 0.8% 0.9% 0.8% Consolidated overhead 52.5% 53.5% 50%-55% Strengthening initiatives in strategic ratio ◎ SMBC non-consolidated business areas overhead ratio 45.6% 46.9% 45%–50% Overseas banking profit We will further strengthen initiatives in the five strategic busi- ratio*3 23.3% 26.0% 30% ness areas: financial consulting for retail customers; tailor- 1 * Common Equity Tier 1 ratio under Basel III. SMFG consolidated made solutions for corporate clients; commercial banking in *2 Regulatory adjustments are fully deducted *3 Based on the medium-term management plan – exchange rate assumption emerging markets, especially Asia; broker-dealer/investment of 1USD=JPY85 for FY3/2012 to FY3/2014 banking; and non-asset businesses including payment & settlement services and asset management. On strategic initiatives, we have implemented the follow- ing measures.