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Sumitomo Mitsui Financial Group
- Sector: Financial Services
- Sub Sector: Banks
- Region: Japan
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Fundamental View
AS OF 18 Mar 2025After reorganising and building up capital for the full impact of Basel III, SMFG has in the past few years been acquisitive to build its next phase of growth, and now has a lower capital buffer than Mizuho.
In FY23, SMFG showed the best improvement in net interest income and fee income, but also had a number of one-offs in its results – insurance payouts for SMBCAC planes stuck in Russia offset by losses on the sale of its railcar leasing fleet in the US, as well as an impairment of its goodwill in FE Credit – that on the whole reduced net income. 9M24 results has showed improvements.
Given its size and systemic importance, SMFG is considered too big to fail, and will be supported by the Japanese government if needed.
Business Description
AS OF 18 Mar 2025- The core unit of SMFG is Sumitomo-Mitsui Banking Corp (SMBC), whose main predecessors were Sumitomo Bank and Mitsui Bank.
- SMFG does not have a large trust business as Sumitomo Trust and Chuo Mitsui Trust chose not to join SMFG, but merged with each other to form the separate Sumitomo Mitsui Trust Holdings.
- SMFG's group companies include the securities firm SMBC Nikko, SMBC Trust Bank, SMBC Card Company, SMBC Consumer Finance, Sumitomo Mitsui Finance and Leasing, SMFG India Credit Company (SMICC), Sumitomo Mitsui DS Asset Management, and SMBC Aviation Capital.
- It has been acquisitive over the years, particularly in emerging Asia and leasing assets. In 2021, the group took a 49% stake in Vietnam's FE Credit, 74.9% of Indian NBFI Fullerton Capital (now called SMICC), 4.99% of Philippines' RCBC, and 4.5% of US investment bank Jefferies. In 2022, it increased its stake in RCBC to 20%. In 2023, it acquired a 15% stake in Vietnam's VP Bank, and announced its intention to increase its stake in Jefferies from 4.5% to 15%, and in 2024 took its stake in SMICC to 100%.
Risk & Catalysts
AS OF 18 Mar 2025Similar to the other megabanks, SMFG aims to focus more on the US, and reduce low return RWAs in Europe and Asia ex-Japan.
Credit costs have seen some volatility. In FY23 bank level credit costs were good but worse at the card and personal unsecured loans units. 9M24 credit costs were up 17% YoY, mostly related to overseas banking subsidiaries. It has the lowest NPL ratio amongst the megabanks.
SMFG has taken stakes in FE Credit (49%) and VP Bank (15%) in Vietnam, Fullerton in India (100%, now renamed SMICC or SMFG India Credit Co) and RCBC in the Philippines (20%), to increase its exposure to emerging growth areas. It supported SMBC Aviation in its acquisition of Goshawk, and is increasing its 4.5% stake in Jefferies to 15%. However, FE Credit faced losses in 2022 and 2023 as a result of the Vietnam slowdown in 2022, highlighting the risks associated with EM personal unsecured lending.
Key Metric
AS OF 18 Mar 2025| JPY bn | FY21 | FY22 | FY23 | 3Q23 | 3Q24 |
|---|---|---|---|---|---|
| Net Interest Revenue/Average Assets | 0.64% | 0.68% | 0.70% | 0.68% | 0.78% |
| Operating Income/Average Assets | 1.23% | 1.26% | 1.47% | 1.38% | 1.47% |
| Operating Expense/Operating Income | 62% | 61% | 57% | 60% | 56% |
| Pre-Impairment Operating Profit / Average Assets | 0.48% | 0.51% | 0.58% | 0.61% | 0.68% |
| Impairment charge/Average Loans | (0.31%) | (0.22%) | (0.27%) | (0.18%) | (0.19%) |
| ROAA | 0.30% | 0.32% | 0.36% | 0.40% | 0.53% |
| ROAE | 5.9% | 6.5% | 7.0% | 8.0% | 10.2% |
CreditSight View Comment
AS OF 04 Feb 2025SMFG’s banking business had performed well, while its non-bank subsidiaries had underperformed over FY21-22. The group had a better 2H vs a poor 1H23, with improved trading and fee revenues, partially offset by higher credit costs at the non-bank businesses. The group became acquisitive from 2021, taking a 49% stake in a leading Vietnamese NBFI and 15% of its parent (VP Bank), 20% of RCBC of the Philippines, 74.9% of NBFI Fullerton India (now 100%), and 4.5% in US investment bank Jefferies (increasing to 15%), for the next stage of growth. Its high CET1 ratio has been whittled down by acquisitions. 9M24 results were boosted by share sales and structured investment trusts. Govt. support is assured. We see 10-15 bp of upside from current levels, and an improving credit trajectory.
Recommendation Reviewed: February 04, 2025
Recommendation Changed: January 27, 2025
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