Sumitomo Mitsui Financial Group, Inc.

The risk that credit-related expenses, such as provisions for doubtful accounts and write-offs, as well as non-performing loan balances, increase due to deterioration in the financial condition of counterparties or heightened country risk. This may be triggered by deterioration in the domestic and overseas economic and financial environment or changes in circumstances specific to particular industries. The Group has established an appropriate risk management framework; however, it may provide financial support such as debt forgiveness or debt-equity swaps, and losses may expand if corporate restructuring efforts do not succeed.

The risk that fluctuations in interest rates, foreign exchange rates, and stock prices cause the fair value of held financial instruments to fluctuate, resulting in significant valuation losses or impairments. Changes in monetary policy by major countries or worldwide market turmoil may cause interest rate fluctuations; if hedges on foreign-currency-denominated assets do not function effectively, foreign exchange losses may arise; and deterioration in the stock market may cause impairment of large equity holdings, including policy-holding stocks. The Group is promoting hedging transactions and a plan to reduce policy-holding stocks, but may not be fully prepared for abrupt market fluctuations.

The Group is subject to capital adequacy ratio regulations based on Basel III and G-SIBs buffer regulations, and is required to maintain capital adequacy ratios and leverage ratios above the internationally harmonized standards. The Medium-Term Management Plan sets a financial target of securing a CET1 ratio (excluding net unrealized gains on other securities) of approximately 10.5%; however, if the Group falls below the required standard, it may receive orders from the Financial Services Agency such as business scale reduction or prohibition of new business. Overseas banking subsidiaries are also subject to regulations by local authorities, and business restrictions may make it difficult to provide services to counterparties.

As a designated G-SIB, the Group has been subject to Total Loss-Absorbing Capacity (TLAC) regulations since March 2019, requiring the maintenance of the external TLAC ratio and the internal TLAC allocation to Sumitomo Mitsui Banking Corporation and SMBC Nikko Securities. If the Group is unable to issue or refinance eligible funding instruments, it may fail to meet the required standards and may receive a business improvement order from the Financial Services Agency. The Group is proceeding with the issuance of eligible funding instruments, but there is a risk that deterioration in market conditions could make such funding difficult.

With the development of new technologies such as AI, cyber attack methods are becoming increasingly sophisticated and elaborate, further deepening the risk of failures such as system downtime, unauthorized access, and information leaks. This includes attacks routed through third-party systems of counterparties or outsourcing partners, which could have a material impact on business continuity as a financial institution. The Group has formulated its

The Group is subject to a wide range of domestic and overseas laws and regulations, including the Banking Act, the Financial Instruments and Exchange Act, the Foreign Exchange and Foreign Trade Act, the Act on Prevention of Transfer of Criminal Proceeds, the U.S. Sarbanes-Oxley Act, and the U.S. Foreign Corrupt Practices Act. Violations could result in administrative dispositions, penalties, business restrictions, or claims for damages. Requirements from regulatory authorities in various countries regarding the prevention of money laundering and terrorist financing are also being strengthened, and inadequate responses could result in fines or other dispositions. The Group has positioned the strengthening of its compliance framework and internal control framework as a top management priority; however, misconduct by officers or employees could lead to a loss of trust.

Including transactions voluntarily disclosed to the U.S. OFAC, if the Group's business activities violate U.S. sanctions-related laws and regulations, the Group may be subject to fines or severe administrative dispositions from relevant authorities. The Group's banking subsidiaries may, at locations outside the United States, conduct interbank transactions with countries subject to economic sanctions on the premise of compliance with relevant laws and regulations of each country; the mere existence of such transactions could lead to reputational deterioration, hindering the acquisition and retention of customers and investors. The Group has established a framework to comply with the laws and regulations of each country, but full compliance may be difficult due to the complexity and variability of regulations.

There is a risk that downgrades in the credit ratings of Group companies, worldwide market turmoil, or deterioration in the financial and economic environment could worsen the terms of, or restrict, capital and funding procurement both domestically and overseas. If a mismatch between the maturities of investments and funding, combined with unexpected outflows of funds, occurs, the Group may be forced to procure funds at significantly higher interest rates than usual, leading to increased funding costs or difficulty in procurement. The Group has established an appropriate risk management framework and conducts intraday liquidity monitoring and stress testing; however, it may be difficult to respond to situations that exceed expectations.

The risk of incurring losses when environmental and social factors, such as climate-related, nature-related, and human rights issues, act as risk drivers that spread across risk categories such as credit risk and market risk. Changes in legal systems in various countries or in the business environment may cause inadequate responses to climate change and other issues to lead to reputational deterioration or the emergence of stranded assets;

In strategic alliances, investments, and acquisitions both domestically and overseas, if changes in legal systems, intensified competition, or operational disruptions at alliance partners occur, it may become difficult to secure expected profits or provide services, resulting in impairment of the value of acquired shares, intangible fixed assets such as goodwill, and loans. In addition, if it becomes difficult to continuously secure and retain capable personnel in businesses requiring a high degree of specialized expertise across a wide range of fields, business strategies may not be implemented as planned. In executing the Medium-Term Management Plan covering the period from FY2026 (ending March 2026) to FY2028 (ending March 2028), unexpected changes in the financial, economic, and business environment may impede the success of the strategy.