September 7, 2005 Merrill Lynch Japan Conference Growth Strategy for the New Stage -Value Creation through Retail Financial Services Business- Teisuke Kitayama President Sumitomo Mitsui Financial Group, Inc.
Agenda 1. SMFG s group strategy Mission in the New stage Target in fiscal 2008 Competitive advantage and growth potential Growth strategy as the new financial services complex Focus areas in medium-term plan Position of retail financial services business 2. SMFG s retail financial services business Achievements Source of competitive advantage Business opportunities Approaches Future business development Financial consulting for individuals (asset management consulting, mortgage loans) Consumer finance Credit card New-type unsecured loans to SMEs 3. Closing 1
1. SMFG s group strategy Mission in the New stage Become a globally competitive top top bank bank with with the the highest trust trust of of our our customers, our our shareholders, market and and society -FY2004 Intensive resolution period Completion of intensive improvement in asset quality Establishment of competitive advantages in focus areas FY2005- New stage Further reinforcement of profitability through creation of new customer value on group basis Establishment of stronger financial base Reinforcement of earnings base 2
1. SMFG s group strategy Target in fiscal 2008 FY2005- Further reinforcement of profitability through creation of new customer value on group basis -Strengthen existing business lines -Create new business lines Establishment of stronger financial base -Fortify capital base both qualitatively and quantitatively -Establish foundation for fully repaying public funds FY2008 ROE: more than 15% Net income: more than JPY 650 billion Capital ratio: approximately 11% Tier I ratio: approximately 7% Sustainable growth of shareholder value 3
1. SMFG s group strategy Competitive advantage and growth potential Sumitomo Mitsui Financial Group Sumitomo Mitsui Banking Corporation Leading businesses contribute to No. 1 profitability among Japanese banks -Sales of investment trusts & pension-type insurances -Mortgage loans -New-type unsecured loans to SMEs, etc. Investment banking business Daiwa Securities SMBC Daiwa SB Investments NIF SMBC Ventures* Consumer finance Promise At-Loan Credit card Sumitomo Mitsui Card Daiwa Securities Group No. 1 business portfolio among Japanese banks Solid commercial banking platform Alliances with leading companies *NIF Ventures and SMBC Capital are scheduled to merge on October 1, 2005 4
1. SMFG s group strategy Growth strategy as the new financial services complex Reinforcement of profitability through creation of new customer value on group basis -Further strengthen SMFG s group companies -Promote cross-industrial alliances -Strengthen existing business lines -Create new business lines I T Communication Other industries Transportation Retail Financial industry Provide wider range and more sophisticated financial services Expand franchise (customer base & business network) SMFG Consumer finance Investment banking business Commercial banking platform (SMBC) Credit card 5
1. SMFG s group strategy Focus areas in medium-term plan FY2004 consolidated net business profit JPY 1,014.4 billion Profit increase in 4 years from FY2005 to 2008: Approx. JPY +450 billion SMBC Approx. JPY +300 billion Group companies Approx. JPY +150 billion* Consumer Banking Unit Middle Market Banking Unit +30% Sumitomo Mitsui Card Promise At-Loan etc. (SMEs) Corporate Banking Unit +20% Daiwa Securities SMBC SMBC Leasing (Large corporations) +10% FY04 Gross profit (result) FY08 Increase in profit (plan) etc. International Banking Unit +50% *Includes recovery of profitability in group companies (including loan guarantee subsidiaries) 6
1. SMFG s group strategy Position of retail financial services business Earnings drivers in medium-term plan = Strategic businesses in consumer and SME markets Client segments Major strategic businesses (domestic) Private banking segment Private banking Consumer market Asset management segment Asset building segment Mass segment Financial consulting for individuals (Asset management consulting, mortgage loan) Consumer finance Credit card Retail financial services business Corporate market Small-sized enterprises Medium-sized enterprises Large-sized corporations New-type unsecured loans to SMEs Investment banking business by SMBC Investment banking in collaboration with Daiwa Securities SMBC 7
2. SMFG s retail financial services business Achievements -Fee businesses- Expanded fee income through reinforcement of retail financial services business (Billions of yen) 30 Investment trust sales [Sales fee, etc.] 200 Competitive advantage in net fees and commissions* SMBC 30 20 10 20 10 0 FY00 FY01 FY02 FY03 FY04 Pension-type insurance sales (Billions of yen) Balance under SMBC account: No.1 among Japanese banks [Sales fee, etc.] 180 160 140 120 100 80 FY00 FY01 FY02 FY03 FY04 Tokyo-Mitsubishi UFJ Mizuho & Mizuho Corporate 0 FY02 FY03 FY04 Accumulative sales: No. 1 among Japanese banks Indices showing four financial groups core banks profit increase (non-consolidated basis), using FY00 as the base year (=100) (Source) Each company s disclosure materials 8
Improve profitability through reinforcement of retail lending business (Trillions of yen) 2.5 2.0 1.5 1.0 0.5 0.0 (Trillions of yen) 1.6 1.2 0.8 0.4 0.0 Origination and balance of mortgage loans* *Residential purpose. Origination excludes bridge loans to HLC s loans. 10 Origination (left scale) Term-end balance (right scale) FY01 FY02 FY03 FY04 Origination&balance: No. 1 among Japanese banks New-type unsecured loans to small enterprises (Business Select Loans (( BSL )) Origination Term-end balance FY02 FY03 FY04 Origination&balance: No. 1 among Japanese banks 9 8 7 80% 75% 70% 65% 60% 55% 50% Proportion of loans to SMEs and individuals in total lendings SMBC Mizuho* UFJ Tokyo- Mitsuibishi FY00 *Mizuho + Mizuho Corporate SMBC Mizuho* UFJ 2. SMFG s retail financial services business Achievements -Lending businesses- Tokyo- Mitsuibishi FY04 Interest spread of deposits and loans (domestic) 2.0% 1.8% 1.6% 1.4% 1.2% SMBC Tokyo- Mitsubishi Mizuho* FY00 UFJ *Mizuho + Mizuho Corporate SMBC Mizuho* UFJ Tokyo- Mitsubishi FY04 9
2. SMFG s retail financial services business Source of competitive advantage Competitive advantage = Unique business model Products Channels Human resources Value creation for customers Consumer market Corporate market Financial consulting for individuals Open architecture New-type unsecured loans to small enterprises Credit scoring model Portfolio-based credit control Divided & specialized Small scale Penetration into regional & untapped areas Remote channels High efficiency Reinforcement of skills Highly motivated consultants Ex-employees and external workforce Clear mission High productivity One-stop-shopping provided by each consultant Loans require no collateral and no third-party guarantee Quick approval Improve profitability 10
2. SMFG s retail financial services business (Reference) Channel strategy & HR management Consumer market Corporate market Client segment Channel HR Client segment Channel HR Private banking segment Asset management segment Asset building segment Mass segment Private Banking Dept. Block Consumer Business Office Loan Promotion Office Branch SMBC Consulting Plaza SMBC Consulting Office Remote banking channel Private banker Financial consultant Loan planner Money-Life consultant & Low-counter teller Money-Life consultant TSR* Upper Middle Middle Lower Middle Small Corporate Business Office Corporate Business Office providing Business Select Loan Business Support Office Corporate Sales Office Sub-office Corporate Sales Desk Remote banking channel Bank officers Ex-employees External workforces * Telephone sales representative 11
2. SMFG s retail financial services business Business opportunities 71-80 61-70 51-60 41-50 31-40 21-30 11-20 0-10 Financial consulting for individuals (asset management consulting, mortgage loans) Change in population structure asset management needs due to retirement of baby-boomers, and mortgage loan needs of junior baby-boomers (Age) (Age) 2010 (Estimate) 2000 2010 81-4,166 (Thousand) 81-6,963 (Thousand) 9459 71-80 12,208 14,483 61-70 17,438 18,669 51-60 16,741 17,299 41-50 16,412 13,165 14,396 16,564 18,496 Source: Estimation by National Institute of Population and Social Research (Jan. 03) 31-40 21-30 11-20 0-10 Baby-boomers 14,684 12,050 12,334 18,641 Junior baby-boomers Huge potential (Trillions of yen) 40 35 30 25 20 15 10 5 0 Consumer finance Balance of SMBC s Consumer loans (excluding mortgage loans) : approx. JPY 1 trillion Commercial financial institutions Consumer finance companies 1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 (Source) Created by Japan Research Institute, Based on Statistics on Japanese Consumer Credit, Japan Consumer Credit Industry Association Other consumer finance companies Companies providing credit card / cashing services Credit card Potential in small amount settlement Japanese household consumption (excluding imputed rent) : approx. JPY 230 trillion => mostly cash settlement (Trillions of yen) 240 210 180 150 Household consumption Proportion of credit card 1990 92 94 96 98 2000 '02 15% 10% (Source) Created by Japan Research Institute, Based on Statistics on Japanese Consumer Credit, Japan Consumer Credit Industry Association, SNA, Cabinet Office of Japan * Amount of credit card settlement is based on card sales amount handled. 5% 0% Loans to SMEs Still huge potential Proportion of SMEs with SMBC s loans Annual sales of JPY 3 billion and above Annual sales of less than JPY 3 billion SMEs with SMBC's loans SM Es without SM BC's loans 0% 20% 40% 60% 80% 100% Source: SMBC s estimation of bankable customer under SMBC s definition. 12
2. SMFG s retail financial services business Approaches Existing business Market growth SMFG s share Approaches Opportunity Asset management consulting Large Accelerate allocation of resources (marketing channels / HR), in preparation for the expansion of the market due to retirement of baby-boomers Consumer Mortgage loan Consumer finance Large Small Accelerate allocation of resources (marketing channels / HR), because loan needs of junior baby-boomers are expected Create new market by leveraging expertise of the leading company in consumer finance industry and SMBC s franchise Credit card Large Utilize resources of credit card company through alliance with companies with infrastructure and customer base, and create small money creditpayment market Corporate SME lending Small Accelerate expansion of business volume by providing new products with competitive business model into new client segment 13
2. SMFG s retail financial services business Future business development -Financial consulting for individuals- Aggressive allocation of resources ( = specialized channels & human resources ) Expand specialized channels SMBC Consulting Plaza Channel providing financial consulting also open on weekday nights and holidays Increase locations to 100 (Mar. 2004: established the first office => 65 offices as of Aug. 31, 2005) Utilize newly established small and specialized channels (ex.) SMBC Consulting Office Small scale channel specialized in financial consulting Planned to open 5 offices in Sep. 2005 Aggressively allocate HRs Expand consultants Increase approx. 1,000 consultants (FY05-FY08) Plan in FY2005 Sales of investment trusts (load-type): JPY 1.0 trillion (+13% year-over-year) Sales of pension-type insurances: JPY 0.7 trillion (+20% year-over-year) Origination of mortgage loans: JPY 2.1 trillion (+9% year-over-year) SMBC Consulting Plaza 14
2. SMFG s retail financial services business Future business development -Consumer finance- Japan s foremost, full-scale collaboration between a mega bank and a leading consumer finance company Channels SMBC s business franchise (customer base and brand) and Promise s expertise (know-how in marketing, credit risk monitoring and collection) 493* ACMs (Automatic Contract Machines) Installed in SMBC s nationwide branch network Cascade Customer Cascade Telephone, SMBC website, etc. Full-scale utilization of SMBC s business franchise Asset building segment + Mass segment = 26 million clients (more than 40% of working population in Japan) Number of customers who visit branches: 3 million per month Number of transactions through ATMs: 1 million per day SMBC Interest rate: 8-12% At-Loan Promise 15-18% 18-25.55% Number of transactions in remote banking: 7 million per month *As of Aug. 2005 Create new market: increase loan balance to JPY 500 billion in 3 years 15
2. SMFG s retail financial services business Future business development -Credit card (1)- Expand business volume by establishing new credit-payment infrastructure through alliance Member retail shops 3.09 million Strengths of Sumitomo Mitsui Card Business franchise as a leading company products, services Sumitomo Mitsui Card Credit-payment (annual transaction: JPY 3.6 trillion) Shopping Payment Cashing Number of cardholders 13 million New business line: alliance with NTT DoCoMo Develop a platform for a new credit-payment service using Mobile-wallet handset * and create new creditpayment market Sumitomo Mitsui Card Business alliance Capital alliance Expertise in credit card business Network of member retail shops NTT DoCoMo Growth opportunity -Entering into cash settlement market :Increase number of customers by establishing new business model in money settlement market Small money settlement market : Alliance with NTT DoCoMo New Service for transportation facilities in Kansai area: Mandate for services related to PiTaPa Card (contact-free IC card) SMBC ATM network Mobile-wallet handset * technology Customer-base (registered users of mobile phone: 49 million ** ) Launch a new credit brand and develop a new credit-payment platform Business alliance * Registered trademark of NTT DoCoMo ** As of May 2005 16
2. SMFG s retail financial services business Future business development - Credit card (2) <Reference> Alliance with China Unionpay Develop new settlement business : Further reinforce business on member retail shops of Sumitomo Mitsui Card China Japan A company operating money settlement network between banks (b) Authorization (c) Money settlement Sumitomo Sumitomo Mitsui Mitsui Card Card (b) Authorization (c) Money settlement Banks issuing China Unionpay brand card (160 banks) (c) Money settlement Cardholders (Number of cards issued : Approx. 800 million) visit Visitors from China to Japan Approx. 620 thousand (in 2004) Approx. 1 million (Estimate in 2007) (a) Shopping (d) Sales settlement Member retail shops (b) Authorization 800 million of cash cards issued by Chinese banks (China Unionpay brand) can be used at Sumitomo Mitsui Card s member retail shops in Japan 17
2. SMFG s retail financial services business Future business development - New-type unsecured loans to SMEs- Further develop SME loan market by leveraging competitive loan products Small Small Company size Large Lower-middle Middle Upper-middle Origination of new-type unsecured loans to SMEs (Trillions of yen) New-type unsecured loans to SMEs Loans to small companies Credit scoring model Loans to lower-middle companies 5 4 Origination Term-end balance Loan products Portfolio-based credit control Low-cost operation Accelerate expansion of business volume by providing new products based on the competitive business model to a new client segment 3 2 1 0 Other loans FY03 FY04 FY05 result result plan 18
3. Closing Become a globally competitive top bank with the highest trust of our customers, our shareholders, market and society Further reinforcement of profitability through creating new customer value on group basis Consolidated net business profit Consolidated net income FY08 target approx. JPY 1,500 billion JPY 1,014.4 billion (JPY 234.2 billion) Establishment of stronger financial base Consolidated Tier I JPY 3.2 trillion FY04 (result) JPY 460 billion FY05 (forecast) Consolidated deferred tax assets Repay public funds (JPY 1.1 trillion) Deferred tax assets / Tier I ratio: to 10% level FY08 Net income: more than JPY 650 billion ROE: more than 15% Capital ratio: approx. 11% Tier I ratio: approx. 7% Sustainable growth of shareholder value 19
http://www.smfg.co.jp/english 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. 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. 20