3.A. SELECTED FINANCIAL DATA Selected Financial Data The following selected financial data at and for each of the five fiscal years ended March 31, 2026, 2025, 2024, 2023 and 2022 have been derived from our consolidated financial statements. You should read this data together with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements included elsewhere in this annual report. For the fiscal year ended and at March 31, 2026 2025 2024 2023 2022 (In millions, except per share data) Consolidated income statements data: Interest income ¥ 6,928,743 ¥ 6,716,741 ¥ 5,944,398 ¥ 3,696,076 ¥ 1,747,654 Interest expense 4,096,058 4,202,307 4,053,635 1,941,006 303,716 Net interest income 2,832,685 2,514,434 1,890,763 1,755,070 1,443,938 Fee and commission income 1,805,095 1,631,319 1,469,847 1,262,734 1,248,225 Fee and commission expense 287,328 314,931 233,715 222,920 209,762 Net fee and commission income 1,517,767 1,316,388 1,236,132 1,039,814 1,038,463 Net trading income (loss) (84,067 ) (186,688 ) 349,520 626,043 280,339 Net income from financial assets and liabilities at fair value through profit or loss 332,654 43,524 323,217 173,311 200,249 Net investment income 20,686 78,969 29,844 15,611 65,744 Net gains (losses) arising from derecognition of financial assets at amortized cost(1) (8,884 ) (32,179 ) 1,550 (2,760 ) 2,631 Other income(1) 230,942 105,717 112,208 179,842 104,317 Total operating income(1) 4,841,783 3,840,165 3,943,234 3,786,931 3,135,681 Impairment charges on financial assets 392,157 411,278 205,096 148,464 279,978 Net operating income(1) 4,449,626 3,428,887 3,738,138 3,638,467 2,855,703 General and administrative expenses 2,672,149 2,421,732 2,229,701 1,965,417 1,801,621 Other expenses(1) 354,743 495,587 461,018 498,602 366,780 Operating expenses(1) 3,026,892 2,917,319 2,690,719 2,464,019 2,168,401 3 Table of Contents For the fiscal year ended and at March 31, 2026 2025 2024 2023 2022 (In millions, except per share data) Share of post-tax profit (loss) of associates and joint ventures 132,296 142,678 160,370 87,428 (10,838 ) Profit before tax 1,555,030 654,246 1,207,789 1,261,876 676,464 Income tax expense 360,070 137,802 312,039 326,027 161,389 Net profit ¥ 1,194,960 ¥ 516,444 ¥ 895,750 ¥ 935,849 ¥ 515,075 Profit attributable to: Shareholders of Sumitomo Mitsui Financial Group, Inc. ¥ 1,137,557 ¥ 478,132 ¥ 873,346 ¥ 911,831 ¥ 499,573 Non-controlling interests 7,535 6,676 8,641 12,708 4,771 Other equity instruments holders 49,868 31,636 13,763 11,310 10,731 Earnings per share(2): Basic ¥ 296.05 ¥ 122.40 ¥ 219.04 ¥ 222.71 ¥ 121.49 Diluted 295.99 122.36 218.98 222.63 121.44 Weighted average number of common shares in issue (in thousands of shares) 3,842,444 3,906,456 3,987,077 4,094,310 4,112,213 Dividends per share in respect of each fiscal year(2): Common stock ¥ 140 ¥ 105 ¥ 87 ¥ 73 ¥ 67 $ 0.88 $ 0.70 $ 0.57 $ 0.55 $ 0.54 Consolidated statements of financial position data: Total assets ¥ 309,203,641 ¥ 292,165,070 ¥ 281,271,637 ¥ 257,687,038 ¥ 248,160,847 Loans and advances 130,516,241 125,190,819 121,716,465 111,891,134 104,635,815 Total liabilities 290,914,647 275,676,476 264,992,539 244,150,073 235,379,155 Deposits 201,930,427 190,022,742 182,097,319 172,927,810 162,593,492 Borrowings 10,551,657 12,697,699 16,107,158 15,371,801 20,584,651 Debt securities in issue 16,576,423 14,387,415 14,075,084 11,984,994 11,428,437 Total equity 18,288,994 16,488,594 16,279,098 13,536,965 12,781,692 Capital stock 2,346,888 2,345,961 2,344,038 2,342,537 2,341,878 (1) From the fiscal year ended March 31, 2025, we have presented “Net gains (losses) arising from derecognition of financial assets at amortized cost” as a separate line item in the consolidated income statements. This line item was not presented separately prior to the fiscal year ended March 31, 2025, but was included within “Other income” and “Other expenses.” The comparative amounts have been restated to conform to the current presentation. (2) As resolved by the board of directors on May 15, 2024, we implemented a stock split of our common stock with an effective date of October 1, 2024, whereby each share of common stock owned by shareholders listed or recorded in the closing register of shareholders on the record date of September 30, 2024 was split into three shares. Basic and diluted earnings per share, weighted average number of common shares in issue, and dividends per share are calculated based on the assumption that the stock split had been implemented at the beginning of the fiscal year ended March 31, 2022. 3.B. CAPITALIZATION AND INDEBTEDNESS Not applicable. 3.C. REASONS FOR THE OFFER AND USE OF PROCEEDS Not applicable. 4 Table of Contents 3.D. RISK FACTORS Investing in our securities involves risks. You should carefully consider the risks described below as well as all the other information in this annual report, including, but not limited to, our consolidated financial statements and related notes included elsewhere in this annual report and “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk.” Our business, operating results and financial condition could be adversely affected by any factors, including, but not limited to, those discussed below. The trading prices of our securities could also decline due to any of these factors including, but not limited to, those discussed below. Moreover, this annual report contains forward-looking statements that involve risks and uncertainties. Our actual results could also differ from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, the risks faced by us described below and elsewhere in this annual report. See “Cautionary Statement Regarding Forward-Looking Statements.” Forward-looking statements in this section are made only as of the filing date of this annual report. Summary The principal risks that could have a material adverse effect on our business, results of operations, financial condition or capital position include: Risks Related to the Economic and Financial Environment • Deterioration of Japanese and global economic conditions and financial markets. • Declines in the value of our securities portfolio. • Changes in market rates or prices related to financial instruments. Risks Related to Our Business • Failure to satisfy capital adequacy requirements. • Financial difficulties of counterparties and other financial institutions. • Adverse regulatory developments or changes in government policies. • Changes in the competitive environment around financial institutions and financial systems. • Adverse economic conditions affecting our customers and deterioration of their financial condition. • A significant downgrade of our credit ratings. • Challenges in achieving the goals of our business strategy. • Exposure to new risks as we expand the scope of our business. • Failure of our business strategies through our subsidiaries, affiliates and other business alliance partners. • Changes in the legal environment for the consumer finance industry. • The recoverability of deferred tax assets. • Declines in returns on our plan assets or revised actuarial assumptions for retirement benefits. • Insufficient liquidity. • Market price impact and dilution from sales of our shares by us. • Damage or failure of our information technology systems as a result of various incidents including cyberattacks. 5 Table of Contents • Fraud, misconduct or other unlawful behavior by directors, officers and employees or third parties. • Exposure to Iran and other countries and targets that are subject to U.S. or other financial sanctions. • Natural disasters, terrorism, pandemics and other calamities. • Exposure to risks associated with environmental and social issues. • Inability of our risk management policies and procedures to adequately address unidentified or unanticipated risks. • Litigation and regulatory proceedings around the world. • Damage to our reputation. • Improper development, use or failure of our models. • Our failure to establish, maintain and apply adequate internal controls over financial reporting. Risks Related to Owning Our Shares • Restrictions on U.S. investors’ ability to effect service of process on us or to enforce U.S. court judgments against us. Risks Related to Owning Our ADSs • Limitations on rights of holders of our American Depositary Shares (“ADSs”) as shareholders. Risks Related to the Economic and Financial Environment We may be adversely affected if Japanese and global economic conditions and financial markets deteriorate. Our financial condition and results of operations are materially affected by general economic conditions and financial markets in Japan and foreign countries, which would be influenced by various factors such as monetary policies taken by the Bank of Japan (“BOJ”) and other central banks, and fiscal policies, policies on financial markets, as well as related laws, regulations and agreements adopted by governmental authorities. Those factors include, for example, the increase of tariffs and other protectionist trade policies pursued by the U.S., China and other countries and uncertainty in the path and implementation of such trade policies. In addition, the interconnectivity across financial markets may increase the risk that the significant expansion of private credit could lead to the spread of systemic credit instability. Furthermore, geopolitical instability in various parts of the world, including the outbreak or escalation of hostilities or armed conflicts, and material changes in regional trade, economic or political unions or associations between countries could contribute to economic instability in those and other regions. Such regional economic instability could adversely affect Japanese and global economic conditions. Sources of heightened uncertainty include ongoing conflicts in Ukraine and the Middle East, such as the situation in Iran which has implications for Japanese energy security, economic and strategic tensions related to East Asia, and the deepening of the real estate crisis in China. The deterioration of Japanese and global economic conditions, or financial market turmoil, could result in a worsening of our liquidity and capital conditions, an increase in our credit costs, and a decrease in the fair values of our investment securities and, as a result, adversely affect our business, financial condition and results of operations. 6 Table of Contents Future declines in securities prices on Japanese stock markets or other global markets could cause us to experience realized and unrealized losses on our equity securities portfolio, which could negatively affect our financial condition, results of operations and regulatory capital position. The value of a listed equity security is measured at its market price. Declines in the Japanese stock markets or other global markets could result in realized and unrealized losses on the securities in our equity securities portfolio, adversely affecting our results of operations and financial condition. Our regulatory capital position and that of SMBC depend in part on the fair value of our equity securities portfolio. Substantial declines in securities prices on Japanese stock markets or other global markets would negatively affect our and SMBC’s capital positions, and limit SMBC’s ability to make distributions to us. Our equity securities portfolio mainly consists of equity instruments at fair value through other comprehensive income. The reported value of our equity instruments at fair value through other comprehensive income accounted for 1.8% of our total assets at March 31, 2026, approximately 69.8% of which were Japanese equity securities. This value depends mainly on prices of the instruments in the stock market. In addition, the reported value, and gross unrealized gains and losses of those equity instruments at fair value through other comprehensive income at March 31, 2026 are described in “Item 5.A. Operating Results—Financial Condition—Investment Securities.” In recent years, we have been reducing our equity holdings of our customers’ shares (which we refer to as “equity holding investments” herein) in order to mitigate the impact of share price fluctuations on our financial base. Any further disposal by us of equity holding investments could in turn cause our customers to dispose of their equity holdings of investments in us, which could adversely affect the market price of our shares. Changes in market rates or prices related to financial instruments could adversely affect our financial condition and results of operations. We engage in trading and investing activities dealing with various kinds of financial instruments such as bonds, equities, currencies, derivatives and funds. For example, we have substantial investments in debt securities. At March 31, 2026, we had ¥5 trillion of Japanese government bonds classified as debt instruments at fair value through other comprehensive income, which accounted for approximately 1.8% of our total assets. Our financial condition and results of operations could be adversely affected by actual changes or volatility in interest rates, foreign exchange rates and market prices of investment securities. Increases in interest rates could substantially decrease the value of our fixed income portfolio, and any unexpected changes in yield curves could adversely affect the value of our bond and interest rate derivative positions, resulting in lower-than-expected revenues from trading and investment activities. Market volatility may also result in significant realized and unrealized losses on such instruments. Furthermore, the downgrading of investment securities by credit rating agencies may also cause declines in the value of our securities portfolio. Risks Related to Our Business Failure to satisfy capital adequacy requirements could constrain our and SMBC’s operations. We and SMBC are subject to capital adequacy requirements established by the Financial Services Agency of Japan (“FSA”) which are based on the Basel rules text published by the Basel Committee on Banking Supervision (“BCBS”). The minimum Common Equity Tier 1 risk-weighted capital ratio and minimum risk-weighted capital ratio applicable to us and SMBC have been 4.5% and 8%, respectively, since March 2015. Moreover, we are required to hold a capital conservation buffer to withstand future periods of stress and a countercyclical buffer as additional capital to reduce the buildup of systemic risk in periods and locations of excessive credit growth. The 7 Table of Contents capital conservation buffer has been 2.5% since March 2019. As a result, taking the capital conservation buffer into account at March 2026, the total minimum Common Equity Tier 1 risk-weighted capital ratio has been 7%, and the total minimum risk-weighted capital ratio has been 10.5%. The countercyclical buffer is calculated as the weighted average of the buffers in effect in the jurisdictions to which we have credit exposure, with a maximum of 2.5% from March 2019. In addition, the requirements for additional capital, in the form of a capital surcharge above the Basel III minimum requirement, have been applied from 2016 to those financial institutions identified by the Financial Stability Board (“FSB”) as Global Systemically Important Banks (“G-SIBs”), including us. This requirement is commonly referred to as the G-SIB capital surcharge. The FSB updates its list of G-SIBs on an annual basis. Based on the list, we have been required to maintain an additional 1% of Common Equity Tier 1 capital as a percentage of risk-weighted assets from 2019. G-SIBs are also subject to a global standard for Total Loss-Absorbing Capacity (“TLAC”), which defines certain minimum requirements for total loss-absorbing capacity so that if G-SIBs fail, they will have sufficient loss absorbing and recapitalization capacity available in resolution. In November 2015, the FSB published the final TLAC standards (“FSB’s TLAC Standards”) and, in March 2019, the FSA published its regulatory guidelines and related documents for the implementation of the TLAC standards in Japan (“Japanese TLAC Standards”) which we are subject to as a G-SIB. Furthermore, under the FSA’s guidelines for the leverage ratio, which have been applied from March 31, 2019, banks and bank holding companies with international operations must maintain a leverage ratio of at least 3% on both a consolidated basis and a nonconsolidated basis for banks and on a consolidated basis for bank holding companies. In June 2020, the FSA published and implemented amendments to its guidelines for the leverage ratio, which mainly exclude deposits with the BOJ from the denominator for the calculation of the leverage ratio in order to maintain harmonization with the monetary policy implemented by the BOJ and the prudential regulations for banks and other financial institutions. In July 2022, the FSA published amendments to its guidelines for the leverage ratio. Under the amended guidelines, the leverage ratio buffer requirement for G-SIBs in Japan took effect from March 31, 2023, while the finalized definition of the leverage ratio exposure measure took effect from March 31, 2024, except for banks that had notified the FSA that they wished to apply the amended requirements earlier. Furthermore, in November 2022, the FSA published amendments to its guidelines for the leverage ratio, which provided that, effective from April 1, 2024, the minimum leverage ratio was increased from 3% to 3.15%, the minimum leverage-based TLAC ratio was increased from 6.75% to 7.10% and the leverage buffer applicable to G-SIBs was increased by 0.05%, while continuing to exclude amounts of deposits with the BOJ from the total exposure, taking into account exceptional macroeconomic conditions and other circumstances. At March 31, 2026, on a consolidated basis, our total risk-weighted capital ratio, Tier 1 risk-weighted capital ratio and Common Equity Tier 1 risk-weighted capital ratio were 15.69%, 14.49% and 12.41%, compared to the minimum required ratios of 11.69%, 9.69% and 8.19%, respectively. Such minimum required ratios include the capital conservation buffer of 2.5%, the G-SIB capital surcharge of 1.0% and the countercyclical buffer of 0.19%. Our and SMBC’s capital ratios could decline as a result of decreases in Tier 1 and Tier 2 capital or increases in risk-weighted assets. The following circumstances, among others, could reduce our risk-weighted capital ratio and that of SMBC: • declines in the value of securities; and • increases in risk-weighted assets resulting from business growth, strategic investments, borrower downgrades, changes in parameters such as probability of default (“PD”) or regulatory reforms. 8 Table of Contents We and SMBC have adopted the advanced internal rating-based (“IRB”) approach for measuring credit risk and the standardized approach by using the internal loss multiplier (“ILM”) for measuring operation risk. If the FSA revokes its approval of our implementation thereof or otherwise changes its approach to measure capital adequacy ratios, our and SMBC’s ability to maintain capital at the required levels may be adversely affected. In December 2017, the Group of Central Bank Governors and Heads of Supervision (the “GHOS”) endorsed the outstanding Basel III regulatory reforms. The endorsed reforms include the following elements: • a revised standardized approach for credit risk; • revisions to the internal ratings-based approach for credit risk; • revisions to the credit valuation adjustment framework; • a revised standardized approach for operational risk; • revisions to the measurement of the leverage ratio and a leverage ratio buffer for G-SIBs; and • revisions to the capital floor. We are subject to the final Basel III reform, as implemented in Japan. See “Item 4.B. Business Overview—Regulations in Japan—Regulations Regarding Capital Adequacy and Liquidity—Capital Adequacy Requirement.” If our or SMBC’s capital ratios or leverage ratios fall below required levels, the FSA may require us or SMBC to take a variety of corrective actions, including withdrawal from all international operations or suspension of all or part of our operations, which may indirectly affect our ability to fulfill our contractual obligations or may result in restrictions on our businesses. Failure to maintain capital levels under the capital buffer requirements under Basel III and the requirement for the G-SIB capital surcharge or leverage buffer requirements applicable to G-SIBs will result in restrictions on capital distributions, such as dividends, share buybacks, discretionary payments on Additional Tier 1 capital instruments and bonuses. In addition, some of our and SMBC’s domestic and overseas subsidiaries are also subject to local capital ratio requirements. Failure of those subsidiaries to meet local requirements may result in administrative actions or sanctions imposed by local regulatory authorities. We may incur losses as a result of financial difficulties of counterparties and other financial institutions. We regularly execute transactions with counterparties in the financial services industry. Many of these transactions expose us to credit risk in the event of deterioration of creditworthiness of a counterparty or client. With respect to secured transactions, our credit risk may be exacerbated when the collateral cannot be foreclosed on or is liquidated at prices not sufficient to recover the full amount of the loan or other exposures due to us. Losses from our investments in and loans to other financial institutions could materially and adversely affect our business, financial condition and results of operations. We may also be requested to participate in providing assistance to distressed financial institutions that are not our subsidiaries. In addition, if the funds collected by the Deposit Insurance Corporation of Japan (“DIC”) are insufficient to insure the deposits of failed Japanese banks, the insurance premiums that we pay to the DIC will likely be increased, which could adversely affect our business and results of operations. Adverse regulatory developments or changes in government policies could have a negative impact on our results of operations. Our businesses are subject to extensive regulation and associated regulatory risks, including the effects of changes in the laws, regulations, policies, voluntary codes of practice and interpretations in Japan and the other jurisdictions in which we operate. Those changes and their effects on us are unpredictable and beyond our control. 9 Table of Contents The Banking Act authorizes the FSA to inspect banks and bank holding companies in Japan at any time and with any frequency. The FSA’s inspection processes are revised or amended from time to time. Our compliance with any such changes could result in an increase in our administrative expenses, which could have an adverse effect on our results of operations and financial condition. The FSA and regulatory authorities in the United States and other jurisdictions, along with the United Nations and the Financial Action Task Force, have continued to make the prevention of money laundering and terrorism financing a focus of governmental policy relating to financial institutions. In April 2019, SMBC and its New York branch entered into a written agreement with the Federal Reserve Bank of New York requiring SMBC and its New York branch to address certain deficiencies relating to the New York branch’s anti-money laundering and economic sanctions compliance program. SMBC and its New York branch had been required, among other things, to implement corrective measures and submit periodic progress reports to the Federal Reserve Bank of New York. The written agreement was terminated in September 2025. Currently, under the U.S. Bank Holding Company Act of 1956, as amended (“Bank Holding Company Act”), we are subject to restrictions on our ability to engage in new activities or acquire shares or control of other businesses in the United States. Any adverse regulatory action or change in regulatory focus, whether as a result of inspections or regulatory developments, may negatively affect our banking operations, cause harm to our reputation, and result in expensive remediation, monetary penalties and other regulatory sanctions. Regulatory reforms implemented by the Trump administration could adversely affect our capital ratios and results of operations. For further information, see “Item 4.B. Business Overview—Regulations in Japan, Regulations in the United States, and Regulations in Other Jurisdictions.” Since changes in regulation or fiscal or other policies and their effects are unpredictable and beyond our control, we may not be able to comply with those changes at all times, despite our efforts, or may have to incur increased costs or make changes to our operations in order to do so. Any such failures to comply with those changes could result in administrative or judicial proceedings against us, including suspension of our business and financial penalties, which could materially and adversely affect our business, reputation, results of operations and financial condition. Changes in the competitive and financial environment and financial systems could have a negative effect on the financial services industry and us. Deregulation of the financial system, consolidation among financial institutions, diversification within the financial services industry, and the expanded presence of foreign financial institutions and investors have made the Japanese financial services market highly competitive. Moreover, competition in overseas markets has intensified due to global consolidation, convergence and alliances among financial institutions. In addition, the development of new technologies in the “Fintech” and other sectors, along with the corresponding rise of new entrants from these sectors into the financial services industry, may further intensify competition in the business environments in which we operate. We compete with various types of financial services companies, including: • banking groups, including Japan’s other major banking groups; • government-controlled and government-affiliated entities; • regional banking institutions; • major investment banks; • non-bank financial institutions; and • other firms that are engaged in providing similar products and services. Increased competition in Japan may put downward pressure on prices for our financial services, cause us to lose market share or require us to incur additional expenses in order to remain competitive. Internationally, various forms of financial support provided by foreign governments to foreign banks and other financial 10 Table of Contents institutions may reduce the cost of capital to those institutions and otherwise give them competitive advantages. In addition, with technological advances, new competitors in the financial services industry continue to emerge, and as a result, we may be forced to adapt our business to compete more effectively. There can be no assurance that we will be able to respond effectively to current or future competition. Changes in the financial environment in Japan may also have a negative effect on the Japanese financial services industry. For example, changes in the monetary policy measures of the BOJ may significantly affect the businesses of commercial banks in Japan, including us. For further information on the BOJ’s monetary policy measures, see “Item 5. Operating and Financial Review and Prospects—Overview— Operating Environment.” Adverse economic conditions affecting our customers and deterioration of their financial condition could increase our credit costs. Our non-performing loans (“NPLs”) and credit costs for corporate and individual customers may increase significantly if: • domestic or global economic conditions worsen or do not improve; • our customers do not repay their loans, due to reasons including deterioration of their financial condition; and • the value of collateral declines. We have substantial exposure to corporate customers in the following sectors: real estate and goods rental and leasing, manufacturing, wholesale and retail, transportation, communications and public enterprises, and services, including electric utilities, and to individual customers mainly through housing loans. The financial condition of those customers may be subject to changes in the industry-specific economic conditions, including, for example, fluctuations in the prices of oil, gas and other natural resources, and the increase in tariffs and other protectionist trade policies, as well as general economic conditions. In addition, adverse region-specific economic conditions or changes in economic conditions due to unexpected incidents such as pandemics, ongoing conflicts in Ukraine and the Middle East, such as the situation in Iran and collateral events could worsen our customers’ financial condition or could decrease the value of our collateral provided to us in such regions. As a result, we may be required to record increases in our allowance for loan losses. Moreover, for certain borrowers, we may choose to engage in debt-for-equity swaps or provide partial debt write-offs, additional financing or other forms of assistance as an alternative to exercising our full legal rights as a creditor if we believe that doing so may increase our ultimate recoverable amount of the loan. We may be required to, or choose to, provide new or additional financing to customers who may incur unexpected liabilities, have difficulty in the future in continuing operations, encounter difficulties or need to devote significant resources to repair their infrastructures, as a result of natural disasters or other calamities. In addition, changes in laws or government policies may have an adverse impact on the rights of creditors. For example, the Government of Japan has provided or may provide in the future government guarantees and other government support measures in response to the financial crisis or other unexpected incidents such as widespread pandemics, large-scale natural disasters and any subsequent collateral events. Even if our current or future loans to borrowers have received or will receive any government support measures, it is unclear to what extent those loans will benefit, directly or indirectly, from the current or any future government guarantees or support measures. In addition, our NPLs may increase and there may be additional credit costs if we fail to accurately estimate the expected losses in our loan portfolio. These estimates require difficult, subjective and complex judgments such as credit evaluation of our borrowers, valuation of collateral and forecasts of economic conditions. 11 Table of Contents The ratio of impaired loans and advances to the total loans and advances, both net of allowance for loan losses, were 0.6%, 0.6% and 0.7% at March 31, 2026, 2025 and 2024, respectively. For further information, see “Item 5.A. Operating Results—Financial Condition—Loans and Advances.” A significant downgrade of our credit ratings could have a negative effect on us. At the date of this annual report, the Company has the issuer ratings of A1/P-1 from Moody’s Japan K.K., the issuer credit rating of A- from S&P Global Ratings Japan Inc. and the foreign and local currency issuer default ratings of A-/F1 from Fitch Ratings Japan Limited. There can be no assurance that these ratings will be maintained. A material downgrade of our credit ratings may have various effects including, but not limited to, the following: • we may have to accept less favorable terms in our transactions with counterparties, including capital raising activities, or may be unable to enter into certain transactions; • foreign regulatory bodies may impose restrictions on our overseas operations; • existing agreements or transactions may be cancelled; and • we may be required to provide additional collateral in connection with derivatives transactions. Any of these or other effects of a downgrade of our credit ratings could have a negative impact on the profitability of our treasury and other operations, and could adversely affect our regulatory capital position, liquidity position, financial condition and results of operations. For further information about our credit ratings, refer to “Item 5.B. Liquidity and Capital Resources.” We face significant challenges in achieving the goals of our business strategy, and our business may not be successful. In April 2026, we announced our medium-term management plan through March 2029. We believe that we have targeted appropriate business areas. However, our initiatives to offer new products and services and to increase sales of our existing products and services may not succeed if market conditions do not stabilize, market opportunities develop more slowly than expected, our initiatives have less potential than we envisioned originally or the profitability of these products and services is undermined by competitive pressures. Consequently, we may be unable to achieve or maintain profitability in our targeted business areas. In order to implement our business strategy successfully, we need to hire and train qualified personnel continuously and in a proactive manner, as well as to attract and retain employees with professional experience and specialized product knowledge. However, we face competition from other commercial banks, investment banks, consumer finance companies and other financial services providers in hiring highly competent employees. There can be no assurance that we will succeed in attracting, integrating and retaining appropriately qualified personnel. We are exposed to new risks as we expand our businesses, the range of our products and services, and geographic scope of our businesses overseas. As part of our business strategies, we have expanded and may continue to expand our businesses or our range of products and services beyond our core business, commercial banking. This could expose us to new risks, such as adverse regulatory changes, more competition or deterioration in the operating environments that affect those businesses, products and services. Some of those risks could be types with which we have no or only limited experience. As a result, our risk management systems may prove to be insufficient and may not be effective in all cases or to the degree required. 12 Table of Contents In accordance with our strategy to further increase our presence in the international financial markets, we may continue to expand the scale of our overseas businesses, especially in emerging economies, notably Asian countries and regions. The expansion of our overseas businesses may further increase our exposure to risks of adverse developments in foreign economies and markets, including interest rate and foreign exchange rate risk, regulatory risk, political risk and the risk that foreign assets and capital located in Russia could be seized or nationalized by the Russian government, which has been elevated since the commencement of Russia’s aggression against Ukraine. Our overseas expansion also exposes us to the compliance risks and the credit and market risks specific to the countries and regions in which we operate, including the risk of deteriorating conditions in the credit profile of overseas borrowers. Failure of our business strategies through our subsidiaries, affiliates and other business alliance partners could negatively affect our financial condition and results of operations, including impairment losses on goodwill or investments. Aligned with our business strategies, we have made and may undertake acquisitions of subsidiaries, investments in affiliates and other business alliance partners, and reorganization within SMBC Group companies. It is uncertain whether we will receive the expected benefits from those business strategies, due to any adverse regulatory changes, worsening of economic conditions, increased competition or other factors that may negatively affect the related business activities. Furthermore, unanticipated costs and liabilities may be incurred in connection with those business strategies, including liabilities from the claims related to the businesses prior to our business alliances, and costs from actions by regulatory authorities. When we acquire a subsidiary, we may recognize goodwill and intangible assets. Impairment losses on goodwill or intangible assets in connection with acquisitions must be recognized when the recoverable amount of goodwill or intangible assets of the business is lower than the carrying amount at the time of impairment testing, which is performed annually or whenever there is an indication that the goodwill or intangible assets may be impaired. We account for some of our investments in affiliates under the equity method. Therefore, net losses incurred by equity method investees may cause us to record our share of the net losses. Furthermore, we may lose the capital which we have invested in business alliances or may incur impairment losses on securities acquired in such alliances. We may also be required under contractual or other arrangements to provide financial support, including credit support and equity investments, to business alliance partners in the future. Additionally, we may also incur credit costs from our credit exposure to such partners. We are exposed to the industry specific risks of the consumer finance industry. Changes in the legal environment have severely and adversely affected the business performance of consumer lending and credit card companies. We have exposures to the risks specific to the consumer finance industry through our subsidiaries, including Sumitomo Mitsui Card Company, Limited (“Sumitomo Mitsui Card”), which merged with SMBC Finance Service Co., Ltd. in April 2024, and SMBC Consumer Finance Co., Ltd. (“SMBC Consumer Finance”). Consumer lending and credit card companies had offered unsecured personal loans, which included loans with so-called “gray zone” interest in excess of the maximum rate prescribed by the Interest Rate Restriction Act (ranging from 15% to 20%) up to the 29.2% maximum rate permitted under the Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates (“Contributions Act”). However, amendments to laws regulating moneylenders, which increased the authority of government regulators, prohibited gray zone interest and introduced an upper limit on aggregate credit extensions to an individual by moneylenders at one-third of the borrower’s annual income, were promulgated in 2006 and became fully effective in June 2010. After the promulgation of such amendments, Sumitomo Mitsui Card, SMBC Consumer Finance and other companies engaged in related business reduced their interest rates on loans in preparation for the prohibition of gray zone interest. As a consequence, margins earned by those companies, as well as the amounts of loans extended, decreased. 13 Table of Contents In addition, as a result of court decisions unfavorable to those companies, claims for refunds of amounts paid in excess of the applicable maximum allowed rate by the Interest Rate Restriction Act have continuously occurred. Although Sumitomo Mitsui Card and SMBC Consumer Finance each recorded a provision for claims for refunds of gray zone interest on loans, we may be required to recognize additional losses if such provisions are determined to be insufficient, and the additional losses could have an adverse effect on our results of operations and financial condition. Inability to generate sufficient future taxable profits or adverse changes to tax laws, regulatory requirements or accounting standards could have a negative impact on the recoverability of certain deferred tax assets. We recognize deferred tax assets relating to tax losses carried forward and deductible temporary differences only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the temporary differences can be utilized. The deferred tax assets are quantified on the basis of currently enacted tax rates and accounting standards and are subject to change as a result of future changes to tax laws or the rules for computing taxable profits and allowable losses. Failure to generate sufficient future taxable profits or changes in tax laws or accounting standards may reduce our estimated recoverable amount of net deferred tax assets. Such a reduction could have an adverse effect on our financial condition and results of operations. Declines in returns on our plan assets or revised actuarial assumptions for retirement benefits may adversely affect our financial condition and results of operations. SMBC and some of our other subsidiaries have various defined benefit plans. We have experienced in the past, and may experience in the future, declines in returns on plan assets and changes in the discount rates and other actuarial assumptions. If returns on plan assets decrease, or if we revise the discount rates and other assumptions, the deficit of the impacted defined benefit plan may increase and adversely affect our financial condition and results of operations. Because equity instruments accounted for approximately 40% of our plan assets, the plan assets are greatly affected by volatility in the prices of equity securities. Substantial declines in the prices for publicly traded Japanese stocks would negatively affect our plan assets. For further information, refer to Note 24 “Retirement Benefits” to our consolidated financial statements included elsewhere in this annual report. Our liquidity could be adversely affected by actual or perceived weaknesses in our businesses and by factors we cannot control, such as a general decline in the level of business activity in the financial services sector. We need liquidity to maintain our lending activities, meet deposit withdrawals, pay our operating expenses and pay interest on and principal of debt and dividends on capital stock. Adverse market and economic conditions in the domestic and global economies may limit or adversely affect our access to liquidity required to operate our business. If our counterparties or the markets are reluctant to finance our operations due to factors including actual or perceived weaknesses in our businesses as a result of large losses, changes in our credit ratings, or a general decline in the level of business activity in the financial services sector, we may be unable to meet our payment obligations when they become due or only be able to meet them with funding obtained on unfavorable terms. Circumstances unrelated to our businesses and outside of our control, such as, but not limited to, adverse economic conditions, disruptions in the financial markets or negative developments concerning other financial institutions perceived to be comparable to us, may also limit or adversely affect our ability to replace maturing liabilities in a timely manner. Without sufficient liquidity, we will be forced to curtail our operations, which could adversely affect our business, results of operations and financial condition. 14 Table of Contents Sales of our shares by us may have an adverse effect on the market price of our shares and may dilute existing shareholders. We may issue shares from the unissued portion of our authorized share capital and sell shares held as treasury stock, generally without a shareholder vote. Sales of shares in the future may be at prices below prevailing market prices and may be dilutive. Our business relies on our information technology systems, which are at risk of being damaged or failing as a result of various incidents including cyberattacks, and their failure could harm our relationships with customers or adversely affect our provision of services to customers. In all aspects of our business, we use information technology systems to deliver services to and execute transactions on behalf of our customers as well as for back-office operations. We therefore depend on the capacity and reliability of the electronic and information technology systems supporting our operations. We may encounter service disruptions in the future, owing to failures of these information technology systems. Our information technology systems are at risk of being damaged or failing as a result of quality problems, human errors, natural disasters, power losses, sabotage, acts of terrorism, cyberattacks, malicious use of emerging technologies such as artificial intelligence (“AI”) and similar events. In particular, cybersecurity risks for financial institutions have significantly increased in recent years. This is partly because of the continuous introduction of new technologies and the use of the internet and telecommunications technologies as well as the elaboration of the cyberattacks, which include computer viruses, malicious code such as ransomware, phishing and other forms of social engineering or other security breaches. For example, more recently, advancements in frontier AI models enable rapid identification of complex and previously unknown vulnerabilities, which could be exploited by malicious actors. Geopolitical tensions may also increase the risk of cyberattacks from foreign governments and state-sponsored actors, for example, cyberattacks in retaliation against the sanctions imposed by the international community caused by Russia’s aggression against Ukraine. As we rely on information technology systems in our business and our receipt and handling of confidential personal information from our customers, any impairment, compromise or destruction of such systems may interfere with, or temporarily prevent us from, continuing our operations. In addition, we also face indirect cybersecurity risks relating to our customers and other third parties, including counterparties in the financial services industry and financial data aggregators. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure or cyberattack could have a material impact on counterparties or other market participants, including us. Any third-party technology failure or cyberattack could adversely affect our ability to execute transactions or deliver services to our clients effectively. For example, vulnerabilities in third-party technology systems may increase the risk that our information technology systems are exposed to cyberattacks. Accordingly, we have taken steps to protect information technology systems from these risks, including by establishing data recovery capability and functionality, and to address contingencies that could arise in the event of a major disruption of services. Particularly, we have adopted our “Declaration of Cybersecurity Management” in order to further strengthen our cybersecurity capabilities. In this declaration, our management recognizes cybersecurity as a major management issue and takes a leadership role in implementing measures such as allocating appropriate resources based on discussions at the meetings of the Management Committee and the board of directors, establishing a special department and manual for emergencies and enhancing security measures for our services including internet banking services. However, these measures may not be sufficient, especially considering the increasing frequency and sophistication of recent cyberattacks and changes in the cybersecurity threat landscape posed by advanced AI models. In addition, we may not be prepared to address all contingencies that could arise in the event of a major disruption of services. The failure to address such contingencies could harm our relationships with customers or adversely affect our provision of services to customers. 15 Table of Contents We handle personal information obtained from our individual and corporate customers in relation to our banking, securities, consumer lending, credit card, asset management and other businesses. The systems we have implemented to protect the confidentiality of personal information, including those designed to meet the strict requirements of the Act on the Protection of Personal Information, may not be effective in preventing the disclosure of personal information by unauthorized access from a third party or protecting customers’ data from AI-enhanced threats. Leakage of personal information could expose us to demands for compensation or lawsuits for ensuing economic losses or emotional distress, administrative actions or sanctions, additional expenses associated with making necessary changes to our systems and reputational harm. As a result, our business, financial condition and results of operations could be materially and adversely affected. Fraud, misconduct or other unlawful behavior by directors, officers and employees or third parties could subject us to losses and regulatory sanctions. We are exposed to potential losses resulting from fraud, misconduct and other unlawful behavior by directors, officers and employees. Directors, officers and employees may bind us to transactions that exceed authorized limits or present unacceptable risks, hide from us and from our customers unauthorized activities, improperly use confidential information, abuse customer confidences or otherwise adversely affect market integrity. Third parties may engage in fraudulent activities, including fraudulent use of bank accounts or the use of false identities to open accounts for money laundering, tax evasion or other illegal purposes. Third parties could also use stolen or forged ATM cards, engage in credit card fraud or transfer funds illegally through online banking fraud, and we may be required to indemnify victims of such fraud for related losses. In the broad range of businesses in which we engage, fraud, misconduct and other unlawful behavior are difficult to prevent or detect. In addition, with or without actual fraud, misconduct and other unlawful behavior by directors, officers and employees, investigations, administrative actions or litigation could commence in relation to them. Furthermore, we may not be able to recover the losses caused by these activities, including possible deterioration of our reputation. Transactions involving Iran and other countries and targets that are subject to U.S. or other financial sanctions may lead some potential customers and investors to avoid doing business with us or investing in our securities or may limit our business operations. U.S. law generally prohibits or substantially restricts U.S. persons from doing business with countries, regions and persons that are the subject of sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) or other agencies (“Restricted Targets” which include Iran, North Korea, Cuba and the Crimea, Donetsk People’s Republic, and Luhansk People’s Republic regions of Ukraine). Other applicable financial sanctions are administered by the Ministry of Finance of Japan and authorities in other countries. We maintain an SMBC Group-wide policy designed to ensure compliance with U.S. and other applicable sanctions laws and regulations. Our non-U.S. offices engage in transactions relating to the Restricted Targets in compliance with applicable laws and regulations. These activities include or have included remittance of Japanese yen with respect to our customers’ export or import transactions, maintenance of correspondent banking accounts with Iranian banks, including the Central Bank of Iran, and the payment of fees in Japanese yen to certain Iranian banks in connection with performance bonds issued in the past by SMBC through such Iranian banks related to our customers’ projects in Iran. All such transactions were permissible under applicable laws and regulations at the times they were engaged in. SMBC has discontinued activities that have become impermissible as a result of changes in applicable laws and regulations. See “Item 4.B. Business Overview—Regulations in the United States—Laws Prohibiting Money Laundering and Terrorist Financing—U.S. Sanctions Targeting Iran Related Activities.” The performance bonds expired and have not been renewed, but SMBC continues to be obligated to pay certain fees to the Iranian banks. We maintain a representative office in Iran however, the activities are suspended. 16 Table of Contents We do not believe that our operations relating to the Restricted Targets materially affect our business, financial condition or results of operations. A limited number of potential violations of U.S. economic sanctions by SMBC have been identified and voluntarily disclosed to OFAC. These transactions resulted from the inherent limitation on information about underlying transactions that can be obtained in the course of normal banking operations, inadvertent operational errors, or from the lack of familiarity of some personnel of SMBC with the requirements of the relevant regulations in the past. We have continuously strengthened our SMBC Group-wide OFAC and other financial sanctions compliance program in an effort to prevent the recurrence of such potential violations. We settled some of the voluntarily disclosed potential violations with OFAC and others were closed without a penalty. However, in light of the inadvertent nature of such potential violations and the degree to which our strengthened compliance program aims to mitigate the risk of potential violations, we do not believe that our settlement with OFAC, or any possible penalties that OFAC may impose with respect to the other potential violations that remain unsettled, will have a material impact on our reputation, financial condition or results of operations, or on the prices of our securities. We are aware of initiatives by U.S. states and U.S. institutional investors, such as pension funds, to adopt laws, regulations or policies prohibiting transactions with or investment in, or requiring divestment from, entities engaged in certain business with Iran and other Restricted Targets. It is possible that such laws and initiatives may result in our inability to enter into transactions with those entities that are subject to such prohibitions or to retain or acquire such entities as customers or investors in our securities. Since 2010, the U.S. government implemented a number of sanctions targeting non-U.S. persons for activities undertaken outside the United States (“secondary sanctions”) that involve specific sanctions targets or certain activities including, among other things, certain transactions related to Iran’s energy, petrochemical, shipping and shipbuilding sectors. Certain of these secondary sanctions were temporarily lifted as part of implementation of the Joint Comprehensive Plan of Action (“JCPOA”) in January 2016. However, in 2018, the United States terminated its participation in the JCPOA. All U.S. sanctions (both primary and secondary) that had been waived or lifted under the JCPOA have been re-imposed and are fully effective, and additional sanctions have been put into place in subsequent years. In February 2025, President Trump issued a National Security Presidential Memorandum (NSPM-2) directing U.S. government agencies to impose “maximum pressure” in enforcing Iran-related sanctions and implemented a number of additional sanctions actions through 2025 and the first half of 2026 in furtherance of this policy and in connection with military conflict between the United States and Iran in 2026. In June 2026, the United States and Iran entered into a Memorandum of Understanding (MoU) intended to terminate the military conflict and establish a framework for further negotiations. Under the MoU, the United States has agreed to temporarily refrain from imposing additional sanctions on Iran and to issue sanctions waivers permitting certain Iranian oil and related product sales, together with certain associated services, with further easing of sanctions potentially to follow subject to conclusion of a final agreement and Iranian adherence to its commitments under the MoU and any final agreement. In accordance with applicable laws and regulations, SMBC intends to provide certain services, including settlement services in connection with customers’ trade transactions between Japan and Iran, to the extent that such activities are permissible under U.S. secondary sanctions and any applicable waivers, authorizations or other regulatory guidance then in effect. For further information on relevant laws and regulations, see “Item 4.B. Business Overview—Regulations in the United States—Laws Prohibiting Money Laundering and Terrorist Financing.” In addition, the U.S. government and authorities in several other jurisdictions, including the European Union, the United Kingdom, Japan, Canada, and Australia, have imposed significant sanctions and export control measures targeting Russia in response to Russia’s aggression against Ukraine in February 2022. In broad terms, the U.S. restrictions enacted to date include: territorial embargoes on the Donetsk People’s Republic and Luhansk People’s Republic regions of Ukraine, prohibitions on trade in certain goods and services between the United States and Russia and new investment in Russia by U.S. persons, asset blocking sanctions on a number of Russian individuals and entities, restrictions on transactions involving certain Russian financial institutions and Russia’s Central Bank, National Wealth Fund, and Ministry of Finance, and restrictions on dealing in Russian sovereign debt and debt or equity of certain Russian companies. In December 2023, President Biden issued Executive Order 14114, which authorizes the imposition of sanctions on non-U.S. financial institutions that engage in significant transactions involving persons sanctioned by the U.S. government for operating in the 17 Table of Contents technology, defense and related materiel, construction, aerospace, or manufacturing sectors of the Russian Federation economy or involving Russia’s military-industrial base. In June 2024, the U.S. Treasury Department announced that it was broadening the definition of Russia’s military-industrial base to include all persons blocked pursuant to Executive Order 14024, meaning that non-U.S. financial institutions risk being sanctioned for conducting or facilitating significant transactions, or providing any service, involving such blocked persons. While the Trump administration has signaled some openness to easing Russia-related sanctions in connection with efforts to reach a political resolution to the conflict in Ukraine, it is unclear when or if this will occur, and it is also possible that additional or expanded sanctions may be imposed in the future. The 2022 and 2023 Russia-related sanctions are in addition to sanctions previously enacted by the U.S. government and other authorities in response to Russia’s 2014 annexation of Crimea, including those under the U.S. Ukraine-/Russia-Related Sanctions Regulations, the U.S. Ukraine Freedom Support Act of 2014, as amended, and “sectoral” sanctions on the financial, energy and defense sectors of the Russian economy. The U.S. government has imposed targeted sanctions against individuals in China and Hong Kong pursuant to the Hong Kong Autonomy Act and Executive Order 13936, and has also imposed restrictions pursuant to Executive Order 13959, as amended, on transactions by U.S, persons in securities issued by or linked to certain Chinese companies determined to be associated with the Chinese military-industrial complex. Additionally, pursuant to the Global Magnitsky Human Rights Accountability Act and Executive Order 13818, the U.S. government has sanctioned a number of Chinese entities and individuals in connection with China’s actions with respect to the Xinjiang Uyghur Autonomous Region (“Xinjiang”), and published an advisory warning U.S. and non-U.S. companies with supply chain exposure to Xinjiang of reputational, economic, and legal risks of involvement with entities that engage in human rights abuses, including but not limited to forced labor in the manufacture of goods intended for domestic and international distribution. In December 2021, President Biden signed into law the Uyghur Forced Labor Prevention Act, which establishes a rebuttable presumption, effective June 21, 2022, that goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in Xinjiang may not be imported into the United States. In June 2022, U.S. government agencies published additional guidance concerning this restriction and on due diligence best practices. While the sanctions imposed under these authorities to date have not materially impacted our business, it is possible that future sanctions may have a more significant effect on us. In February 2021, in response to the coup in Burma, President Biden issued Executive Order 14014, authorizing the imposition of targeted sanctions against individuals and entities in Burma. Pursuant to the order, OFAC has added to the SDN List a number of individuals involved in or supporting the coup, family members of such individuals, as well as Burmese state-owned gem, pearl, oil, and lumber enterprises, state holding companies, and certain state-owned banks. If additional sanctions are imposed, it is possible that they could have an adverse impact on the operations of SMBC’s branch in Yangon or on our customers’ business involving entities in Burma. The laws, regulations and sanctions referenced above or similar legislative or regulatory developments in the U.S., Japan or other jurisdictions where applicable, may further limit our business operations. If we were determined to have engaged in activities targeted by certain U.S. statutes, Executive Orders or regulations, we could lose our ability to open or maintain correspondent or payable-through accounts with U.S. financial institutions, among other potential sanctions. In addition, depending on sociopolitical developments, even though we take measures designed to ensure compliance with applicable laws and regulations, our reputation may suffer due to our association with the Restricted Targets. The above circumstances could have a significant adverse effect on our business or the prices of our securities. Our business operations are exposed to risks of natural disasters, terrorism, pandemics and other calamities. Our business operations are subject to the risks of natural disasters, terrorism, pandemics, blackouts, geopolitical incidents and other calamities, any of which could impair our business operations. Despite our preparation of operation manuals and other backup measures and procedures, such calamities could cause us to 18 Table of Contents suspend operations and could adversely affect our businesses, financial condition and results of operations. Large-scale calamities such as the Great East Japan Earthquake of March 2011, the Coronavirus disease 2019 (COVID-19) and any subsequent collateral events, may adversely affect economic conditions in general, the financial condition of our corporate and individual customers and stock market prices, or cause other negative effects, any or all of which could materially and adversely affect our financial condition and results of operations owing to, for example, an increase in the amount of credit-related costs or an increase in losses related to our holdings of securities. We are exposed to risks associated with environmental and social issues. Risks associated with environmental and social issues are subject to increasing societal, regulatory and political focus in Japan and globally, and are affected by divides in policy, regulation and social norm on environment and human rights issues. We define “environmental and social risks” as risks that environmental and social factors become risk drivers and transmit through various pathways to each risk category, ultimately resulting in losses to the SMBC Group, which include climate-related risks, nature-related risks and human rights risks. Climate-related risks include the physical risks of climate change and risks from the transition to a decarbonized society. In order to address these risks, we have begun efforts to strengthen our climate change scenario analysis and consider countermeasures at the management level. These proposed countermeasures are reported to the Management Committee, the board of directors and risk committee and sustainability committee as internal committees of the board of directors. However, these efforts may not be successful, and even if they are undertaken successfully, they may not be sufficient. In such a case, they may lead to an adverse effect on our financial condition and results of operations. Physical risks of climate change arise from a number of factors and relate to specific weather events, such as large-scale typhoons. As a result of climate change, the intensity and frequency of extreme weather events have increased. Despite our preparation of operation manuals and other backup measures and procedures, a large-scale disaster due to extreme weather conditions could damage our branches and cause harm to employees, interfering with our business continuity. Large-scale disasters, as well as longer-term changes in weather, temperature and rainfall patterns, could also adversely affect the financial condition and creditworthiness of our customers or the value of properties pledged as collateral, resulting in an increase in our credit costs. In addition, our operating income and values of assets held may decrease due to instability in financial markets, which could also adversely affect our ability to raise financing. There are also risks from the transition to carbon neutrality and a decarbonized society. For example, due to changes in climate change policies and regulation, technological innovation to address climate change and evolving market conditions, our customers may experience declines in the value of their assets (i.e., asset stranding). In addition, our customers’ financial condition and performance could be adversely affected by increasing costs associated with climate change response measures, which could result in an increase in our credit costs. Following adoption of the Paris Agreement, governments around the world have made pledges and commitments intended to mitigate the effects of climate change. For example, in October 2020, the Government of Japan announced a net zero greenhouse gas (“GHG”) emissions goal for 2050. In line with these global goals, we have set a number of climate-related targets, including our target to achieve net zero GHG emissions in SMBC Group-wide operations by 2030, our goal to increase the amount of sustainable finance to support our clients’ efforts at addressing climate change and transition, and our aspiration to achieve net zero GHG emissions across our overall investment and loan portfolio by 2050. See “Item 4.B. Business Overview— SMBC Group’s Approach and Initiatives Towards Sustainability— SMBC Group’s Approach Towards Sustainability and Our Priority Issues.” Progress toward achieving our climate-related targets and pursuing the SMBC Group-wide climate change-related initiatives requires significant investment of resources and management time, and implementation of new 19 Table of Contents compliance and risk management systems, internal controls and procedures. Our ability to achieve our climate-related goals and other sustainability initiatives, which are to be pursued over the long-term, is subject to numerous risks and uncertainties, many of which are outside of our control, such as changes in environmental and energy regulation and policy (which may differ significantly across jurisdictions in which we operate), the pace of technological change and innovation, and the actions of our clients, customers and competitors. If we are unable to achieve our climate-related targets within our stated timeframes or at all, or if our efforts and disclosure regarding climate and sustainability issues are perceived as insufficient or inconsistent with current sentiment or policy attitudes, we may be subject to reputational harm, negative public sentiment, regulatory scrutiny, litigation and reduced investor and stakeholder confidence, which could adversely affect our business and results of operations, as well as the market price of our shares and/or the environment for our capital raising activities. Nature-related risks are concerned with potential threats arising from our dependence and influence on nature. For example, damage to natural capital such as plants, animals, air, water and soil, and loss of biodiversity may have adverse consequences such as contributing to the intensity of natural disasters and food insecurity, which could lead to disruptions in economic conditions and financial markets or a deterioration in the financial condition of our customers. Human rights risks arise from violations of the human rights of stakeholders, including employees of SMBC Group companies, and our customers and our suppliers. We strive to fulfill our responsibility to respect the human rights of all stakeholders. In line with international human rights frameworks such as the United Nations Guiding Principles on Business and Human Rights, we are committed to addressing human rights issues, including through measures such as conducting human rights due diligence in order to identify, prevent and mitigate the negative impact of our business activities on human rights. However, if our due diligence efforts turn out to be insufficient, or SMBC Group companies, our customers or our suppliers are unable to comply with laws and regulations relating to human rights in the regions in which we or they operate, we could face legal and regulatory penalties and sanctions, and any association with known or potential human rights violators, including third parties, could cause reputational harm to our business. Our risk management policies and procedures may not adequately address unidentified or unanticipated risks. Our business operations are subject to various laws and regulations across the jurisdictions in which we do business. In addition, we face significant regulatory scrutiny and expectations with respect to, among other things, governance, infrastructure, data and risk management practices and controls. We have implemented or enhanced SMBC Group-wide risk management programs and program oversight, including compliance risk management. We have also devoted significant resources to strengthening our risk management framework and the policies and procedures thereunder, and expect to continue doing so in the future. Nevertheless, particularly in light of the continuing evolution of our operations and expansion into new areas, our policies and procedures designed to identify, monitor and manage risks may not be fully effective or sufficient. Furthermore, management of risks requires, especially for compliance risk management, among other things, policies and procedures to properly record and verify large numbers of transactions and events, but deficiencies in the quality or effectiveness of our data gathering, analysis and validation processes could result in ineffective risk management practices and inaccurate reporting. Some of our methods of managing compliance risks are based upon our use of observed historical market behavior and thus may not accurately predict future risks. Ineffectiveness or insufficiency of our risk management may result in violations of laws including the Japanese antitrust and fair trade laws by us or by SMBC and/or failure to comply with regulatory and supervisory expectations with respect to our compliance function. As a consequence of such violations or failures, we could 20 Table of Contents be subject to regulatory investigations, enforcement actions and legal proceedings, any of which could result in substantial penalties, fines or other sanctions and damage to our reputation. Our business could be adversely affected by litigation and regulatory proceedings globally. We conduct business in many locations in and outside of Japan. We face the risk of litigation and regulatory proceedings in connection with our operations. For example, if we engage in activities targeted by certain U.S. sanctions, this could result in the imposition of monetary penalties or other restrictions by the U.S. government against us. Lawsuits and regulatory actions may result in penalties or settlements of very large indeterminate amounts or limit our operations, and costs to defend either could be substantial. Moreover, SMBC and some of its subsidiaries contribute or used to contribute to financial benchmarks such as the Tokyo Interbank Offered Rate (“TIBOR”) for certain specific currencies. These benchmarks are or were referenced in jurisdictions in which we operate and do not operate. An adverse regulatory decision, judgment or ruling in investigation, litigation and regulatory proceedings that we face or may face, including in jurisdictions we do not operate in, could have a material adverse effect on our business, results of operations and financial condition. Damage to our reputation may have an adverse effect on our business and results of operations. Maintaining our reputation is vital to our ability to attract and maintain customers, investors and employees. Our reputation could be damaged through a variety of circumstances, including, among others, fraud or other misconduct or unlawful behavior by directors, officers or employees, systems failures, compliance failures, investigations, adverse litigation judgments or regulatory decisions, or unfavorable outcomes of governmental inspections. Adverse publicity or negative information regarding Japan’s financial services industry or us that may be published or broadcast by the media or posted on social media, non-mainstream news services or other parts of the internet, even if inaccurate or not applicable to us, may have a materially adverse effect on our brand image and undermine depositor confidence, thereby affecting our businesses and results of operations. For example, actual or rumored investigations of us or our directors, officers or employees, or actual or rumored litigation or regulatory proceedings, or media coverage of the same, may have a material adverse effect on our reputation and could negatively affect the prices of our securities. Actions by the financial services industry generally or by certain members in the industry can also adversely affect customers’ confidence on the financial services industry. In addition, investors and other stakeholders have placed emphasis and focus on environmental and social issues, including climate change due to global warming and human rights violations in supply chains. Our reputation may be adversely impacted by negative perceptions of us and our operations in light of these environmental and social concerns, or if we are unable to meet stakeholder expectations in our efforts to address them. Such reputational harm could also lead to a decreased customer base, reduced revenues and higher operating costs. Improper development, use or failure of our models may adversely affect our judgments on management and business operations. We use models in our managerial decisions and business judgments. We define models as quantitative method, system, or approach that applies theories, techniques, and assumptions to process input data into quantitative estimates. The use of models is susceptible to a variety of risks from errors, improper use or design flaws. For example, operational errors in the development or implementation of models, use of models beyond the scope of the assumptions and limitations for the models to work appropriately, or reliance on biased or erroneous outputs generated by AI could lead to errors that can adversely affect managerial decisions and business judgments. We strive to mitigate such risks by implementing proper management of model development and usage. However, an occurrence of deviations between the assumptions built into models and the actual conditions in the economic, financial and business environments, or improper use of models by directors, officers 21 Table of Contents and employees, including failure to understand and validate outputs of AI may increase the output uncertainty of our models and cause us to make erroneous or suboptimal decisions and judgments, which could adversely affect our business and results of operations. Our failure to establish, maintain and apply adequate internal controls over financial reporting could negatively impact investor confidence in the reliability of our financial statements. In order to operate as a global financial institution, it is essential for us to have effective internal controls, corporate compliance functions, and accounting systems to manage our assets and operations. As a New York Stock Exchange (“NYSE”)-listed company and a registrant with the U.S. Securities and Exchange Commission (“SEC”), under section 404 of the U.S. Sarbanes-Oxley Act of 2002 our management is required to assess the effectiveness of our internal control over financial reporting and disclose whether such internal controls are effective. Our independent registered public accounting firm has to conduct an audit to evaluate and then render an opinion on the effectiveness of our internal control over financial reporting. The Financial Instruments and Exchange Act (“FIEA”) also requires companies listed on a Japanese stock exchange, such as us, to file, together with their annual securities reports required by the FIEA, audited internal control reports assessing the effectiveness of their internal controls over financial reporting. We have established internal controls over financial reporting, as well as rules for evaluating those controls, in order to provide reasonable assurance of the reliability of our financial reporting and the preparation of financial statements. However, these controls may not prevent or detect errors. Any evaluation of effectiveness of future periods is subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. To the extent any issues are identified through the foregoing processes, there can be no assurance that we will be able to resolve them in a timely manner or at all. If this occurs, our reputation may be damaged, which could lead to a decline in investor confidence in us. Risks Related to Owning Our Shares It may not be possible for investors to effect service of process within the United States upon us or our directors or senior management, or to enforce against us or those persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the U.S. federal or state securities laws. We are a joint stock corporation incorporated under the laws of Japan. Almost all of our directors and senior management reside outside the United States. Many of our assets and the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for U.S. investors to effect service of process within the United States upon us or these persons or to enforce, against us or these persons, judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal or state securities laws. We believe that there is doubt as to the enforceability in Japan, in original actions or in actions to enforce judgments of U.S. courts, of claims predicated solely upon the U.S. federal or state securities laws mainly because the Civil Execution Act of Japan requires Japanese courts to deny requests for the enforcement of judgments of foreign courts if foreign judgments fail to satisfy the requirements prescribed by the Civil Execution Act, including requirements that: • the jurisdiction of the foreign court be recognized under laws, regulations, treaties or conventions; • proper service of process be made on relevant defendants, or relevant defendants be given appropriate protection if such service is not received; • the judgment and proceedings of the foreign court not be repugnant to public policy as applied in Japan; and • there exist reciprocity as to the recognition by a court of the relevant foreign jurisdiction of a final judgment of a Japanese court. 22 Table of Contents Judgments obtained in U.S. courts, predicated upon the civil liability provisions of the U.S. federal or state securities laws, may not satisfy these requirements. Risks Related to Owning Our ADSs As a holder of our American Depositary Shares (“ADSs”), you have fewer rights than a shareholder of record in our shareholder register because you must act through the depositary to exercise these rights. The rights of our shareholders under Japanese law to take actions such as voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records and exercising appraisal rights are available only to our shareholders of record. Because the depositary, through its custodian, is the record holder of the shares underlying the ADSs, only the depositary can exercise shareholder rights relating to the deposited shares. ADS holders will not be able to directly bring a derivative action, examine our accounting books and records or exercise appraisal rights. Pursuant to the deposit agreement among us, the depositary and the holders and beneficial owners of ADSs, the depositary will endeavor to exercise voting and other rights associated with shares underlying ADSs in accordance with instructions given by ADS holders, and the depositary will also pay to ADS holders dividends and distributions collected from us. However, the depositary is permitted under the deposit agreement to exercise reasonable discretion in carrying out those instructions or in making distributions and is not liable for failure to carry out instructions or make distributions as long as it acts in good faith. Therefore, ADS holders may not be able to exercise voting or other rights associated with the shares underlying ADSs in the manner that they intend or may lose some or all of the value of dividends or distributions collected from us. Moreover, the deposit agreement may be amended or terminated by us and the depositary without any reason, or consent from or notice to ADS holders. As a result, ADS holders may not be able to exercise rights in connection with the deposited shares exercised in the way they wish or at all. ADS holders are dependent on the depositary for certain communications from us. We send to the depositary most of our communications to ADS holders in Japanese. ADS holders may not receive all of our communications in the same manner as or on an equal basis with shareholders of record in our shareholder register.