Sumitomo Mitsui Financial Group,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥485.79B
• Operating Income: ¥246.61B
• Net Income: ¥240.05B
• EPS: ¥242.03

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Strong bottom-line delivery despite modest top-line contraction, with ordinary and net income sharply higher but with limited visibility on cash flow quality. Revenue declined 1.3% YoY to 4,857.9, while operating income fell 58.5% YoY to 2,466.1, indicating volatility in non-operating drivers typical for a financial group. Ordinary income rose 24.0% YoY to 12,781.2, signaling robust gains in non-operating/financial activities and balance-sheet related earnings. Net income surged 28.7% YoY to 9,335.1, pushing EPS to 242.03 yen. Effective tax rate stood at 26.5% (tax 3,374.1 on PBT 12,754.7), consistent with a normalized tax burden. DuPont-based ROE is 6.1%, driven by very high financial leverage (19.99x), ultra-low asset turnover (0.002x), and an inflated net margin (192.2%) due to banking revenue definitions. NIM is 1.1%, below the healthy benchmark (>2%), implying profit growth was not rate-spread led or was offset by funding/securities effects. Cost efficiency remains a bright spot with a cost-to-income ratio of 23.6%, well below the 50% benchmark, indicating strong expense control. Balance sheet remains sizeable with total assets of 30,590,591 and equity of 1,530,426, yielding a high D/E of 18.99x, which is structurally normal for banks but still a leverage risk in stress scenarios. Loan-to-deposit ratio is a conservative 66.5% (loans 11,312,652 vs deposits 17,002,633), indicating ample deposit funding and liquidity buffer. Operating cash flow and free cash flow are unreported, preventing a direct assessment of earnings-to-cash conversion. Dividend-related data are limited; a calculated payout ratio of 100.0% is flagged but DPS is unreported, so sustainability cannot be verified. Margin comparison in basis points versus prior year is not derivable due to absent historical margin disclosures; however, the combination of low NIM and very low CIR suggests operating leverage from costs rather than spreads. Forward-looking, earnings resilience hinges on rate normalization effects on NIM, credit cost trends, and securities valuation swings; with a strong deposit base and low CIR, the group retains capacity to support earnings, but low NIM and high leverage remain key constraints.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 192.2% × 0.002 × 19.99 ≈ 6.1%. Component insights: (1) Net Profit Margin at 192.2% is mechanically inflated because banking "revenue" captures only a subset of total income drivers; use caution in interpretation. (2) Asset turnover at 0.002x reflects a large balance sheet relative to reported revenue, typical for megabanks. (3) Financial leverage at 19.99x is the dominant driver of ROE, consistent with the sector model. Change attribution: We lack prior-period component data, so we cannot quantify which factor changed most; however, the YoY surge in ordinary and net income alongside revenue decline suggests non-operating income, interest-related items, and valuation gains/losses were the primary movers. Business drivers: NIM is low at 1.1%, implying that spread expansion did not drive results; cost control (CIR 23.6%) and possibly trading/market-related or fee income likely supported ordinary income. Sustainability: Cost discipline is more sustainable; market-related gains and valuation effects tend to be volatile. Watch for SG&A vs revenue growth, but SG&A breakdown is unreported; the very low CIR suggests operating leverage remains favorable. Flag: ROE at 6.1% is below typical megabank target ranges, and structurally low NIM is a headwind; reliance on non-operating drivers elevates volatility risk.

Growth Assessment

Top-line contracted 1.3% YoY, indicating pressure on core income lines or accounting presentation effects, while ordinary income rose 24.0% and net income 28.7% YoY, evidencing strong profit growth. The disconnect between revenue and profits suggests significant contributions from non-operating/financial items and cost discipline. NIM at 1.1% is below benchmark, so sustainable growth likely depends on gradual rate normalization, loan growth, fee income expansion, and credit cost containment rather than spread widening alone. LDR of 66.5% implies capacity to support loan growth without stressing liquidity. With CIR at 23.6%, incremental revenue could translate efficiently into earnings if maintained. However, absent disclosures on credit costs, fee income, and trading/investment gains, the persistence of the current profit level is uncertain. Overall, growth quality appears mixed: strong earnings, but with limited visibility on recurring core drivers and cash conversion.

Financial Health

Leverage: D/E at 18.99x is very high versus industrial norms but structurally consistent for banks; nonetheless, high leverage raises sensitivity to credit and market shocks. Liquidity: LDR at 66.5% indicates a strong deposit funding base and low reliance on wholesale funding; current and quick ratios are not meaningful for banks and are unreported. Maturity mismatch: With deposits of 17,002,633 and loans of 11,312,652, balance-sheet liquidity appears ample, but detailed maturity ladders and liquid asset buffers are not disclosed here. Capital adequacy: Regulatory capital metrics (e.g., CET1, TLAC) are not provided; thus solvency cushions cannot be assessed. Off-balance sheet: No disclosure of off-balance sheet obligations in the provided data; contingent exposures typical for banks (derivatives, guarantees) may exist but are unreported. Warning: D/E > 2.0 flagged (18.99x).

Cash Flow Quality

OCF/Net Income is not calculable due to unreported cash flow data, so earnings-to-cash conversion cannot be assessed. Free cash flow is unreported, preventing evaluation of coverage for dividends and investments. Working capital dynamics for banks are balance-sheet driven (deposits/loans/securities) rather than inventory/receivables; without cash flow and securities realization data, we cannot test for working capital manipulation. Given ordinary and net income strength with low NIM, we infer market/valuation items could be involved, which can impair cash conversion in some periods, but this remains unverified.

Dividend Sustainability

Dividend per share and total dividends paid are unreported; a calculated payout ratio of 100.0% is shown but cannot be validated without DPS/OCF. With FCF unreported and regulatory capital ratios absent, we cannot confirm sustainability. In general, sustaining a 100% payout would be challenging for a bank given capital requirements and earnings volatility; therefore, unless clarified by company guidance, we treat the indicated 100% as high risk. Coverage from cash flow and retained earnings cannot be quantified with the provided data.

Risk Assessment

Business Risks:

• Low NIM at 1.1% constrains core spread earnings.
• Revenue decline (-1.3% YoY) against higher profits suggests reliance on non-operating and market-related items.
• Potential volatility in securities/investment valuations impacting ordinary income.
• Fee income and credit cost breakdowns unreported, limiting visibility on recurring earnings.

Financial Risks:

• High leverage (D/E 18.99x) increases sensitivity to credit and market shocks.
• Interest rate risk on securities portfolios and deposits amid policy normalization.
• Liquidity and funding structure concentration not disclosed beyond LDR; wholesale funding exposure unknown.
• Capital adequacy metrics (CET1/TLAC) unreported, obscuring loss-absorbing capacity.

Key Concerns:

• Earnings quality cannot be validated due to missing OCF and cash flow statement.
• Dividend sustainability unclear; calculated payout ratio at 100.0% without DPS/FCF support.
• Credit cost trajectory and NPL ratios unreported, a critical driver for banks.
• Sensitivity to market moves (rates/FX) potentially elevated given large balance sheet.

Investment Implications

Key Takeaways:

• Strong YoY growth in ordinary (+24.0%) and net income (+28.7%) despite slight revenue decline.
• ROE at 6.1% remains modest, driven primarily by leverage rather than core spread profitability.
• NIM at 1.1% is below benchmark, highlighting a structural profitability headwind.
• Operational efficiency is a bright spot with CIR at 23.6%, supporting incremental margin capture.
• Balance sheet funding is conservative with LDR at 66.5%, providing growth capacity and liquidity buffer.

Metrics to Watch:

• Net Interest Margin (trajectory post policy shifts).
• Credit costs/NPL ratios and coverage (not disclosed here).
• CET1 ratio and capital distribution policy (dividends/buybacks).
• Fee income and trading/investment gains breakdown to assess earnings quality.
• Cost-to-Income Ratio sustainability and any reinvestment needs.
• OCI and AFS securities valuation impacts under rate volatility.

Relative Positioning: Within Japanese megabanks, the group exhibits strong cost efficiency and ample deposit funding capacity (low LDR), but profitability is constrained by a low NIM and ROE that remains below higher target ranges; absent capital ratio disclosures, relative capital strength cannot be judged from this dataset.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis