Business Strategy and Outlook
| Michael Makdad |Sumitomo Mitsui Financial Group, with a 7.0% share of domestic loans and 8.7% of deposits as of March 2021, is one of Japan’s big three banking groups. The environment for banks has been tough in Japan for years and we expect it to remain so. The long-running deflationary environment has led to persistently low demand for loans, with the loan/deposit ratio having declined from 74% in 2000 to around 55% at present. The liabilities/net assets ratio for Japan’s approximately 1 million business corporations declined from a highly leveraged 4 times in the mid-1990s to a reasonably healthy 126% in 2019 as borrowers prioritized paying down existing debt rather than taking out new loans for investment, but we are concerned that credit costs may increase in the early 2020s after many corporations increased their borrowing in 2020 and as the aftermath of the pandemic affects some firms' business models.