KBRA Affirms Ratings for Sumitomo Mitsui Financial Group, Inc.
20 Oct 2023 | New York
KBRA affirms the senior unsecured debt rating of A and the short-term debt rating of K1 for Sumitomo Mitsui Financial Group, Inc. (NYSE: SMFG) (“the group”), an international financial services group. KBRA also affirms the deposit and senior unsecured debt ratings of A+ and the short-term deposit and debt ratings of K1 for Sumitomo Mitsui Banking Corporation (“SMBC”). The Outlook for all long-term ratings is Stable.
|This credit rating is an unsolicited credit rating|
|With Rated Entity or Related Third-Party Participation||No|
|With Access to Internal Documents||No|
|With Access to Management||No|
The ratings are based on SMFG’s diversified business model, with strong market position in Japan, combined with sound financial fundamentals including healthy asset quality, solid capital levels, a comfortable liquidity profile, and historically stronger than domestic peers’ profitability. Revenue is supported by the group’s fee-based businesses. However, profitability remains at modest level, in an international comparison, given the structure of Japan’s banking industry with strong competitive pressures and an ultra-low interest rate environment. SMFG has a solid funding profile, with a large base of stable domestic deposits. However, the group remains somewhat reliant on wholesale funding in foreign currencies to support its overseas operations. SMFG’s diversified business model continues to help the group navigate the challenging global economic conditions. That said, KBRA expects earnings to be under pressure from higher loan impairment charges, the low domestic interest rate environment, and weak economic recovery. SMFG’s asset quality is likely to weaken, though the deterioration should be manageable, due to diversified loan portfolios and the group’s conservative underwriting standards. SMFG has a solid capital position and the highest CET1 ratio among domestic peers. In addition to the group’s fundamental credit strengths, the ratings are also reflective of SMFG’s strong market position in Japan and high likelihood of government support of SMBC in the event of need.
The ratings, used by KBRA’s specialty finance and CMBS teams, were not solicited by SMFG, and SMFG did not participate in the rating process.
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