Mitsubishi UFJ Financial Group Inc (MUFG) 2022 Q4 法說會逐字稿

This is Kamezawa. Thank you for joining the investor briefing session despite your busy schedule today.

Please turn to Page 6 of the IR presentation material. First, on the fiscal year '21 financial results, please follow the middle row on the results for fiscal year '21 from top to bottom. First line, gross profit came to JPY 3,964 billion, up JPY 43 billion year-on-year. The major factors for the increase were increased net interest income, with lending spread improvement and increase in fee revenue in asset management business and others.

G&A expenses, Line 2, was JPY 2,747.2 billion, up JPY 74.6 billion year-on-year. But if we exclude FX impact of yen depreciation of approximately JPY 91 billion, it declined from the previous year. As a result, net operating profit, Line 3, was down JPY 31.6 billion at JPY 1,216.7 billion. but the net operating profit for the customer segment saw a considerable increase year-on-year. I will explain this in more detail later.

Below net operating profit, Line 4, total credit cost came to minus JPY 331.4 billion, but with reversal of allowance for credit losses at MUFG Union Bank, it was an improvement of JPY 184 billion from the previous year. In the fourth quarter, we recorded allowance of JPY 140 billion related to Russia. The sale of equity holdings progressed well ahead of our plan, resulting in increased gain on equity securities and an increase in the equity in earnings of equity method investees from our alliance partner, Morgan Stanley.

We did record impairment loss of fixed assets of JPY 130 billion. But Line 6 profits attributable to owners of parent came to JPY 1,130.8 billion, up JPY 353.8 billion, which was a record profit for MUFG since its establishment.

Please turn to Page 8. Net operating profit results by business group. As shown on the step chart on the right, -- in the customer segment, GCB business saw a profit decline negatively impacted by decline in consumption and the COVID-19 pandemic and lower interest rates. But in the remaining business groups, the growth strategies of the MTBP saw steady progress resulting in increased profits, resulting in a substantial increase of profit of JPY 170.8 billion year-on-year for the customer segment as a whole.

On the other hand, Global Markets business group, mainly due to recording of losses on sales of foreign bonds in the fourth quarter, so profit declined. However, [reinvited] partially with revenue coming from accounts not included in net operating profits.

Please turn to Page 9. Net income results by business group. As shown with a step chart on the right, in addition to higher net operating income and total credit cost reduction, the income was up except for the global markets.

Please proceed to Page 16, balance sheet summary. Top right red bar graph loans increased JPY 3.9 trillion. But excluding the JPY 3.3 trillion, a result of FX fluctuation impact, it was a slight increase. On the other hand, the bar graph in yellow deposits period and balance was domestic individual deposits increasing by JPY 3.4 trillion resulted in a year-on-year increase of JPY 3.9 trillion. But Q2 overseas and others declined excluding the impact of FX fluctuation, so as a whole, it was almost flat year-on-year.

Page 17 shows domestic loans, deposit lending rate at the yellow line graph top right, with increased lending spread for large corporates is showing steady improvement. Next, overseas loans, Page 18, top right, the yellow line graph is a deposit lending spread for both the bank and the trust bank shows steady improvement on back of improved lending spreads.

Page 19 is a non-Japanese yen liquidity. As the top right bar graph shows together with the increased services loan, loan-to-deposit gap expanded slightly. But as you can see on the left-hand side, deposits and mid- to long-term market funding are covering the loans in a stable manner.

Page 20 shows status of investment securities. Please look at the table on the left. Unrealized gains on AFS securities decreased primarily due to higher interest rates in Japan and the U.S. But in total, including domestic equity securities, annualized gains for other investment securities is maintained at above JPY 2 trillion.

Please turn to Page 22 for credit costs. On the left, total credit cost declined JPY 184 billion year-on-year to JPY 331.4 billion, with decline in allowance for doubtful accounts of MUFG Union Bank as a result of improved economic indicators in the U.S. and reversal gain of allowance for doubtful accounts with the decision to sell equities of MUFG Union Bank. On the other hand, in the fourth quarter, allow us for credit to specific foreign borrowers of JPY 35.2 billion and allowance for specific portfolio to prepare for a wider impact of JPY 99.6 billion. In total, JPY 140 billion is recorded as allowance related to Russia.

Page 23 shows the capital situation. Bottom left, the CET1 ratio, finalized Basel III reforms basis, excluding impact of net unrealized gains and losses was 10.4% at the end of March, continuing to secure an adequate level.

Page 24 shows the fiscal year '22 target. We aim to increase net operating profits in order to steadily improve performance toward fiscal year '23, the final year of the medium-term business plan. We expect credit cost to be almost the same level as in fiscal year '21.

Taking into account, factors such as decreasing gains of equity securities and the recording of valuation losses on bonds related to sale of MUFG Union Bank, we have set a target of JPY 1 trillion as profits attributable to owners of parent.

In the current fiscal year, we will continue to face an uncertain and challenging environment with remaining cautions against the COVID-19 pandemic, heightened international and geopolitical risks and fluctuations in interest rates and exchange rates, but we will continue to meet the challenges for MTBP that is to become a company which constantly earns JPY 1 trillion of profit attributable to owners of parent.

Starting from Page 26 is the progress of the MTBP. First, progress against the financial targets. The fiscal year '21 ROE and CET1 ratio were 7.79% and 10.4%, respectively. The progress of the 3 drivers to achieve ROE target in fiscal year '23, namely profits, expenses and RWA is shown in the bottom half of the slide. Profit, bottom left, as explained earlier, net operating profit was down from the previous year. But if we exclude the ins and outs of the accounting items below net operating profit, including net gains and losses on equity securities, which is managed in an integrated manner by global markets and technical factors, for example, CVA, profits did increase.

In the customer segment, centered around the growth strategy areas like Wealth Management and Global AMIS was up significantly by JPY 170.8 billion year-on-year, with record high profits attributable to owners of parent. Expenses and RWA were well controlled against the plan. I will explain in more detail later in the presentation.

Page 27 is a road map for achieving the MTBP. To achieve our net operating profit target for the final year of the MTBP, we will aim for steady growth throughout fiscal year '22 centered on the Customer segment. As for profit attributable to owners of parent, as mentioned earlier, we will aim to become a company which constantly earns JPY 1 trillion.

Page 28 is a review of the first year of the MTBP by key strategies. In the following pages, I would like to update you on the progress of the key strategies under the 3 pillars of MTBP, namely corporate transformation, strategy for growth and structural reforms, all of which are showing steady progress.

First, digital transformation, one of the pillars of corporate transformation on Page 29 where I will explain achieving efficiency and cost reductions through digital shift initiatives. As shown on top right, digital shift is progressing steadily. Number of Internet banking service users has surpassed JPY 80 million. And as for new accounts, number of account openings via applications have surpassed data branches for the first time, reflecting the improvement in the functions of the applications. The transactions at branches are shown bottom left, we are putting our efforts into expanding lineup of applications and self-service devices to improve customer convenience. While making it as the improved convenience, both online and at branches, as shown in the top left graph, we are continuing with elimination and consolidation of the branches.

In the current MTBP, the plan is to reduce the number of branches from 425 to about 320, but we will move forward the plan to fiscal year '22 to complete 90% of the consolidation and reach 330 branches by the end of fiscal year '22. Bottom right is a case of digitalization of balanced certificates to be issued to auditors. Just 1 example of automation of various administrative procedures to steadily reduce the workload.

Page 30 shows some of the initiatives undertaken to become a financial and digital platform operator. First on Banking-as-a-Service, top left, as a lifestyle of individual customers diversify, it is essential to understand their financial needs from the upstream of their lives and to collaborate with external businesses that have extensive customer contact.

In order to provide products and services that are optimized for each individual customer. Through such collaborations, we aim to expand customer touch points, combining data to offer bank service modules. Bottom left is Busikul, a service for domestic corporate customers. In November last year, we made Busikul, a business [tech] company that offer platforms to support solving problems of [no] financial field, such as digital transformation and ESG, our subsidiary.

In April, we released this platform at all branches and will offer various nonfinancial solutions that will solve managerial issues our customers are facing, including digital transformation and decarbonization. Progmat, top right is a platform service that issue and manages the security tokens using blockchain technology. And since the first [opening] in July last year, we are expanding the targets of issuance to accumulate a track record.

Page 31 shows initiatives of open innovation. Top left, [MUIP] #1 fund. In light of the current market environment, the valuation of start-ups has exceeded the amount of capital contribution and collaboration with investees is showing progress. This achievement has led to the launch of [Fund II] worth JPY 20 billion, which in addition to us and the investees, we are involving our customers to explore new investment fields such as open innovation and ESG. Bottom left is a new initiative. India is developing very fast economically and digitally with rapid increases in startups utilizing digital technology and knowledge. We have established MUFG Ganesha fund, a $300 million investment facility targeting such Indian startups. In the future, we plan to aim to leverage our group's strengths to provide a wide range of financial services to our portfolio startups. Top right is mass gross capital financing to start-ups using AI, we are steadily accumulating financing start-ups increasing the size of the Fund 1 million to $200 million in September.

And in January this year to further expand the project, we established a $300 million Fund II targeting late-stage start-ups. Bottom right shows our collaboration with Grab. In Thailand, KS is building up small loans to drivers and crude margins and is planning to start operating loans to general users starting this June.

Page 32 shows transformation of corporate culture as part of the corporate transformation. We have been working on culture reform with the goal of having everyone say, MUFG has changed. For challenge and speed to take root as a pattern of behavior in MUFG, we have promoted various measures, and we are seeing examples of change emerging.

Please turn to Page 33. As the gray bar graph, bottom half of the slide show, last fiscal year, 2,300 employees tripled the number from the previous year applied for in-house recruitment system, the job challenge, reflecting the expansion of the challenging culture within the group. We will further enhance the programs to encourage employees to take on challenges so that this positive change will become a larger tide.

As shown on the right, program aimed at creating new businesses (inaudible) and MUFG main building project are just 2 of the opportunities to be offered to employees to link their motivation from transformation and challenge our actual practice.

On the other hand, there are few challenges in the speed of implementation, only 59% feels that it is managed in a speedy manner. So we will be more mindful of speed-oriented operations going forward. Page 34 shows progress of the strategy for growth and structural reform. As shown in the graph on the left, we are targeting to raise net operating profit by JPY 150 billion with strategy for growth and JPY 100 billion with structural reform during the 3 years of the MTBP.

In the first year, we saw steady progress with increases of JPY 75 billion and JPY 55 billion, respectively. On the right shows the progress of the 5 strategies for growth. Details can be found in the following pages. So I will make explanations here. First, wealth management by leveraging the group's comprehensive capabilities cross transactions, for example, and trusted testamentary trust and real estate and asset management achieved steady growth. By expanding the wealth management digital platform to all of the domestic branches to enhance the linkage of the bank, Trust bank and securities to allow for building of a system to offer comprehensive propositions as a group in an expedited and deep manner.

We will continue to work to have the quality of our propositions to our customers. Next is the second strategy for growth, approach of proposing solutions to customers' issues. In addition to enhancing our ability to provide solutions in real estate business and others, we started business investments with Japanese large corporates to resolve cultural issues. And centered on the Sustainable Business division established July last year, we will work to strengthen engagement with customers to realize a decarbonized society.

The third strategy for growth is the Asia business, GDP growth rate in Thailand and Indonesia deviated downward from initial assumptions due to the spread of COVID-19 in fiscal year '21 with both countries suffering. We focused on measures to support growth of Bank Danamon, including strengthening of MUFG collaboration and consumer finance to prepare well for the economic recovery expected from this fiscal year onward. The fourth strategy for growth is GCIB and Global Markets. With increased market share of institutional investor business and investment-grade and noninvestment-grade company business, revenue increased significantly, together with the improvement in the ROE.

The fifth strategy for growth is global AMIS. In global AM [was] received of performance fees and others allowed us to hit a new profit record. In global IS with synergistic effect of providing in combination, high value-added services, the balance of AUA grew.

Please turn to Page 40. Cost and RWA control under the third strategy for growth, structural reform. First, on expenses. While resources were invested in the growth areas, such as AUM business, but with reduction of base expenses, if FX impact is excluded, total expenses declined.

Page 41 shows RWA risk asset was almost flat from the previous year and well controlled with the increased lending spread, risk return is improving.

Please turn to Page 42. Here, I will talk about the architecture strategy as part of the transformation of platforms and our business infrastructure. In order to enhance adaptability to the changing business environment, reduce costs and for safe and secure business continuity, we started considering architecture strategies through a review of the legacy system. We have completed organizing policies for system development. By the end of last fiscal year and this fiscal year, we will start formulation of concrete services and requirements for development.

Through this project, we will aim to reduce system-related costs as well as workload and operational costs through product and service review in order to strengthen our ability to adapt to the changing financial operations. We are planning 10 years of our development and JPY 140 billion of total investment, but by going up levels in steps, we will reduce transfer risks and to adapt to changes in the business environment in a flexible manner.

Page 43 shows the progress on the sale of MUFG Union Bank. On the left is the schedule of the sale. Currently, the approval process by the relevant authorities are ongoing. So the decision was made to change the closing date to the second half of 2022. As shown top right, all other proceedings are advancing smoothly, and we will make an enhancement as soon as the approval process is completed and closing is decided.

Please turn to Page 44. To further strengthen our earning power, in addition to implementing the strategies for growth in the MTBP, we need to capture environmental changes as business opportunities and take on new risk-taking and business fields. We believe that the key to our future business operations will be the extent to which we can enhance our earning power through risk taking in both existing and new businesses based on appropriate risk control. In addition, we will continue to consider investment in the strategies for growth like digital, Asia and global AMIS and partnering with external companies to strengthen business portfolios.

Please turn to Page 47. From here is our capital policy. We have announced that we will align our growth to capital margin policy with CET1 ratio target between 9.5% to 10%. We will consider capital allocation in ways of investments into growth and additional shareholders' returns, taking into account the current capital situation and future prospects in alignment of this target range.

Turn to Page 49, and you will see capital utilization to enhance profitability. We are considering the use of capital while maintaining discipline in our efforts to achieve sustainable growth. We are not planning any major investments at this time, but we will continue to consider investments in growth areas such as Asia in order to achieve sustainable growth. If there are no projects that need our investment criteria, we would like to use the funds for shareholders' returns from the perspective of ROE improvement while maintaining a certain level of capital surplus.

Page 50 is the basic policies for shareholder returns. We'll continue to consider share buybacks taking into account the capital situation and outlook as well as the status of investment growth while maintaining a policy of increasing shareholder returns based on dividends.

Page 51 shows the dividend forecast announced this time. The dividend forecast for fiscal year '22 is JPY 32 per share, an increase of JPY 4 from fiscal year '21 in order to achieve a dividend payout ratio 40% during the period of the MTBP aiming for progressive dividend payment. With regard to share repurchase, we have resolved to repurchase JPY 300 billion of our own stock taking into account that the CET1 ratio has remained above the upper limit of the target range.

Page 52 shows reduction of equity holdings. As shown on the right side, in fiscal year '21, on an acquisition cost basis, JPY 169 billion reduction was achieved. In addition, we have accumulated JPY 244 billion in agreed amount of unsold stocks to be sold by the end of March 2024. Based on this recent progress, we have decided to upwardly revise a selling amount target from JPY 300 billion to JPY 500 billion during the MTBP period.

Please turn to Page 54. I will now explain our sustainability initiatives. First, I would like to explain the progress of our efforts towards carbon neutrality, which we announced in our progress report in April. Please look at the net 0 GHG emission from finance portfolio in the milestone diagram of the slide. To move towards net 0 GHG emissions, we first set interim targets for the power and oil and gas sectors for 2030 and under decarbonization through financial services, we set a new target for corporate finance balance for coal-fired power generation. Supporting our customers' decarbonization efforts is critical to achieving our goals and becoming carbon neutral.

To understand the unique challenges and needs of each customer, we have engaged with approximately 550 Japanese and non-Japanese customers. We are simultaneously expanding our services to meet the needs we have identified through these activities.

Please turn to Page 55. I'd like to explain specific efforts to achieving carbon neutrality. We are making steady progress towards our goal of JPY 35 trillion in sustainable finance by fiscal year '30, of which JPY 14.5 trillion has been achieved. We are also actively engaging room making commercialization and market creation through participation in global initiatives and collaboration with operating companies to capture future business opportunities.

Please turn to Page 56. New solutions to be provided beyond finance. We have begun collaborating with various companies in areas where customers are facing challenges and need immediate action to decarbonize. We will continue to support our customers' decarbonization efforts by bringing together a wide range of businesses and expertise.

From Page 58, I will explain our investment in human capital. Human capital is one of MUFG's most important assets. And through investment in human capital, we are creating an environment in which our employees can make further progress and grow. As shown in the lower part of the slide, we're implementing various initiatives to enable our employees to work with vitality and enhanced with our ability to provide value to our stakeholders.

Since I have already explained the improvement of engagement in corporate culture in the section on corporate reform, I will now explain the other initiatives.

Please turn to Page 59. Nurturing professionals and reskilling. In order to secure human resources who can respond to the business environment, which is changing at an unprecedented speed. We are enhancing opportunities to challenge and learn and investing in our employees in anticipation of changes in the business environment.

Please turn to Page 60, inclusion and diversity. We believe that productivity is further enhanced in an open organization where a diverse range of employees can freely and openly express their opinions. We have made steady progress in promoting female employees, and we have recently raised the target for the ratio of women in management in Japan to further accelerate the promotion of female employees. We will further promote inclusion and diversity to make MUFG a company where all employees can shine bright and make further contributions to customers and society.

This is the end of my presentation, but I would like to conclude by saying that we, at MUFG, is committed to a purpose of impairing a brighter future. We, at MUFG, are united in our commitment to continue to vigorously pursue challenge and transformation in order to become the power that move society, our customers, employees and all our stakeholders, including shareholders and investors forward in the midst of change.

We would like to ask all of our investors and rating agencies for their continued understanding and support. Thank you very much for your attention.