SEC Form 6-K filed by Mitsubishi UFJ Financial Group Inc.

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 under

the Securities Exchange Act of 1934

For the month of November 2024

Commission File No. 000-54189

 

 

MITSUBISHI UFJ FINANCIAL GROUP, INC.

(Translation of registrant’s name into English)

 

 

4-5, Marunouchi 1-chome, Chiyoda-ku

Tokyo 100-8330, Japan

(Address of principal executive office)

 

 

Indicate by check mark whether the registrant files or

will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  X  Form 40-F     

 

 

 

THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE REGISTRATION STATEMENT ON FORM F-3 (NO. 333-273681) OF MITSUBISHI UFJ FINANCIAL GROUP, INC. AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED TO THE U.S. SECURITIES AND EXCHANGE COMMISSION TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED WITH OR FURNISHED TO THE U.S. SECURITIES AND EXCHANGE COMMISSION.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 29, 2024

 

English Translation of Excerpts from Semiannual Securities Report Filed in Japan

This document is an English translation of selected information included in the semiannual securities report for the six months ended September 30, 2024 filed by Mitsubishi UFJ Financial Group, Inc. (“MUFG” or “we”) with the Kanto Local Financial Bureau, the Ministry of Finance of Japan, on November 29, 2024 (the “Semiannual Securities Report”). An English translation of certain information included in the Semiannual Securities Report was previously submitted in a report on Form 6-K dated November 14, 2024. Accordingly, this document should be read together with the previously submitted report.

The Semiannual Securities Report has been prepared and filed in Japan in accordance with applicable Japanese disclosure requirements as well as generally accepted accounting principles in Japan (“J-GAAP”). There are significant differences between J-GAAP and generally accepted accounting principles in the United States. In addition, the Semiannual Securities Report is being filed in the context of other prior disclosures filed by MUFG in Japan and discusses selected recent developments taking into account those prior disclosures. Accordingly, you may need to review the following disclosure, together with other prior disclosures, to obtain all of the information that is important to you. For a more complete discussion of the background to information provided below, please see our annual report on Form 20-F for the fiscal year ended March 31, 2024 and other reports filed with or submitted to the U.S. Securities and Exchange Commission by MUFG.

The following disclosure contains forward-looking statements, which, unless specifically stated otherwise, reflect our understanding as of the date of filing of the Semiannual Securities Report. Actual results may significantly differ from those expressed or implied by such forward-looking statements. In addition, although the Risk Committee identified the top risks below, there may be other material risks that emerge as we operate our businesses.

Risks Relating to Our Business

We describe below some major developments and changes to update our risk factor disclosure previously included in our annual securities report for the fiscal year ended March 31, 2024, filed in Japan on June 25, 2024. The updates below are not a complete update of the prior disclosure, but instead intended to explain only the significant developments and changes that we believe may have a material impact on the risks to our business and other risks. The discussion below contains forward-looking statements, which, unless specifically described otherwise, reflect our understanding as of the date of filing of the Semiannual Securities Report.

The numbering of the subheading of the risk disclosure below corresponds to the numbering of the subheading of the same risk disclosure in our most recent annual securities report filed in Japan.

We determine the significance of various risk scenarios based on their assessed impact and probability and identify potential risk events that are deemed to require close monitoring and attention for the next one-year period as top risks. The main top risks identified by our Risk Committee in October 2024 are as follows. By identifying these top risks, we seek to implement necessary risk management measures designed to minimize such risks to the extent possible and manage them in such a manner that they can be agilely dealt with in the event that they materialize. In addition, through management’s participation in discussions on such top risks, we strive to take effective measures based on a shared assessment of risks.

Main Top Risks

 

Risk events		Risk scenarios
Decline in capital sufficiency / Increase in risk assets		•   Our capital management may be adversely affected by an increase in unrealized losses on debt securities due to a rise in interest rates globally.
Foreign currency liquidity risk		•   Deterioration in market conditions may result in a depletion of foreign currency funding liquidity and an increase in our foreign currency funding costs.
Increase in credit costs		•   Sudden deterioration in global economic activities may result in an increase in our credit costs. •   Deterioration in the credit quality of particular industries or counterparties, to which we have relatively larger exposures, may result in an increase in our credit costs.
IT risk		•   Cyber-attacks may result in customer information leakage, suspension of our services, and reputational damage. •   System problems may result in our payment of financial compensation and damage to our reputation.
Risks relating to climate changes		•   If our efforts to address climate change-related risks or to make appropriate disclosure are deemed insufficient, our corporate value may be impaired. •   Our credit portfolio may be adversely affected by the negative impact of climate change on our borrowers and transaction counterparties.

 

1

Credit Risk (Risk of Loss Resulting from Deterioration in Financial Condition of Borrowers or Transaction Counterparties)

 

10.	Transactions with other financial institutions

Declining asset quality and other financial problems may exist at some domestic and foreign financial institutions, including banks, non-bank lending and credit institutions, securities companies and insurance companies, and these problems may worsen or these problems may arise again as new issues. If financial difficulties of financial institutions continue, worsen or arise, they may not only lead to liquidity and insolvency problems for such financial institutions but also result in systemic problems adversely affecting the financial market and the wider economy, and may adversely affect us for the following reasons:

 

•

we have credit extended to some financial institutions;

 

•

we are shareholders of some financial institutions;

 

•

financial institutions that face problems may terminate or reduce financial support to borrowers and, as a result, these borrowers may become distressed or our problem loans to these borrowers may increase;

 

•

we may be requested to participate in providing support to distressed financial institutions;

 

•

if the government elects to provide regulatory, tax, funding or other benefits to financial institutions that the government controls to strengthen their capital, increase their profitability or for other purposes, they may adversely affect our competitiveness against them;

 

•

our deposit insurance premiums may rise if deposit insurance funds prove to be inadequate;

 

•

bankruptcies or government control of financial institutions may generally undermine the confidence of depositors and investors in, or adversely affect the overall environment for, financial institutions; and

 

•

negative media coverage of the financial industry or system, regardless of its accuracy and applicability to us, may harm our reputation and market confidence.

Operational Risk (Risk of Loss Resulting from Inappropriate Management of Operations or External Factors)

 

14.	Risks of being deemed to have engaged in inappropriate or illegal practices or other conduct and, as a result, becoming subject to regulatory actions

We conduct our business subject to laws, regulations, rules, policies and voluntary codes of practice in Japan and other markets where we operate. We are subject to various regulatory inquiries or investigations from time to time in connection with various aspects of our business and operations. Our compliance risk management systems and programs, which are continually enhanced, may not be fully effective in preventing all violations of laws, regulations and rules.

If we are deemed not compliant with applicable laws, regulations or rules, including those relating to money laundering, economic sanctions, bribery, corruption, financial crimes, or other inappropriate or illegal transactions, if our conduct is deemed to constitute unfair or inappropriate business practices, or if we are deemed to have failed to meet market or industry rules or standards, customer protection requirements, or corporate behavior expectations, we may become subject to penalties, fines, public reprimands, reputational damage, issuance of business improvement, suspension or other administrative orders, or withdrawal of authorization to operate. These consequences may result in loss of customer or market confidence in us or otherwise may adversely affect our financial condition and results of operations. Our ability to obtain regulatory approvals for future strategic initiatives may also be adversely affected.

We have received requests and subpoenas for information from government agencies in some jurisdictions in connection with their investigations into past submissions made by panel members, including us, to the bodies that set various interbank benchmark rates as well as investigations into foreign exchange related practices of global financial institutions. Some of the investigations into foreign exchange related practices resulted in our payment of monetary penalties to the relevant government agencies. We are cooperating with those investigations and have been conducting an internal investigation. In connection with these matters, we and other financial institutions are involved as defendants in a number of civil lawsuits.

 

2

These developments or other similar events, including potential additional regulatory actions against us, agreements to make significant additional settlement payments, may result in significant adverse financial and other consequences to us.

Additionally, on June 14, 2024, the Securities and Exchange Surveillance Commission of Japan (“SESC”) issued and announced a recommendation that the Prime Minister and the Commissioner of the Financial Services Agency (“FSA”) take administrative action against our subsidiaries MUFG Bank and Mitsubishi UFJ Morgan Stanley Securities and our securities affiliate. The recommendation was based on the SESC’s findings of, among other things, inappropriate sharing of customer information as well as improper solicitation of business in contravention of the prohibition on engagement by Registered Financial Institutions in securities-related business activities. The SESC’s findings concerned, among other things, the business collaboration among the bank and securities companies and the management of non-public corporate information by the bank and securities companies.

In response to the SESC’s recommendation, on June 24, 2024, the FSA issued business improvement orders to MUFG Bank, Mitsubishi UFJ Morgan Stanley Securities and our securities affiliate under Articles 51-2 and 51 of the Financial Instruments and Exchange Act of Japan. Additionally, the FSA has required MUFG and MUFG Bank to submit reports under Articles 52-31 and 24 of the Banking Act of Japan. In response, on July 19, 2024, MUFG, MUFG Bank, Mitsubishi UFJ Morgan Stanley Securities and our securities affiliate submitted documents including business improvement plans to the FSA.

 

16.	Risks relating to cyber-attacks

Our information, communications and transaction management systems (including our own proprietary systems as well as those third-party systems which are provided for our use or to which our systems are connected) constitute a core infrastructure for our accounting and other business operations and are of critical importance particularly in the current business environment with increasing dependence on remote or online networks and our strategy to promote digitization. We are working to prevent system failures through appropriate design and testing and other means and to establish security-conscious systems. However, we may not be able to completely prevent system failures, cyber-attacks, unauthorized access, computer virus infection, human errors, equipment malfunctions, defects in services provided by third parties such as communications service providers and cloud service providers, and failure to appropriately deal with technological advances and new systems and tools. In addition, we may be unable to enhance our financial transaction management systems as required for all of our business operations or under increasingly stricter regulations applicable to financial institutions. Furthermore, our system development or improvement projects, many of which are critical to our ability to operate in accordance with market and regulatory standards, may not be completed as planned due to the complexity and other difficulty relating to such projects. Moreover, our cybersecurity risk management framework and practices may be found inadequate, particularly in light of expanding regulatory requirements and growing market expectations, including those relating to incident reporting and risks associated with our use of third-party services and systems. Such inability, failure and inadequacy may lead to errors and delays in transactions, information leakage and other adverse consequences, and, if serious, could lead to the suspension of our business operations and financial losses such as those incurred in connection with compensation for damages caused by such suspension, diminish confidence in us, harm our reputation, subject us to administrative sanctions, or result in our incurring additional costs to deal with the consequences of these events.

 

3

Additional Japanese GAAP Financial Information for the Six Months Ended September 30, 2024

Consolidated Statements of Cash Flows

 

		(in millions of yen)
		For the six months ended September 30, 2023				For the six months ended September 30, 2024
Cash flows from operating activities:
Profits before income taxes			1,237,093				1,741,849
Depreciation and amortization			166,162				187,470
Impairment losses			23,778				16,868
Amortization of goodwill			9,542				18,388
Equity in losses (gains) of equity method investees			(305,305	)			(257,138	)
Increase (decrease) in allowance for credit losses			77,770				(138,012	)
Increase (decrease) in reserve for bonuses			(62,000	)			(97,020	)
Increase (decrease) in reserve for bonuses to directors			(2,281	)			(664	)
Increase (decrease) in reserve for stocks payment			162				(4,958	)
Decrease (increase) in net defined benefit assets			(41,462	)			(49,439	)
Increase (decrease) in net defined benefit liabilities			1,857				2,467
Increase (decrease) in reserve for retirement benefits to directors			(88	)			(54	)
Increase (decrease) in reserve for loyalty award credits			35				(10,280	)
Increase (decrease) in reserve for contingent losses			(25,884	)			(22,286	)
Interest income recognized on statement of income			(3,532,387	)			(4,357,421	)
Interest expenses recognized on statement of income			2,302,876				2,848,886
Losses (gains) on securities			(80,574	)			(363,348	)
Losses (gains) on money held in trust			20,458				(4,596	)
Foreign exchange losses (gains)			(4,095,844	)			1,832,169
Losses (gains) on sales of fixed assets			(3,382	)			(5,102	)
Net decrease (increase) in trading assets			(3,676,840	)			(850,257	)
Net increase (decrease) in trading liabilities			2,881,638				(1,425,871	)
Adjustment of unsettled trading accounts			1,054				(143,422	)
Net decrease (increase) in loans and bills discounted			(3,631,138	)			(3,035,809	)
Net increase (decrease) in deposits			3,245,633				(2,782,578	)
Net increase (decrease) in negotiable certificates of deposit			2,705,712				807,186
Net increase (decrease) in borrowed money (excluding subordinated borrowings)			(134,182	)			(1,617,629	)
Net decrease (increase) in call loans and bills bought and others			(3,048,743	)			2,199,311
Net decrease (increase) in receivables under securities borrowing transactions			(329,808	)			(267,555	)
Net increase (decrease) in call money and bills sold and others			(7,887,818	)			469,908
Net increase (decrease) in commercial papers			1,018,331				234,194
Net increase (decrease) in payables under securities lending transactions			(178,229	)			(435,099	)
Net decrease (increase) in foreign exchanges (assets)			370,395				641,063
Net increase (decrease) in foreign exchanges (liabilities)			219,659				197,331
Net increase (decrease) in short-term bonds payable			335,492				169,652
Net increase (decrease) in issuance and redemption of unsubordinated bonds payable			112,185				(2,197,894	)
Net increase (decrease) in due to trust accounts			(811,930	)			(2,111,194	)
Interest income (cash basis)			3,446,753				4,393,475
Interest expenses (cash basis)			(2,241,221	)			(2,878,344	)
Others			(368,117	)			1,520,118
Sub-total			(12,280,648	)			(5,775,638	)
Income taxes			(315,578	)			(310,975	)
Refund of income taxes			57,676				130,436
Net cash provided by (used in) operating activities			(12,538,550	)			(5,956,177	)

 

4

		(in millions of yen)
		For the six months ended September 30, 2023				For the six months ended September 30, 2024
Cash flows from investing activities:
Purchases of securities			(45,306,613	)			(50,230,667	)
Proceeds from sales of securities			35,726,086				26,998,105
Proceeds from redemption of securities			15,151,259				27,444,063
Payments for increase in money held in trust			(769,255	)			(797,231	)
Proceeds from decrease in money held in trust			656,904				955,689
Purchases of tangible fixed assets			(51,146	)			(61,337	)
Purchases of intangible fixed assets			(172,625	)			(158,948	)
Proceeds from sales of tangible fixed assets			41,098				48,085
Proceeds from sales of intangible fixed assets			568				4
Payments for acquisition of subsidiaries’ equity affecting the scope of consolidation			(79,841	)			(100,014	)
Payments for sales of subsidiaries’ equity affecting the scope of consolidation			—				(1,988	)
Others			(2,074	)			4,662
Net cash provided by (used in) investing activities			5,194,360				4,100,422
Cash flows from financing activities:
Proceeds from subordinated borrowings			113,000				17,000
Repayments of subordinated borrowings			—				(15,000	)
Proceeds from issuance of subordinated bonds payable and bonds with warrants			536,499				388,119
Payments for redemption of subordinated bonds payable and bonds with warrants			(60,141	)			(124,402	)
Proceeds from issuance of common stock to non-controlling shareholders			144				1,126
Repayments to non-controlling shareholders			(216	)			—
Dividends paid by MUFG			(192,791	)			(240,813	)
Dividends paid by subsidiaries to non-controlling shareholders			(24,758	)			(29,021	)
Purchases of treasury stock			(15	)			(118,436	)
Proceeds from sales of treasury stock			2,208				15,636
Payments for purchases of subsidiaries’ equity not affecting the scope of consolidation			(1,592	)			(15,292	)
Net cash provided by (used in) financing activities			372,336				(121,085	)
Effect of foreign exchange rate changes on cash and cash equivalents			1,962,511				104,155
Net increase (decrease) in cash and cash equivalents			(5,009,342	)			(1,872,684	)
Cash and cash equivalents at the beginning of the period			113,630,172				109,875,097
Increase in cash and cash equivalents resulting from inclusion of subsidiaries in consolidation			4,595				—
Cash and cash equivalents at the end of the period			108,625,425				108,002,412

 

5

Additional Japanese GAAP Financial Information for the Six Months Ended September 30, 2024

 

1.	Significant Accounting Policies Applied to the Semi-Annual Consolidated Financial Statements

 

I.

Scope of consolidation

 

(1)

Number of consolidated subsidiaries: 340

Principal companies:

MUFG Bank, Ltd.

Mitsubishi UFJ Trust and Banking Corporation

Mitsubishi UFJ Securities Holdings Co., Ltd.

Mitsubishi UFJ Asset Management Co., Ltd.

Mitsubishi UFJ NICOS Co., Ltd.

ACOM CO., LTD.

 

(a)

Changes in the scope of consolidation in the six months ended September 30, 2024

MUFG Pension & Market Services Holdings Limited and eighty-nine other companies were newly included in the scope of consolidation due to acquisition of shares or other reasons.

Mitsubishi UFJ Financial Partners Co., Ltd. and two other companies were excluded from the scope of consolidation due to extinction through a merger or other reasons.

 

(2)

Non-consolidated subsidiaries: None

 

(3)

Entities not regarded as subsidiaries even though Mitsubishi UFJ Financial Group, Inc. (“MUFG”) owns the majority of voting rights in its own account:

Hygeia Co., Ltd.

HISHOH Biopharma Co., Ltd.

 

(a)

Reasons for excluding from the scope of consolidation

These entities were not treated as subsidiaries because they were established as property management agents for land trust projects without any intent to control or because MUFG’s consolidated venture capital subsidiaries owned the majority of voting rights primarily to benefit from the appreciation of their investments resulting from growth or restructuring of the investees’ businesses without any intent to control.

 

II.

Application of the equity method

 

(1)

Number of non-consolidated subsidiaries accounted for under the equity method: None

 

(2)

Number of equity method affiliates: 56

Principal companies:

Mitsubishi HC Capital Inc.

Morgan Stanley

 

(a)

Changes in the scope of application of the equity method in the six months ended September 30, 2024

eClear Corporation and four other company were newly included in the scope of application of the equity method due to acquisition of shares or other reason.

 

6

(3)

Number of non-consolidated subsidiaries not accounted for under the equity method: None

 

(4)

Number of affiliates not accounted for under the equity method: None

 

(5)

Entities not regarded as affiliates in which MUFG owns 20% to 50% of their voting rights in its own account:

Kamui Pharma Co., Ltd.

Alchemedicine, Inc.

DT Axis, Inc.

FELIQS CORPORATION

 

(a)

Reasons for excluding from the scope of affiliates

These entities were not regarded as affiliates because MUFG’s consolidated venture capital subsidiaries owned 20% to 50% of voting rights primarily to benefit from the appreciation of their investments resulting from growth or restructuring of the investees’ businesses without any intent to control.

 

III.

Semi-annual balance sheet dates of consolidated subsidiaries

 

(1)

The semi-annual balance sheet dates of the consolidated subsidiaries were as follows:

 

The end of April:				1 subsidiary
The end of June:				269 subsidiaries
The end of September:				70 subsidiaries

 

(2)

A subsidiary whose semi-annual balance sheet date is the end of April was consolidated based on its preliminary financial statements as of the end of July.

As described in “IV. Accounting policies (Additional Information),” from the beginning of the current semi-annual reporting period, some of the consolidated subsidiaries whose semi-annual balance sheet date is the end of June were consolidated based on their respective preliminary financial statements as of the end of September.

The remaining subsidiaries were consolidated based on their financial statements as of their respective semi-annual balance sheet dates.

Adjustments were made to the consolidated financial statements to reflect any significant transactions within the consolidated group that occurred between the semi-annual balance sheet dates of the relevant subsidiaries and the semi-annual consolidated balance sheet date.

 

7

IV.

Accounting policies

 

(1)

Trading assets and Trading liabilities; Trading income and expenses

Transactions involving short-term fluctuations or arbitrage opportunities in interest rates, currency exchange rates, market prices of financial instruments or other market indices (“trading purposes”) are presented in “Trading assets” and “Trading liabilities” on the consolidated balance sheet on a trade-date basis, and gains and losses from trading transactions (interest and dividends, gains or losses on sales and gains or losses on valuation) are presented in “Trading income” and “Trading expenses” on the consolidated statement of income.

Trading assets and trading liabilities are stated at fair value as of the consolidated balance sheet date.

With respect to derivative transactions for trading purposes, specific market risk and counterparty credit risk exposures are measured in groups of trading assets and trading liabilities, and fair value is determined for each such group of trading assets and trading liabilities on a net basis.

 

(2)

Securities

 

(a)

Debt securities being held to maturity are stated at amortized cost (using the straight-line method) computed using the moving-average method. Available-for-sale securities are stated at their quoted market prices (cost of securities sold is calculated primarily using the moving-average method), and equity securities with no quoted market price available are stated at acquisition cost computed using the moving-average method.

Net unrealized gains (losses) on available-for-sale securities are included directly in net assets, net of applicable income taxes, except in the case of application of the fair value hedge accounting method, in which the change in the fair value recognized is recorded in current earnings.

 

(b)

Securities included in trust assets in money held in trust are accounted for on the same basis as noted above in Notes (1) and (2)(a).

Net unrealized gains (losses) on securities in money held in trust which are not held for trading purposes or held to maturity are included directly in net assets, net of applicable income taxes.

 

(3)

Derivatives

Derivative transactions (excluding those for trading purposes) are stated at fair value as of the consolidated balance sheet date.With respect to derivative transactions, specific market risk and counterparty credit risk exposures are measured in groups of trading assets and trading liabilities, and fair value is determined for each such group of trading assets and trading liabilities on a net basis.

 

(4)

Depreciation and amortization of fixed assets

 

(a)

Tangible fixed assets (except for lease assets)

Depreciation of tangible fixed assets of MUFG and its domestic consolidated banking subsidiaries and domestic consolidated trust banking subsidiaries is computed primarily using the declining-balance method, and is recorded by allocating the estimated annual depreciation amount evenly to each reporting period. The useful lives are primarily estimated as follows:

Buildings: 15 to 50 years

Equipment: 2 to 20 years

Depreciation of tangible fixed assets of other consolidated subsidiaries is computed primarily using the straight-line method based on their estimated useful lives and other factors.

 

(b)

Intangible fixed assets (except for lease assets)

Amortization of intangible fixed assets is computed using the straight-line method.

Development costs for internally used software are amortized using the straight-line method over the estimated useful lives of primarily 3 to 10 years.

 

8

(c)

Lease assets

Depreciation or amortization of lease assets in “Tangible fixed assets” or “Intangible fixed assets” under finance leases other than those that are deemed to transfer the ownership of leased property to the lessees is computed using the straight-line method over the lease periods with zero residual value unless residual value is guaranteed by the corresponding lease contracts, in which case the residual value equals the guaranteed amount.

 

(5)

Deferred assets

Bond issuance costs and stock issuance costs are expensed as incurred.

 

(6)

Allowance for credit losses

Principal domestic consolidated subsidiaries determine the amount of allowance for credit losses in accordance with the internal standards for self-assessment of asset quality and the internal standards for write-offs and provisions.

For claims on borrowers that have entered into bankruptcy, special liquidation proceedings or similar legal proceedings or whose notes have been dishonored and suspended from processing through clearing houses (“bankrupt borrowers”) or borrowers that are not legally or formally bankrupt but are regarded as substantially in similar condition (“virtually bankrupt borrowers”), allowances are provided based on the amount of claims, after the write-offs as stated below, net of expected amounts to be collected through the disposal of collateral and the execution of guarantees.

For claims on borrowers that are not yet legally or formally bankrupt but deemed to have a high possibility of becoming bankrupt (“likely to become bankrupt borrowers”), where the amounts of principal repayments and interest payments cannot be reasonably estimated from the borrowers’ cash flows, allowances are provided based on an overall solvency assessment of the claims, net of expected amounts to be collected through the disposal of collateral and the execution of guarantees.

For claims on likely to become bankrupt borrowers and claims on borrowers requiring close monitoring, where the amounts of principal repayments and interest payments can be reasonably estimated from the borrowers’ cash flows, allowances are provided in an amount equal to the difference between the book value of the claims and the relevant cash flows discounted by the initial contractual interest rates.

For other claims, allowances are provided based mainly on expected losses for the immediately following one-year period or the average remaining term to maturity of loans. Expected losses are calculated by applying a loss rate, which is obtained based on the average rate of historical credit loss experience or historical default probability experience over a certain period, which is derived from actual credit losses or actual defaults over a one-year period or over a period equal to the average remaining term to maturity of loans, with necessary adjustments for future loss projections and other factors.

For claims originated in certain foreign countries, additional allowances are provided based on an assessment of political and economic conditions of these countries.

All claims are assessed by the relevant branches and the credit supervision departments in accordance with the internal standards for self-assessment of asset quality. The credit review department, which is independent from those operating sections, subsequently audits these assessments.

For claims on bankrupt borrowers and virtually bankrupt borrowers, the amount of claims exceeding the estimated value of collateral and guarantees, which is deemed uncollectible, is written off. The total amount of write-offs was ¥205,078 million as of September 30, 2024(¥217,701 million as of March 31, 2024).

Consolidated subsidiaries not adopting the procedures stated above provide for allowances based on their historical credit loss experience or other factors for collectively assessed claims and based on individual assessments of the possibility of collection for specific deteriorated claims.

 

9

(Additional Information)

(Allowance for credit losses of certain overseas subsidiaries which apply IFRS Accounting Standards (“IFRS”))

Certain overseas subsidiaries which apply IFRS recognize allowance for credit losses in accordance with IFRS9 “Financial Instruments.” At each reporting date, these subsidiaries assess whether the credit risk on a financial asset has increased significantly since initial recognition, and if the credit risk has not increased significantly since initial recognition, the subsidiaries measure the allowance for credit losses for the financial asset at an amount equal to the 12-month expected credit loss. On the other hand, if the credit risk on a financial asset has increased significantly since initial recognition, the subsidiaries measure the allowance for credit losses for the financial asset at an amount equal to the lifetime expected credit loss.

Expected credit losses are calculated collectively for each portfolio of loans with similar risk characteristics based on the loss rates derived from past credit loss experience or bankruptcy experience through the application of a quantitative model that incorporates future forecast information, such as macroeconomic variables, into the probability of bankruptcy, etc. Expected credit losses on some credit-impaired financial assets are calculated individually by taking into account the risks particular to each such financial asset.

In addition, adjustments are made in the calculation of expected credit losses for qualitative factors relating to current conditions and future forecasts which may not be sufficiently captured in such model but should be appropriately taken into account. Future uncertainties due to changes in the economic environment, prices, monetary policies, geopolitical situations, etc. are factored into estimates for the expected credit loss provisioning through such adjustments based on macroeconomic variables and/or qualitative factors.

(Information relevant to an understanding by readers of the consolidated financial statements regarding the calculation of allowance for credit losses)

The process of calculating allowance for credit losses in our principal consolidated domestic banking subsidiaries involves various estimates such as determination of counterparty credit ratings which are based on evaluation and classification of counterparties’ debt-service capacity, assessment of the value of collateral provided by borrowers, and adjustments for future loss projections and other factors to the loss rates calculated based on historical credit loss experience.

Among these, internal credit ratings are assigned to counterparties based on qualitative factors such as the current and expected future business environment of the industry to which they belong as well as their management and funding risks in addition to quantitative financial evaluations through an analysis of their financial results. In particular, determination of internal credit ratings for some counterparties may be highly dependent on our assessment of the prospects of improvements in their operating results and their ability to continue as going concerns.

MUFG Bank, Ltd. (“the Bank”), our principal domestic consolidated banking subsidiary, applies the cash flow estimation method when providing for allowance for credit losses for loans to substantially bankrupt borrowers and borrowers requiring special attention and caution in cases where it is possible to reasonably estimate the cash flows related to the collection of loan principal and receipt of interest payments.

The estimation of such future cash flows is based on a borrower-specific assessment regarding the collectability of loans, including past collection experience, evaluation of the borrower’s restructuring plans, the financial condition and operating results of the borrower, and the economic environment of the industry to which the borrower belongs. In this regard, the estimation of future cash flows may be highly dependent on estimation of borrowers’ future performance and business sustainability. Estimates are subject to a high degree of uncertainly especially when made in connection with assessments regarding the collectability of loans to substantially bankrupt borrowers with respect to which objective information is not readily available.

When calculating allowance for credit losses, the Bank determines expected loss rates primarily by calculating a rate of loss based on a historical average of the credit loss rate or a historical average of the default probability derived from actual credit loss experience or actual bankruptcy experience and making necessary adjustments based on future projections and other factors.

 

10

The subsidiary makes such adjustments based on future loss projections and other factors to loss rates calculated based on historical loss experience, when and to the extent such adjustments are deemed appropriate, by taking into account additional expected losses that are not reflected in such loss rates calculated based on historical loss experience and other factors, especially in light of the Russia-Ukraine situation. The amount of impact of these adjustments was ¥28,058 million as of September 30, 2024 (¥42,492 million as of March 31, 2024).

In addition, certain overseas subsidiaries which apply IFRS recognize allowance for credit losses in accordance with IFRS9 “Financial Instruments.”

At each reporting date, these subsidiaries assess whether the credit risk on a financial asset has increased significantly since initial recognition, and if the credit risk has not increased significantly since initial recognition, the subsidiaries measure the allowance for credit losses for the financial asset at an amount equal to the 12-month expected credit loss. On the other hand, if the credit risk on a financial asset has increased significantly since initial recognition, the subsidiaries measure the allowance for credit losses for the financial asset at an amount equal to the lifetime expected credit loss.

Expected credit losses are calculated using a quantitative model that reflects economic forecast scenarios based on macroeconomic variables. The calculation process includes determination of macroeconomic variables used in multiple economic forecast scenarios and the weightings applied to each economic forecast scenario. In addition, to compensate for expected credit losses that are not reflected in a quantitative model, adjustments are made based on qualitative factors, such as forecasts of the impacts of price developments and government support programs on expected credit losses calculated based on quantitative models.

Significant assumptions used in our calculation of allowance for credit losses, including those described above, are subject to uncertainty. In particular, some counterparties’ prospects of improvements in operating results, the expectations as to such counterparties’ ability to continue as going concerns, the collectability of receivables from such counterparties, and adjustments to the rate of loss calculated based on actual experience for future projections and other factors, as well as determination of the macroeconomic variables used in, and the weightings applied to, multiple economic forecast scenarios, and adjustments thereto for qualitative factors, by certain overseas subsidiaries which apply IFRS, are based on estimation relating to economic environment factors with respect to which objective data are not readily available such as changes in the economy, prices, monetary policy and geopolitical situation in each country.

In particular, the outlook relating to the Russia-Ukraine situation remains subject to significant uncertainty. Accordingly, we make certain assumptions, including that the current Russia-Ukraine situation will remain for some time. The recorded allowance for credit losses represents our best estimation made in a manner designed to ensure objectivity and rationality.

For the six-month period ended September 30, 2024, the assumptions for making estimates relating to allowance for credit losses remained substantially unchanged because the observable changes subsequent to the end of the previous fiscal year in the factors and circumstances underlying the outlook relating to the Russia-Ukraine situation were not sufficiently significant to cause such change in the assumptions. However, these assumptions are highly uncertain, and significant additional provision for credit losses may be recognized for the nine-month period ending December 31, 2024 and subsequent reporting periods due to these and other factors and circumstances affecting the financial performance of counterparties or the economic environment.

 

11

(7)

Reserve for bonuses

Reserve for bonuses, which is provided for future bonus payments to employees, is recorded in the amount deemed to have accrued based on the estimated amount of bonuses as of the consolidated balance sheet date.

 

(8)

Reserve for bonuses to directors

Reserve for bonuses to directors, which is provided for future bonus payments to directors, is recorded in the amount deemed to have accrued based on the estimated amount of bonuses as of the consolidated balance sheet date.

 

(9)

Reserve for stocks payment

Reserve for stocks payment, which is provided primarily for future payments of compensation under the stock compensation plan for directors and officers, and for future deliveries of shares under the share-based compensation plan for eligible employees, of MUFG and certain domestic consolidated subsidiaries, is recorded in the amount deemed to have accrued based on the estimated amount of such compensation and shares, etc. as of the consolidated balance sheet date.

 

(10)

Reserve for retirement benefits to directors

Reserve for retirement benefits to directors, which is provided for future payments of retirement benefits to directors of consolidated subsidiaries, is recorded in the amount deemed to have accrued based on the estimated amount of benefits as of the consolidated balance sheet date.

 

(11)

Reserve for loyalty award credits

Reserve for loyalty award credits, which is provided for the future redemption of points awarded to customers of certain consolidated subsidiaries, is calculated by estimating the amount that will be redeemed in the future based on the monetary amount converted from the awarded but unused points, and is recorded in the appropriate amount as a reserve.

 

(12)

Reserve for contingent losses

Reserve for contingent losses, which is provided for possible losses from contingent events related to off-balance sheet transactions and various litigation and regulatory matters, is calculated by estimating the impact of such contingent events. This reserve also includes future claims for repayment of excess interest payments on consumer loans that are estimated based on the past repayments, the pending claims and other factors.

 

(13)

Reserves under special laws

Reserves under special laws represent the reserves for contingent liabilities from derivative financial instruments transactions executed for clients, which are recorded in accordance with Article 46-5-1 of the Financial Instruments and Exchange Law and Article 175 of the Cabinet Office Ordinance on Financial Instruments Business.

 

(14)

Retirement benefits

In calculating the amount of benefit obligation, the portion of projected benefit obligation attributed to the six-month period ended September 30, 2024 is determined using the benefit formula basis.

Prior service cost is amortized using the straight-line method over a fixed period, primarily over 10 years, within the employees’ average remaining service period.

Net actuarial gains (losses) are amortized using the straight-line method over a fixed period, primarily over 10 years, within the employees’ average remaining service period, primarily beginning in the subsequent fiscal year after such gains (losses) are recognized.

For certain overseas branches of domestic consolidated subsidiaries and certain consolidated subsidiaries, net defined benefit liability and retirement benefit expenses are calculated using the simplified method.

 

12

(15)

Revenue Recognition

 

(a)

Revenue recognition

Revenues arising from contracts with customers are recognized in the consolidated statements of income based on the status of fulfillment of the performance obligations identified in each contract, depending on the actual nature of the transactions under the contract.

 

(b)

Revenue Recognition for Principal Categories of Transactions

Revenue arising from contracts with customers is recognized using a method that is designed to closely reflect economic reality, with the timing of fulfillment of performance obligations, which is an important factor in determining the timing of revenue recognition, assessed as described below.

In most cases, the consideration for a transaction is settled in cash at the time of the transaction. In other cases, receivables recognized in connection with transactions are generally collected within one year.

Of the fees and commissions, those on remittances and transfers consist mainly of remittance and transfer fees and are recognized as revenue at the time of settlement.

Of the fees and commissions, those on deposits consist mainly of ATM usage fees and periodic account management service fees. ATM usage fees are recognized as revenue at the time of execution of transactions, and periodic account management service fees are recorded as revenue over the service period.

Of the fees and commissions, those on loans consist mainly of the consideration for administration and management services during the tenors of syndicated loans and the consideration for financial and financing advice to clients, and are recorded as revenue over the service period.

Of the fees and commissions, those on trust-related services consist mainly of the consideration for shareholder registry administration services for issuers of stocks, real estate brokerage and appraisal services, and succession services including preparation, maintenance and execution of wills and inheritance management. These fees and commissions are recognized as revenue at the time when the services are provided.

Of the fees and commissions, those on securities-related services consist mainly of fees related to sales and transfers of securities including investment trust, underwriting, brokerage and advisory services, fees related to securitization, and agent fees related to calculation and payment of dividends. Fees on securities-related services are recorded as revenue over the relevant service period. Fees arising from securities-related services that are consumed by a client at a point in time (e.g., sales and transfers of securities executed under the direction of clients, underwriting or securitization of bonds and equity securities which is completed on the date of the transaction, provision of advice to clients, and calculation and payment to investors of dividends) are recognized as revenue at such point in time. Fees arising from securities-related services that are used by a client at equal intervals over the service period (e.g., retainer fees for M&A advisory services) are recognized as revenue over such service period. Fees to be paid when a particular performance target is achieved (e.g., success fees for M&A advisory services) are recognized as revenue at the time when such performance target is achieved.

Of the fees and commissions, those on credit card business consist mainly of credit card merchant fees and royalty fees from franchised merchants. Merchant fees are recorded as revenue at the time when the credit sale data is received, and royalty fees from franchised merchants are recorded as revenue over the service period.

Of the fees and commissions, those on administration and management services for investment funds and investment advisory services arise mainly from asset management and investment advisory services and consist of asset management fees, success fees and investment advisory fees related to investment trusts. Asset management fees and investment advisory fees are recognized as revenue as MUFG’s performance obligations are satisfied over the service period in the amount MUFG is entitled to charge based on the balance of assets under management. Performance-based success fees are recognized as revenue at the time when performance targets are met and it is deemed highly likely that there will be no material reversal of the recognized revenue.

Trust fees consist mainly of fees on administration and management of trust assets and are recognized as revenue as MUFG’s performance obligations are satisfied over the service period in the amount MUFG is entitled to charge based generally on the balance of assets under management for each trust or the performance of each trust account for an accounting period.

 

13

(16)

Translation of assets and liabilities denominated in foreign currencies

Assets and liabilities denominated in foreign currencies or booked at overseas branches of domestic consolidated banking subsidiaries and domestic consolidated trust banking subsidiaries are translated into yen primarily at exchange rates prevailing at the consolidated balance sheet date, except for investments in non-consolidated affiliates which are translated into yen at exchange rates prevailing at the acquisition dates.

Assets and liabilities denominated in foreign currencies of other consolidated subsidiaries are translated into yen at exchange rates prevailing at the respective balance sheet date.

 

(17)

Leasing transactions

(As Lessees)

Domestic consolidated subsidiaries’ finance leases other than those that are deemed to transfer the ownership of leased property to the lessees are accounted for in a similar way to purchases, and depreciation of lease assets is computed using the straight-line method over the lease term with zero residual value unless residual value is guaranteed by the corresponding lease contracts, in which case the residual value equals the guaranteed amount.

(As Lessors)

Finance leases other than those that are deemed to transfer the ownership of leased property to the lessees are accounted for in a similar way to sales and income and expenses related to such leases are recognized by allocating interest equivalents to applicable fiscal periods instead of recording sales as “Other ordinary income.”

 

(18)

Hedge accounting

 

(a)

Hedge accounting for interest rate risks

Domestic consolidated banking subsidiaries and domestic consolidated trust banking subsidiaries have adopted the deferred hedge accounting method for hedging transactions to hedge interest rate risks arising from financial assets and liabilities, except for certain transactions qualifying for special hedge accounting treatment of interest rate swaps. Portfolio hedging or individual hedging, as described in the Japanese Institute of Certified Public Accountants (“JICPA”) Industry Committee Practical Guidelines No. 24, “Treatment of Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry” (March 17, 2022), and the Accounting Standards Board of Japan Transferred Guidance No.9, “Practical Guidelines on the Accounting for Financial Instruments” (September 13, 2024), is primarily applied to determine hedged items.

With respect to hedging transactions to offset fluctuations in the fair value of fixed rate deposits, loans and other instruments, hedging instruments (e.g., interest rate swaps) are designated to hedged items individually or collectively by their maturities in accordance with JICPA Industry Committee Practical Guidelines No. 24. With respect to hedging transactions to offset fluctuations in the fair value of fixed rate bonds classified as available-for-sale securities, hedging instruments (e.g., interest rate swaps) are designated to hedged items collectively by the type of bond. Since material terms related to hedged items and hedging instruments are substantially identical, and such hedging transactions are deemed highly effective, the assessment of effectiveness is based on the similarity of the terms.

With respect to hedging transactions to fix the cash flows of forecasted transactions related to floating rate deposits, loans and other instruments as well as forecasted transactions related to short-term fixed rate deposits, loans and other instruments, hedging instruments (e.g., interest rate swaps) are designated to hedged items collectively by interest rate indices and tenors in accordance with JICPA Industry Committee Practical Guidelines No. 24. Since material terms related to hedged items and hedging instruments are substantially identical, and such hedging transactions are deemed highly effective, the assessment of effectiveness is based on the similarity of the terms. The effectiveness of hedging transactions is also assessed by the correlation between factors that cause fluctuations in interest rates of hedged items and those of hedging instruments.

 

14

(b)

Hedge accounting for foreign currency risks

Domestic consolidated banking subsidiaries and domestic consolidated trust banking subsidiaries have adopted the deferred hedge accounting method for hedging foreign currency risks arising from financial assets and liabilities denominated in foreign currencies, except for certain transactions qualifying for the allocation method applicable to forward exchange contracts and other contracts. Portfolio hedging is applied to determine hedged items as described in JICPA Industry Committee Practical Guidelines No. 25 “Treatment of Accounting and Auditing concerning Accounting for Foreign Currency Transactions in the Banking Industry” (October 8, 2020). Hedging instruments (e.g., currency swaps and forward exchange contracts) are designated to hedged items collectively by currencies.

Portfolio hedging or individual hedging is applied to hedge foreign currency risks arising from equity investments in foreign subsidiaries and foreign affiliates and from available-for-sale securities (other than bonds) denominated in foreign currencies as well as from future equity investments in foreign subsidiaries. Monetary claims and liabilities denominated in the same foreign currencies or forward exchange contracts are used as hedging instruments. As for the hedge accounting method applied to equity investments in foreign subsidiaries and foreign affiliates, foreign currency translation differences arising from hedging instruments are recorded as foreign currency translation adjustments. The fair value hedge accounting method is applied to available-for-sale securities (other than bonds) denominated in foreign currencies, and the deferred hedge accounting method is applied to future equity investments in foreign subsidiaries.

 

(c)

Hedge accounting for stock price fluctuation risks

Individual hedging is applied to hedge market fluctuation risks arising from strategic equity securities held by domestic consolidated banking subsidiaries and domestic consolidated trust banking subsidiaries. Instruments such as total return swaps are used as hedging instruments. The effectiveness of hedging transactions is assessed by the correlation between changes in the fair value of hedged items and changes in the fair value of hedging instruments. The fair value hedge accounting method is applied.

 

(d)

Transactions among consolidated subsidiaries

Derivative transactions including interest rate swaps and currency swaps which are designated as hedging instruments among consolidated subsidiaries or between trading accounts and other accounts (or among internal sections) are not eliminated from the consolidated statements of income or valuation difference, but are recognized as related gains or losses or deferred under hedge accounting because these derivative transactions meet non-arbitrariness and certain other criteria under JICPA Industry Committee Practical Guidelines No. 24 and No. 25 and are regarded as equivalent to external third-party cover transactions.

 

(19)

Cash and cash equivalents in the consolidated statements of cash flows

Cash and cash equivalents in the consolidated statements of cash flows are defined as “Cash and due from banks” on the consolidated balance sheet.

 

(20)

Consumption taxes

National and local consumption taxes are primarily excluded from transaction amounts of MUFG and its domestic consolidated subsidiaries. Non-deductible portions of consumption taxes on the purchases of tangible fixed assets are expensed when incurred.

 

(21)

Adoption of the Group Tax Sharing System

MUFG and some of its domestic consolidated subsidiaries have adopted the group tax sharing system.

 

(22)

Accounting of bills discounted and rediscounted

Bills discounted and rediscounted are accounted for as financial trading in accordance with JICPA Industry Committee Practical Guidelines No. 24.

 

(23)

Accounting standards for foreign subsidiaries

If the financial statements of foreign subsidiaries are prepared in accordance with IFRS or U.S. GAAP, such financial statements are used in the consolidated accounting process. Adjustments are also made when necessary in the consolidated accounting process.

 

15

(Changes in Accounting Policies)

(Accounting Standard for Corporate Tax, Inhabitant Tax, Enterprise Tax, etc.)

Accounting Standards Board of Japan (“ASBJ”) Statement No. 27, “Accounting Standard for Corporate Tax, Inhabitant Tax, Enterprise Tax, etc.” (ASBJ, October 28, 2022), etc., have been applied from the beginning of the six months ended September 30, 2024.

The cumulative effect of retroactively applying the new accounting policy to reporting periods prior to the beginning of the six months ended September 30, 2024 was recognized as an adjustment to retained earnings as of the beginning of the six months ended September 30, 2024.

As a result, at the beginning of the six months ended September 30, 2024, retained earnings increased by ¥6,119 million, and deferred hedge decreased by ¥1,896 million, deferred tax liabilities decreased by ¥4,223 million.

(Adoption of IFRS Accounting Standards by a foreign subsidiary)

The consolidated financial statements of Bank of Ayudhya Public Company Limited (“Krungsri”), which are used in MUFG’s consolidated accounting process, had been previously prepared in accordance with U.S. GAAP, but from the beginning of the six months ended September 30, 2024, have been prepared in accordance with IFRS.

This change has been made pursuant to MUFG’s decision to consolidate Krungsri based on a provisional closing of its accounts through the system put in place to prepare Krungsri’s consolidated financial statements in accordance with IFRS from the perspective of providing MUFG’s consolidated financial statements in a more timely manner as described in “Provisional closing of accounts of a significant subsidiary” under “Additional Information” below. The change is part of the MUFG Group’s ongoing review of infrastructure and system development in considering adoption of IFRS.

The impact of the change on MUFG’s consolidated financial statements and per share information for the previous fiscal year is immaterial.

(Additional Information)

(Provisional closing of accounts of a significant subsidiary)

Krungsri, a significant subsidiary of MUFG, closes its financial accounts based on a fiscal year-end of December 31 and, previously, had been consolidated based on its consolidated financial statements as of the end of each immediately preceding quarterly reporting period. However, from the perspective of providing financial information in a more timely manner, MUFG has decided to consolidate Krungsri based on a provisional closing of accounts of Krungsri to be implemented as of MUFG’s quarterly reporting period, effective from the six months ended September 30, 2024.

Accordingly, for the six months ended September 30, 2024, Krungsri’s financial results for the nine-month period from January 1, 2024 to September 30, 2024 have been consolidated based on a provisional closing of accounts of Krungsri, and the impact of implementation of such provisional closing of accounts has been reflected through MUFG’s consolidated statement of income.

Concerning Krungsri’s financial results for the period from January 1, 2024 to March 31, 2024, ordinary income was 227,052 million, ordinary profits were 37,660 million, and profits before income taxes were 37,457 million.

 

16

2.	Consolidated Balance Sheets

 

I.	Equity securities and other capital investments in affiliates

 

The amount of investments in jointly controlled companies included in the amounts in the above table was as follows:

 

 

II.	Securities loaned under unsecured and secured securities lending transactions included in “Securities”and “Monetary claims bought”.

 

Securities borrowed under securities borrowing transactions and securities purchased under resale agreements where the borrowers or purchasers have the right to dispose of the securities through sale or re-pledging without any restrictions

 

Bank acceptance bills discounted, commercial bills discounted, and foreign currency bills bought discounted with the right to dispose of the bills discounted through sale or re-pledging without any restrictions

 

Foreign currency bills bought which were re-discounted upon transfer

 

 

17

III.

Loans to be disclosed under the Banking Act and the Financial Reconstruction Act (the “FRA”) were as follows. Disclosed loans include corporate bonds included in Securities (to the extent that such bonds were issued through private placements as stipulated in Article 2-3 of the Financial Instruments and Exchange Act and that the principal of and interest on such bonds are partly or fully guaranteed by MUFG), Loans and bills discounted, Foreign exchanges, accrued interest and suspense payments included in Other assets, and Customers’ liabilities for acceptances and guarantees, each as included in the consolidated balance sheets, and securities loaned (to the extent borrowers have the right to sell or pledge such securities) as included in the notes to the consolidated balance sheets.

 

Bankrupt or De facto Bankrupt represents loans to borrowers that are bankrupt or in substantially similar condition due to reasons including a petition being filed to commence bankruptcy, reorganization or rehabilitation proceedings.

Doubtful represents loans to borrowers that are not yet in a state of bankruptcy but that are in deteriorated financial condition, with deteriorated operating results, and with a high likelihood of loan principal and interest not being collected or received in accordance with contractual terms, other than loans included in the Bankrupt or De facto Bankrupt category.

Accruing loans contractually past due 3 months or more represent loans with respect to which principal repayments or interest payments have been past due for 3 months or more, other than loans included in the Bankrupt or De facto Bankrupt category or the Doubtful category.

Restructured loans represent loans that have been modified with concessionary terms, including interest rate reductions, deferral of interest payments, deferral of principal repayments, waivers of loan claims and other renegotiated terms, that are favorable to borrowers, for the purpose of assisting such borrowers in improving their financial condition, other than loans included in the Bankrupt or De facto Bankrupt category, the Doubtful category or the Accruing loans contractually past due 3 months or more category.

Normal represents loans with no particular issues identified in terms of the financial condition and results of operations of borrowers and thus not included in the Bankrupt or De facto Bankrupt category, the Doubtful category, the Accruing loans contractually past due 3 months or more category or the Restructured loan category.

The amounts provided in the table above represent gross amounts before deduction of allowance for credit losses.

 

18

IV.	Assets pledged as collateral

Assets pledged as collateral and their relevant liabilities as of March 31, 2024 and September 30, 2024 were as follows:

 

Furthermore, the following assets were sold under repurchase agreements or loaned under securities lending transactions with cash collateral as of March 31, 2024 and September 30, 2024:

 

In addition, the following assets were pledged under general collateral repurchase agreements using the subsequent collateral allocation method as of March 31, 2024 and September 30, 2024:

 

 

19

V.	Non-recourse debt of consolidated special purpose companies was as follows.

 

The above table includes certain assets reported in the immediately preceding Item IV.

 

VI.

Overdraft facilities and commitment lines of credit are binding contracts under which MUFG’s consolidated subsidiaries have obligations to disburse funds up to predetermined limits upon the borrower’s request as long as there has been no breach of contracts. The total amount of the unused portion of these facilities as of March 31, 2024 and September 30, 2024 was as follows:

 

The total amount of the unused portion does not necessarily represent actual future cash requirements because many of these contracts are expected to expire without being drawn upon. In addition, most of these contracts include clauses that allow MUFG’s consolidated subsidiaries to decline a borrower’s request for disbursement or decrease contracted limits for cause, such as changes in financial market condition or deterioration in a borrower’s creditworthiness. MUFG’s consolidated subsidiaries may request a borrower to pledge real property and/or securities as collateral upon signing of a contract and will perform periodic monitoring on a borrower’s business condition in accordance with internal procedures, which may lead to renegotiation of the terms and conditions of the contracts and/or initiation of a request for additional collateral and/or guarantees.

 

20

VII.

In accordance with the “Law concerning Revaluation of Land” (the “Land Revaluation Law”) (No. 34, March 31, 1998), land used for business operations of domestic consolidated banking subsidiaries and domestic consolidated trust banking subsidiaries has been revalued as of the dates indicated below. The total excess from revaluation, net of income taxes corresponding to the excess that were recognized as “Deferred tax liabilities for land revaluation,” is stated as “Land revaluation excess” in net assets. Land revaluation excess includes MUFG’s share of affiliated companies’ Land revaluation excess.

Dates of revaluation:

Domestic consolidated banking subsidiaries: March 31, 1998.

Domestic consolidated trust banking subsidiaries: March 31, 1998, December 31, 2001 and March 31, 2002.

The method of revaluation as set forth in Article 3, Paragraph 3 of the Land Revaluation Law:

Fair values are determined based on (1) “published land price under the Land Price Publication Law” stipulated in Article 2-1 of the “Enforcement Ordinance of the Law concerning Revaluation of Land” (“Ordinance”) (No. 119, March 31, 1998), (2) “standard land price determined on measurement spots under the Enforcement Ordinance of the National Land Planning Law” stipulated in Article 2-2 of the Ordinance, (3) “land price determined by the method established and published by the Director General of the National Tax Agency in order to calculate land value that is used for determining taxable amounts subject to landholding tax articulated in Article 16 of the Landholding Tax Law” stipulated in Article 2-4 of the Ordinance with price adjustments for shape and time and (4) appraisal by certified real estate appraisers stipulated in Article 2-5 of the Ordinance with price adjustments for time.

In addition, some of MUFG’s affiliates that were accounted for under the equity method conducted a revaluation for land used for business operations on March 31, 2002.

 

VIII.

Accumulated depreciation on tangible fixed assets

 

 

IX.	Subordinated borrowings with special contractual provisions which rank below other debts with regard to the fulfillment of obligations included in “Borrowed money”

 

 

X.	Subordinated bonds included in “Bonds payable”

 

 

XI.	The principal amount of money trusts entrusted to domestic trust banking subsidiaries for which repayment of the principal to the customers was guaranteed

 

 

XII.	Guarantee obligations for private placement bonds (provided in accordance with the Article 2-3 of the Financial Instruments and Exchange Law) among the bonds and other securities included in “Securities”

 

 

21

XIII.

Contingent liabilities

(Litigation)

In the ordinary course of business, MUFG is subject to various litigation and regulatory matters. In accordance with applicable accounting guidance, MUFG establishes a Reserve for Contingent Losses arising from litigation and regulatory matters when they are determined to be probable in their occurrences and the probable loss amount can be reasonably estimated. Based upon current knowledge and consultation with counsel, management believes the eventual outcome of such litigation and regulatory matters, where losses are probable and the probable loss amounts can be reasonably estimated, would not have a material adverse effect on MUFG’s financial position, results of operations or cash flows.

Management also believes the amount of loss that is reasonably possible, but not probable, from various litigation and regulatory matters is not material to MUFG’s financial position, results of operations or cash flows.

 

22

3.	Consolidated Statements of Income

 

I.	“Other ordinary income” for the periods indicated included the following:

 

		(in millions of yen)
		For the six months ended September 30,
		2023				2024
Gains on sales of equity securities		¥	143,104			¥	400,208
Equity in earnings of the equity method investees			305,305				257,138

 

II.	“General and administrative expenses” for the periods indicated included the following:

 

		(in millions of yen)
		For the six months ended September 30,
		2023				2024
Personnel expenses		¥	663,683			¥	736,011
Depreciation and amortization			166,162				187,470

 

III.	“Other ordinary expenses” for the periods indicated included the following:

 

		(in millions of yen)
		For the six months ended September 30,
		2023				2024
Write-offs of loans		¥	75,970			¥	137,920
Provision for allowance for credit losses			149,479				107,871

 

23

4.	Consolidated Statements of Changes in Net Assets

For the six months ended September 30, 2023

 

I.	Information on the class and number of issued shares and treasury stock

 

		(Thousand shares)
		Number of shares as of April 1, 2023				Number of shares increased				Number of shares decreased				Number of shares as of September 30, 2023				Note
Issued shares:
Common stock			12,687,710				—				—				12,687,710
Total			12,687,710				—				—				12,687,710
Treasury stock:
Common stock			664,065				15				2,570				661,510				(Notes 1 and 2)
Total			664,065				15				2,570				661,510

(Notes)

 

1.

The increase in the number of shares of common stock held in treasury by 15 thousand shares was due to the repurchases of shares in response to requests made by shareholders holding shares constituting less than one whole unit and an increase in the number of shares held by equity method affiliates. The decrease in the number of shares of common stock held in treasury by 2,570 thousand shares was due to the sale of shares for a performance-based director and officer stock compensation plan using a Board Incentive Plan trust (“BIP trust”), the sale of shares in response to requests made by shareholders holding shares constituting less than one whole unit and a decrease in the number of shares held by equity method affiliates.

 

2.

The number of shares of common stock held in treasury as of April 1, 2023 and September 30, 2023 includes 28,407 thousand shares and 25,837 thousand shares held by the BIP trust, respectively. For the six months ended September 30, 2023, the number of shares held by the BIP trust decreased by 2,569 thousand shares.

 

II.	Information on share subscription rights

None.

 

III.	Information on cash dividends

 

(1)

Cash dividends paid during the six-month period ended September 30, 2023

 

 

(Note)

The total dividend amount includes ¥454 million of dividends on the treasury shares held by the BIP trust.

 

(2)

Dividends the record date for which fell within the six-month period ended September 30, 2023 and the effective date of which was after the six-month period

 

 

(Note)

The total dividend amount includes ¥529 million of dividends on the treasury shares held by the BIP trust.

 

24

For the six months ended September 30, 2024

 

I.	Information on the class and number of issued shares and treasury stock

 

(Notes)

 

1.

The increase in the number of shares of common stock held in treasury by 74,547 thousand shares was due to the acquisitions of shares pursuant to provisions of the Articles of Incorporation, the acquisition of shares for the BIP trust, the acquisition of shares for an employee share-based compensation plan using an Employee Stock Ownership Plan trust (“ESOP trust”) and the repurchases of shares in response to requests made by shareholders holding shares constituting less than one whole unit. The decrease in the number of shares of common stock held in treasury by 13,625 thousand shares was due to the sale of shares for the BIP trust, the sale of shares for the ESOP trust, the sales of shares in response to requests made by shareholders holding shares constituting less than one whole unit and a decrease in the number of shares held by equity method affiliates.

2.

The number of shares of common stock held in treasury as of April 1, 2024 and September 30, 2024 includes 25,769 thousand shares and 21,232 thousand shares held by the BIP trust, respectively. For the six months ended September 30, 2024, the number of shares held by the BIP trust decreased by 13,617 thousand shares.

3.

The number of shares of common stock held in treasury as of September 30, 2024 includes 2,786 thousand shares held by the ESOP trust. For the six months ended September 30, 2024, the number of shares held by the ESOP trust increased by 2,786 shares and decreased by 0 thousand shares.

 

II.	Information on share subscription rights

 

 

III.	Information on cash dividends

 

(1)

Cash dividends paid during the six-month period ended September 30, 2024

 

 

(Note)

The total dividend amount includes ¥528 million of dividends on the treasury shares held by the BIP trust.

 

25

(2)

Dividends the record date for which fell within the six-month period ended September 30, 2024 and the effective date of which was after the six-month period

 

 

(Note)

The total dividend amount includes ¥530 million of dividends on the treasury shares held by the BIP trust and ¥69 million of dividends on the treasury shares held by the ESOP trust.

 

26

5.	Consolidated Statements of Cash Flows

 

I.	“Cash and cash equivalents” compared to items presented on the consolidated balance sheet

The amount of “Cash and cash equivalents” is equal to the amount of “Cash and due from banks” on the consolidated balance sheet.

 

27

6.

Leases

Operating leases

 

I.

Lessee

Future lease payments, including interest expenses, under non-cancelable operating leases as of March 31, 2024 and September 30, 2024 were as follows:

 

(Note) The above table does not include lease payments that are booked as “Right-of-use assets” at overseas subsidiaries.

 

II.

Lessor

Future lease receivables, including interest receivables, under non-cancelable operating leases as of March 31, 2024 and September 30, 2024 were as follows:

 

 

28

7.	Financial Instruments

 

I.	Matters concerning fair value of financial instruments and breakdown by input level

The amounts on the consolidated balance sheet, the fair value of financial instruments, the difference between them as well as a breakdown of financial instruments by input level are as follows.

The following tables do not include investment trusts which are accounted for in accordance with Paragraphs 24-3 and 24-9 of ASBJ Implementation Guidance No. 31, “Implementation Guidance on Accounting Standard for Fair Value Measurement” (ASBJ, June 17, 2021) (“Implementation Guidance on Fair Value Measurement”), stocks with no market price, etc. and investments in partnerships and others which are accounted for in accordance with Paragraph 24-16 of the Implementation Guidance on Fair Value Measurement. (See Note (*2) to each of the tables in (1), (Note 3) and (Note 4) below.)

The fair values of financial instruments are classified into the following three levels depending on the observability and significance of the input used in the fair value calculation.

Level 1: Fair value determined based on (unadjusted) quoted prices in active markets for identical assets or liabilities

Level 2: Fair value determined based on directly or indirectly observable inputs other than the Level 1 inputs

Level 3: Fair value determined based on significant unobservable inputs

Where multiple inputs are used with a significant impact on the fair value calculation, the fair value of a financial instrument is classified based on the lowest of the priority levels to which any of those inputs belongs.

 

29

(1)	Financial assets and liabilities at fair value on the consolidated balance sheets

As of March 31, 2024

 

		(in millions of yen)
Category		Amount on consolidated balance sheet
		Level 1				Level 2				Level 3				Total
Monetary claims bought (*1)			—				643,385				1,248,256				1,891,641
Trading assets			5,123,276				5,193,024				74,665				10,390,967
Money held in trust (Trading purpose / Other)			—				1,182,414				5,864				1,188,278
Securities (Available-for-sale securities)			38,777,821				19,187,848				603,542				58,569,211
Domestic equity securities			5,074,443				24,554				2,694				5,101,691
Government bonds			21,336,858				28,382				—				21,365,241
Municipal bonds			—				1,045,990				—				1,045,990
Short-term corporate bonds			—				—				—				—
Corporate bonds			—				2,663,412				—				2,663,412
Foreign equity securities			628,522				44,455				36,587				709,565
Foreign bonds			11,412,226				9,575,971				2,285				20,990,483
Investment trusts (*2)			321,189				5,743,840				2,218				6,067,249
Other securities			4,580				61,239				559,756				625,577
Total assets			43,901,097				26,206,672				1,932,328				72,040,098
Trading liabilities			5,650,311				183,539				—				5,833,851
Borrowed money (FVO) (*3)			—				126,251				—				126,251
Bonds payable (FVO) (*3)			—				93,700				26,411				120,111
Other liabilities			—				—				17,413				17,413
Total liabilities			5,650,311				403,491				43,824				6,097,627
Derivatives (*4) (*5) (*6)			(14,670	)			(836,182	)			138,640				(712,212)
Interest rate-related derivatives			(6,713	)			(881,512	)			39,723				(848,502	)
Currency-related derivatives			9,518				33,389				10,274				53,183
Equity-related derivatives			(17,465	)			(28,978	)			11,688				(34,756	)
Bond-related derivatives			(9	)			43,350				77,444				120,785
Commodity-related derivatives			—				—				(45	)			(45	)
Credit-related derivatives			—				(2,437	)			(351	)			(2,789	)
Other derivatives			—				4				(92	)			(88	)

 

(*1)	Monetary claims bought consist of securitized products, etc. of ¥1,891,641 million accounted for in the same manner as available-for-sale securities.

(*2)

The amount of investment trusts which are accounted for in accordance with Paragraph 24-3 and 24-9 of the Implementation Guidance on Fair Value Measurement is not included in the table above. The amount of such investment trusts on the consolidated balance sheet is ¥817,460 million of financial assets.

(*3)	Some overseas subsidiaries apply the fair value option.

(*4)	Derivative transactions in trading assets and liabilities as well as other assets and liabilities are shown together. Assets or liabilities arising from derivative transactions are presented on a net basis, and net liabilities in the aggregate are presented in minus.

(*5)	Derivative transactions to which hedge accounting is applied are reported on the consolidated balance sheet at ¥(1,310,705) million.

(*6)

Transactions to which hedge accounting is applied include interest rate swap transactions designated as hedging instruments for the purpose of fixing cash flows from hedged loans and other assets. Deferred hedge accounting is applied to these transactions. Of these hedge relationships, all hedge relationships to which “Practical Solution on the Treatment of Hedge Accounting for Financial Instruments that Reference LIBOR” (ASBJ PITF No.40, March 17, 2022) applies are accounted for under the standard.

 

30

As of September 30, 2024

 

		(in millions of yen)
Category		Amount on consolidated balance sheet
		Level 1				Level 2				Level 3				Total
Monetary claims bought (*1)			—				546,607				1,288,549				1,835,157
Trading assets			6,465,613				5,160,883				76,761				11,703,258
Money held in trust (Trading purpose / Other)			—				1,030,692				4,164				1,034,856
Securities (Available-for-sale securities)			33,118,072				20,455,954				694,634				54,268,661
Domestic equity securities			4,049,196				21,923				3,504				4,074,625
Government bonds			17,220,732				28,303				—				17,249,035
Municipal bonds			—				860,618				—				860,618
Short-term corporate bonds			—				—				—				—
Corporate bonds			—				2,165,307				—				2,165,307
Foreign equity securities			472,195				104,786				31,862				608,845
Foreign bonds			11,120,692				12,150,372				108,227				23,379,293
Investment trusts (*2)			248,430				5,048,088				150				5,296,670
Other securities			6,824				76,552				550,888				634,265
Loans and bills discounted			—				—				77,575				77,575
Total assets			39,583,685				27,194,138				2,141,685				68,919,510
Trading liabilities			5,177,530				195,382				—				5,372,912
Borrowed money (FVO) (*3)			—				154,357				—				154,357
Bonds payable (FVO) (*3)			—				67,486				10,698				78,185
Other liabilities			—				—				19,048				19,048
Total liabilities			5,177,530				417,226				29,747				5,624,503
Derivatives (*4) (*5)			(19,736	)			(218,939	)			346,342				107,666
Interest rate-related derivatives			(1,934	)			(711,057	)			252,401				(460,590	)
Currency-related derivatives			2,098				458,466				12,782				473,347
Equity-related derivatives			(18,690	)			5,691				12,230				(768	)
Bond-related derivatives			(1,209	)			29,297				69,002				97,090
Commodity-related derivatives			—				—				(29	)			(29	)
Credit-related derivatives							(1,336	)			(386	)			(1,723	)
Other derivatives			—				(0	)			341				340

 

(*1)	Monetary claims bought consist of securitized products, etc. of ¥1,826,164 million accounted for in the same manner as available-for-sale securities.

(*2)

The amount of investment trusts which are accounted for in accordance with Paragraphs 24-3 and 24-9 of the Implementation Guidance on Fair Value Measurement is not included in the table above. The amount of such investment trusts on the consolidated balance sheet is ¥1,000,165 million of financial assets.

(*3)	Some overseas subsidiaries apply the fair value option.

(*4)	Derivative transactions in trading assets and liabilities as well as other assets and liabilities are shown together. Assets or liabilities arising from derivative transactions are presented on a net basis, and net liabilities in the aggregate are presented in minus.

(*5)	Derivative transactions to which hedge accounting is applied are reported on the consolidated balance sheet at ¥(631,355) million.

 

31

(2)	Financial assets and liabilities which are not stated at fair value on the consolidated balance sheets

Cash and due from banks, Call loans and bills bought, Receivables under resale agreements, Receivables under securities borrowing transactions, Foreign exchanges (assets and liabilities), Call money and bills sold, Payables under repurchase agreements, Payables under securities lending transactions, Commercial papers, Short-term bonds payable, Due to trust accounts and Other liabilities are not included in the following tables since they are predominantly short-term (within one year), and their fair values approximate their carrying amounts.

As of March 31, 2024

 

		(in millions of yen)
Category		Fair value																Amount on consolidated balance sheet				Difference
		Level 1				Level 2				Level 3				Total
Monetary claims bought (*1)			—				—				5,890,505				5,890,505				5,895,337				(4,831	)
Money held in trust (other / held to maturity)			—				79,931				—				79,931				82,537				(2,605	)
Securities (held to maturity)			14,522,296				7,456,590				—				21,978,887				22,262,495				(283,607	)
Government bonds			14,522,296				30,000				—				14,552,296				14,643,055				(90,759	)
Municipal bonds			—				1,984,901				—				1,984,901				1,999,181				(14,279	)
Short-term corporate bonds			—				—				—				—				—				—
Corporate bonds			—				665,990				—				665,990				668,174				(2,184	)
Foreign bonds			—				4,775,698				—				4,775,698				4,952,083				(176,384	)
Other securities			—				—				—				—				—				—
Foreign bonds (amortized at cost in accordance with IFRS9)			7,974				14,705				—				22,680				21,930				749
Loans and bills discounted (*2) (*3)			—				251,277				115,456,405				115,707,682				115,546,436				161,245
Total assets			14,530,271				7,802,505				121,346,910				143,679,687				143,808,736				(129,049	)
Deposits			—				224,252,054				—				224,252,054				224,035,035				217,019
Negotiable certificates of deposit			—				16,623,704				—				16,623,704				16,555,451				68,252
Borrowed money			—				25,799,730				—				25,799,730				25,829,710				(29,980	)
Bonds payable (*3)			—				15,796,677				—				15,796,677				16,183,186				(386,509	)
Total liabilities			—				282,472,193				—				282,472,193				282,603,383				(131,190	)

 

(*1)	Monetary claims bought include securitized products, etc. of ¥2,581,465 million accounted for in the same manner as securities held to maturity.

(*2)

General and specific allowances for credit losses of ¥1,279,223 million corresponding to loans are deducted. However, with respect to items other than loans, the amount stated on the consolidated balance sheet is shown since the amount of allowance for credit losses corresponding to these items is insignificant.

(*3)

With respect to interest rate swaps to which special hedge accounting treatment is applied to offset fluctuations in the market value of the hedged items and forward exchange contracts, etc. to which the allocation method is applied, the fair value of such interest rate swaps and such currency swaps is included in the fair value of the hedged items. Of these hedge relationships, all hedge relationships to which “Practical Solution on the Treatment of Hedge Accounting for Financial Instruments that Reference LIBOR” (ASBJ PITF No.40, March 17, 2022) applies are accounted for under the standard.

 

32

As of September 30, 2024

 

		(in millions of yen)
Category		Fair value																Amount on consolidated balance sheet				Difference
		Level 1				Level 2				Level 3				Total
Monetary claims bought (*1)			—				—				4,684,370				4,684,370				4,682,134				2,236
Money held in trust (other / held to maturity)			—				79,866				—				79,866				82,527				(2,660	)
Securities (held to maturity)			12,927,548				7,798,581				—				20,726,129				20,921,101				(194,971	)
Government bonds			12,927,548				79,999				—				13,007,547				13,122,976				(115,428	)
Municipal bonds			—				2,193,346				—				2,193,346				2,216,346				(22,999	)
Short-term corporate bonds			—				—				—				—				—				—
Corporate bonds			—				906,806				—				906,806				910,983				(4,176	)
Foreign bonds			—				4,618,429				—				4,618,429				4,670,795				(52,366	)
Other securities			—				—				—				—				—				—
Foreign bonds (amortized at cost in accordance with IFRS9)			8,929				127,763				2,136				138,828				137,742				1,086
Loans and bills discounted (*2)			—				253,310				119,316,959				119,570,270				119,296,103				274,167
Total assets			12,936,478				8,259,522				124,003,466				145,199,467				145,222,053				(22,586	)
Deposits			—				222,661,317				—				222,661,317				222,446,306				215,011
Negotiable certificates of deposit			—				17,465,160				—				17,465,160				17,398,159				67,000
Borrowed money			—				24,393,734				—				24,393,734				24,426,873				(33,139	)
Bonds payable			—				14,196,114				—				14,196,114				14,342,016				(145,902	)
Total liabilities			—				278,716,327				—				278,716,327				278,613,356				102,970

 

(*1)	Monetary claims bought include securitized products, etc. of ¥1,818,346 million accounted for in the same manner as securities held to maturity.

(*2)

General and specific allowances for credit losses of ¥1,214,613 million corresponding to loans are deducted. However, with respect to items other than loans, the amount stated on the consolidated balance sheet is shown since the amount of allowance for credit losses corresponding to these items is insignificant.

 

33

(Note 1)

Description of the valuation techniques and inputs used to measure fair value

Monetary claims bought

The fair value of monetary claims bought is determined using prices obtained from third-party vendors (broker-dealers, etc.) or the prices estimated based on internal models.

With respect to some securitized products backed by general corporate loans, the fair value is measured by considering the estimated fair value amounts determined using projected cash flows through an analysis of the underlying loans, probability of default, prepayment rates, etc. and discounting the projected cash flows using discount rates reflecting the liquidity premium based on historical market data and the prices obtained from independent broker-dealers. These products are classified into Level 3.

For other securitized products, the fair value is determined based on the prices obtained from independent third parties after considering the results of periodic confirmation of the current status of these products, including price comparison with similar products, time series data comparison of the same product, and analysis of consistency with publicly available market indices. These products are classified into Level 2 or Level 3 depending on the inputs used for the prices obtained from independent third parties.

For certain monetary claims bought for which these methods do not apply, the fair value is measured based on either the present value using projected future cash flows through an analysis of prepayment rates, etc., and discounting the project cash flows at the market interest rates as of the valuation date with certain adjustments, or is the carrying amount if their fair value approximates such carrying amount from their qualitative viewpoint. If these monetary claims bought are measured at present value, these monetary claims bought are classified into Level 2 or, if they are short-term and their fair value approximates the carrying amount, then the carrying amount is presented as their fair value, and they are classified into Level 3.

Trading assets and liabilities

Securities such as bonds that are held for trading purposes are classified as Level 1 if prices quoted by stock exchanges are available in an active market, and as Level 2 if the fair value is determined based on either the present value of the expected future cash flows discounted at an interest rate based on the market interest rates as of the date of evaluation with certain adjustments or prices quoted by the financial institutions from which these securities are purchased.

Money held in trust

For securities that are part of trust property in an independently managed monetary trust with the primary purpose to manage securities, the fair value is determined based on the prices quoted by the financial institutions from which these securities are purchased, and these securities are classified into Level 2 depending on the fair value hierarchy of the component assets.

See “Money Held in Trust” for notes on money held in trust by category based on each purpose of holding the money held in trust.

Securities

The fair value of equity securities is determined based on the prices quoted by stock exchanges and equity securities are primarily classified into Level 1 as the quoted prices are available in active markets. The fair value of bonds is determined based on the market price or the price quoted by the financial institutions from which they are purchased or based on the price reasonably calculated using internal models. Government bonds are primarily classified into Level 1, other bonds are primarily classified into Level 2, and foreign equity securities with maturity as well as preferred securities included in Other securities are primarily classified into Level 3.

For privately placed guaranteed bonds held by MUFG’s bank subsidiaries, the fair value is determined based on the present value of expected future cash flows, which are adjusted to reflect credit risk, the amounts expected to be collected from collateral and guarantees and guarantee fees, and discounted at an interest rate based on the market interest rates as of the date of evaluation with certain adjustments. These bonds are classified into Level 2 depending on credit risk, etc.

The fair value of investment trusts is determined based on the closing market price or other publicly available net asset value. Listed investment trusts and listed real estate investment trusts, which have closing market prices, are primarily classified into Level 1, and other investment trusts are primarily classified into Level 2. Investment trusts which are accounted for at net asset value in accordance with Paragraphs 24-3 and 24-9 of the Implementation Guidance on Fair Value Measurement are not classified into any fair value hierarchy.

See “Securities” for notes on securities by category based on each purpose of holding the securities.

 

34

Loans and bills discounted

With respect to loans, for each category of loans based on their types, credit ratings and maturity periods, the fair value is determined based on the present value of expected future cash flows, which are adjusted to reflect default risk and the amount expected to be collected from collateral and guarantees and discounted at an interest rate based on the market interest rates as of the date of evaluation with certain adjustments. These loans are classified into Level 3. For certain loans with floating interest rates, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount, unless the creditworthiness of the borrower has changed significantly since the loan origination. These loans are classified as Level 3.

For receivables from bankrupt, virtually bankrupt and likely to become bankrupt borrowers, credit loss is estimated based on factors such as the present value of expected future cash flows or the amount expected to be collected from collateral and guarantees. Since the fair value of these items approximates the net amount of receivables after the deduction of allowance for credit losses on the consolidated balance sheet as of the consolidated balance sheet date, such amount is presented as the fair value. These receivables are classified into Level 3. The fair value of loans qualifying for special hedge accounting treatment of interest rate swaps under Generally Accepted Accounting Principles in Japan (“JGAAP”) reflects the fair value of such interest rate swaps.

Deposits and Negotiable certificates of deposit

For demand deposits, the amount payable on demand as of the consolidated balance sheet date (i.e., the carrying amount) is considered to be the fair value. For floating rate time deposits, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount because the market interest rates are reflected in such deposits within a short time period. The fair value of most fixed rate time deposits is the present value of expected future cash flows grouped by certain maturity periods discounted at the market interest rates. These are classified into Level 2.

Borrowed money

For floating rate borrowings, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount. This is on the basis that the interest rates on such floating rate borrowings reflect the market interest rates in a short time period and that there has been no significant change in the creditworthiness of MUFG or MUFG’s consolidated subsidiaries after such borrowings were made. For fixed rate borrowings, the fair value is calculated as the present value of expected future cash flows from these borrowings grouped by certain maturity periods, which are discounted at the market interest rates reflecting the premium applicable to MUFG or MUFG’s consolidated subsidiaries. These are classified as Level 2.

Bonds payable

The fair value of corporate bonds issued by MUFG and MUFG’s consolidated subsidiaries is determined based on their market price. For certain corporate bonds, the fair value is calculated as the present value of expected future cash flows discounted at the market interest rates. For floating rate corporate bonds without market prices, the carrying amount of such bonds is presented as the fair value, as the fair value approximates such carrying amount. This is on the basis that the interest rates on such floating rate corporate bonds reflect the market interest rates in a short time period and that there has been no significant change in the creditworthiness of MUFG or MUFG’s consolidated subsidiaries after the issuance. For fixed rate corporate bonds without market prices, the fair value is the present value of expected future cash flows from these borrowings, which are discounted at the market interest rates reflecting the premium applicable to MUFG or MUFG’s consolidated subsidiaries. These are classified as Level 2. The fair value of corporate bonds qualifying for special hedge accounting treatment of interest rate swaps under JGAAP reflects the fair value of such interest rate swaps.

For structured bonds issued by some overseas subsidiaries, the fair value option is applied, and the fair value of structured bonds is calculated based on models. Structured bonds for which observable inputs are used are classified into Level 2. Structured bonds for which significant unobservable inputs are used are classified into Level 3.

 

35

Other liabilities

Contingent consideration associated with a business combination, which is included in other liabilities, is classified as Level 3 as the fair value of such contingent consideration is calculated using the discounted present value method, taking into account future cash flows, the probability of obligation and other factors.

Derivative transactions

Derivative transactions are ones involving interest rates (interest futures, interest options, interest swaps and other transactions), ones involving foreign currencies (currency futures, currency options, currency swaps and other transactions), and ones involving bonds (bond futures, bond future options and other transactions). The fair value of exchange-traded derivative transactions is based on the prices posted by exchanges. The fair value of over-the-counter derivative transactions is based on the discounted present value or amount calculated under the option-price calculation model.

The key inputs used in the valuation techniques for over-the-counter derivative transactions include interest rate yield curves, foreign currency exchange rates and volatility. For over-the-counter derivative transactions, adjustments are made for counterparty credit risk adjustments (credit valuation adjustments (CVA)) and adjustments are also made to reflect the impact of uncollateralized funding (funding valuation adjustments (FVA)). The calculation of CVA takes into account the probability of a default event occurring for each counterparty which is primarily derived from an observed or estimated spread on credit default swaps. In addition, the calculation of CVA takes into account the effect of credit risk mitigation such as pledged collateral and the legal right of offset with the counterparty. The calculation of FVA takes into account MUFG’s market funding spread reflecting the credit risk of MUFG and the funding exposure of any uncollateralized component of an over-the-counter derivative instrument entered into with the counterparty.

Exchange-traded derivative transactions valued using quoted prices are classified into Level 1. Over-the-counter derivative transactions are classified into Level 2 if their fair value is not measured based on significant unobservable inputs. Over-the-counter derivative transactions whose fair value is measured based on significant unobservable inputs are classified into Level 3.

 

36

(Note 2)

Quantitative information about financial assets and liabilities measured and presented on the consolidated balance sheets at fair value and classified in Level 3

 

(1)	Quantitative information on significant unobservable inputs

As of March 31, 2024

 

Category		Valuation technique		Signification unobservable inputs		Range		Weighted average (*1)
Monetary claims bought
Securitized products		Internal model (*2)		Correlation between underlying assets		3.0%		3.0%
				Liquidity premium		1.4%~1.6%		1.4%
				Prepayment rate		17.6%		17.6%
				Probability of default		0.0%~93.0%		—
				Recovery rate		55.0%		55.0%
Securities
Foreign equity securities		Discounted cash flow		Liquidity premium		0.8%~1.7%		1.4%
Other		Discounted cash flow		Liquidity premium		1.1%~3.2%		2.9%
Derivatives
Interest rate-related derivatives		Option model		Correlation between interest rates		30.0%~60.7%		—
				Correlation between interest rate and foreign exchange rate		(1.9)%~60.0%		—
				Volatility		61.2%~97.4%		—
Currency-related derivatives		Option model		Correlation between interest rates		30.0%~70.0%		—
				Correlation between interest rate and foreign exchange rate		5.5%~60.0%		—
				Correlation between foreign exchange rates		50.0%~70.5%		—
				Volatility		9.8%~21.3%		—
Equity-related derivatives		Option model		Volatility		22.9%~37.0%		—
				Correlation between foreign exchange rate and equity		0.0%~30.0%		—
				Correlation between equities		1.5%~82.3%		—

 

(*1)	The weighted average is calculated by weighing each input by the relative fair value of the respective financial assets.

(*2)	For further details of Internal model, refer to “Monetary claims bought” in “(Note 1) Description of the valuation techniques and inputs used to measure fair value” under “I. Matters concerning fair value of financial instruments and breakdown by input level” above.

 

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