Mitsubishi UFJ Financial : Basel Ⅲ Information (JGAAP)（PDF / 895KB）

Basel III Disclosure (Consolidated)

FISCAL 2020

Mitsubishi UFJ Financial Group

Table of contents

Basel III Disclosure (Consolidated)
Group Business Management	3
Basel III Data (Consolidated)	6
SCOPE OF CONSOLIDATION	7
COMPOSITION OF EQUITY CAPITAL	8
CREDIT RISK	22
APPENDED FORMS	25
COMPOSITION OF LEVERAGE RATIO DISCLOSURE	106
LIQUIDITY RISK	108
CHANGES IN THE CONSOLIDATED LIQUIDITY COVERAGE RATIO	111
FROM THE PREVIOUS QUARTER
EVALUATION OF THE CONSOLIDATED LIQUIDITY COVERAGE RATIO	112
LEVEL
COMPOSITION OF THE TOTAL HQLA ALLOWED TO BE INCLUDED	112
IN THE CALCULATION
OTHER MATTERS CONCERNING THE CONSOLIDATED LIQUIDITY	112
COVERAGE RATIO
NET OPERATING PROFITS/RISK-WEIGHTED ASSETS	113
BY BUSINESS GROUP

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Group Business Management

Business Management Framework

MUFG has introduced a "business group system" to develop and promote group-wide business initiatives along with a unified strategy based on seamless coordination between each group company. Specifically, in order to promote group-based, integrated management across the Bank, the Trust Bank, and the Securities Business, and to respond accurately to the increasingly diversified financial needs, we have established a framework consisting of seven business groups to serve as contact points for customers: Digital Service (newly established on April 1, 2021), Retail & Commercial Banking, Japanese Corporate & Investment Banking, Global Corporate & Investment Banking, and Global Commercial Banking, in addition to Asset Management & Investor Services and Global Markets.

Risk-Return Management

In order to improve the group-based risk profile, to earn an appropriate amount of profits, and to allocate managerial resources properly, MUFG compiles an "Economic Capital Allocation Plan" in which it allocates economic capital, matching the sum of various types of risk exposures calculated by an internal risk measurement model, to each business group, each subsidiary, and each risk category.

In addition, in order to comply with the Basel III regulatory capital regulations, MUFG introduced a "Risk-Weighted-Asset (RWA) plan," and controls risk takings by segment.

MUFG has also introduced business management indicators (ROEC*, RORA*, etc.) to assess and manage profitability against risk takings, aiming to heighten capital efficiency on a group basis.

Glossary of terms:

• ROEC (Return on Economic Capital)
  A ratio calculated by dividing the net income of each business group by its amount of allocated capital. MUFG uses ROEC to pursue efficient use of allocated capital distributed to respective business groups.
• RORA (Return on Risk Asset)
  A ratio calculated by dividing the net income of each business group by its amount of risk-weighted assets. MUFG uses RORA to pursue profitability and efficiency that are commensurate with risk-weighted assets.

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Overview of Internal Capital Adequacy Assessment Process

The holding company regularly assesses its internal capital adequacy from two perspectives: regulatory capital, based on capital adequacy ratio regulations (Basel III), and its own economic capital, based on internal risk assessment.

In assessing internal capital adequacy based on regulatory capital, the holding company confirms that it is maintaining sufficient capital both at the current time and in terms of what will be required in the future, calculating the Common Equity Tier 1 capital ratio, the Tier 1 capital ratio, the total capital ratio, and leverage ratio using capital, risk-adjusted assets and total exposures as stipulated in the capital adequacy ratio regulations. At the same time, the holding company confirms that it is maintaining appropriate capital relative to risk using the benchmark designated from the perspective of risk management.

An internal capital adequacy assessment based on economic capital is carried out within the framework of the capital allocation system, which allocates capital to credit risk, strategic equity portfolio risk, market risk, and operational risk. Credit concentration risk and interest rate risk in the banking book, as stipulated by the Second Pillar of Basel, are included in these risks. The method of calculating each risk under the capital allocation system uses the basic assumptions of a confidence level of 99.9% and a holding period of one year to enhance consistency with Basel III. The capital allocation plan is formulated after assessing internal capital adequacy by comparing the total risk amount, taking into account the effect of risk diversification, with total capital (Tier 1 capital + Tier 2 capital). Thereafter, internal capital adequacy is monitored on an ongoing basis by regularly checking the use of allocated capital versus the plan and the amount of allocated capital versus total capital.

The capital plans are stress-tested and are prepared based on a detailed analysis of the impact on capital and risk as well as an assessment of internal capital adequacy. (For the overview of the stress testing process, please refer to the below.)

The same framework for the assessment of internal capital adequacy used at the holding company is applied at the Group's two main banks: MUFG Bank, Ltd. and Mitsubishi UFJ Trust and Banking Corporation.

Overview of Stress Testing Process

1. Development of Stress Testing Scenarios
   Develop several scenarios taking into account such factors as our risk profile and underlying macroeconomic environment.
2. • Worst-casescenarios expected once in 5-10 years and worst-case scenarios expected once in 20-25 years are developed in principle and some additional scenarios are developed where necessary.

Prepare macroeconomic variables for the testing horizon under each scenario.

1. • Macroeconomic variables include GDP, TOPIX, JGB yield, dollar-yen exchange rate, euro-yen exchange rate, unemployment rate, CPI, and others.
2. Review and Approval Process of the Scenarios
   Scenarios developed under process (1) are reviewed by our internal committee and ultimately approved by our Group Chief Risk Officer.
3. Estimation of Financial Impact
   Estimate stress impacts on major assets and income based on the scenarios approved in process (2).
4. • Major items estimated include credit cost, losses on write-down on equity securities, net gains/losses on equity securities, net interest income, risk-weighted assets, and others.
5. Assessment of Internal Capital Adequacy
   Calculate the following ratios/amounts based on the stress impacts estimated in process (3), and assess internal capital adequacy of them.
6. • Common Equity Tier 1 ratio, Tier 1 ratio, total capital ratio, and leverage ratio

Stress testing results are reviewed by the Corporate Risk Management Committee.

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Top Risk

MUFG and its major subsidiaries control risk by taking a preventative approach of identifying the top risks and establishing the necessary countermeasures in advance. If risks do materialize, the situation is managed so as to enable a flexible response. Moreover, senior management discusses top risk to share risk awareness and develop effective countermeasures.

Major Top Risks

Risk events*	Risk scenarios

A decline in profitability (including a decline in net interest income)

• Our overall profitability may be adversely affected by, among other things, a decline in our net interest income due to further reductions in interest rates as a result of changes in the monetary policies of central banks in various jurisdictions in light of the COVID-19 pandemic and deterioration in global economic conditions.

An increase in risk-weighted	• RWAs may increase and the Group's capital adequacy ratio may decrease due to efforts to
assets (RWAs)	meet demand for new or additional financing as fundraising support.
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.
An 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, financial service outage and
	reputational damage.
	• System failures may result in our payment of financial compensation and damage to our
	reputation.
Risks relating to money	• If we are deemed not complaint with applicable regulations relating to money laundering,
laundering, economic sanctions,	economic sanctions, bribery and corruption, we may become subject to issuance of business
bribery and corruption	suspension orders, fines and reputational damage.
Market conduct risk	•  Failing to comply with laws and regulations, breaching a social norm, conducting improper
	business / market practices or lacking perspective on customers' interests may result in
	administrative business suspension orders, payment of fines or damage to our reputation.

Risks relating to external circumstances or events (such as health pandemics, earthquakes, floods, terrorism, etc.)

• Health pandemics, natural disasters, conflicts and terrorist attacks may result in disruption to all or part of our operations or an increase in costs and expenses in addressing such circumstances or events.

Climate change-related risks	• 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.
• The aforementioned risk scenarios are examples of scenarios reported to MUFG's Board of Directors after being discussed at a Risk Committee meeting held in March 2021. These scenarios include types of incidents that are not necessarily specific to MUFG and can happen to business corporations in general.

Concept of top risks

• Risks are defined as the losses that MUFG would incur as a result of each risk scenario materializing. The materiality of a risk is determined based on the impact and probability of risk occurrence (external and internal factors).
• Risks that MUFG believes require priority attention over the next one year period are defined as top risks (including risk events having the potential to have a relatively high probability of occurrence. Moreover, including risks that are not only limited to the quantifiable ones, but those that could materially affect MUFG's business in the future because of possible adverse effects on MUFG's strategies or reputation).
• MUFG creates a risk map to comprehensively grasp specified top risks, and makes use of it for forward-looking risk management.

Note: The table shown above only describes some of the risks that MUFG believes are material. Please note that other risks not identified in the above table could materially affect MUFG's operating results. Please refer to other disclosure materials such as Annual Securities Report, Quarterly Securities Report, Form 20-F, and Form 6-K for more details on MUFG's and its subsidiaries' risk information.

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