Mitsubishi UFJ Financial Group, Inc.

Good evening. I am Togawa, Group CFO. May I thank all the investors, shareholders, and rating agencies for joining MEFG's online conference call today, despite the late hour. Please look at the material titled Financial Highlights Under JGAP for the Fiscal Year Ended March 31, 2026. First, let me explain our FY25 financial results, followed by FY26 performance targets, shareholder return policy, and others. Let me begin with the income statement summary. Please turn to page 8. FY24 on the far left column includes the impact of the change in financial results closing date at Krumsi in Thailand last year. Therefore, the far right column shows the actual year-on-year change after adjusting for this impact. I will explain this page using the adjusted year-on-year change. Line 1, gross profits increased by 1,290,000,000,000 yen year-on-year. Line 2 and below show the breakdown of gross profits. Net interest income increased by the impact of higher yen interest rates, increased lending with improved lending margins, and improvements due to last year's bond portfolio rebalancing. In addition, net fees and commissions expanded significantly, mainly driven by domestic and overseas solution business and contribution from acquisitions. Fee income increased by around 300 billion yen for two consecutive years. On the other hand, line 4, net trading profits and net other operating profits increased significantly year on year due to special factors. With the review of yen interest rate hedging operations in FY25, 200 billion yen of deferred hedging gains and losses recorded in net assets was recognized as realized losses. On the other hand, we had a rebound from approximately 780 billion yen loss on sale of debt securities, mainly foreign bond, following bond portfolio rebalancing in FY24. Due to these two special factors, gross profits increased significantly. The review of yen interest rate hedging operations in FY25 will boost our net interest income by approximately 20 billion yen from FY26 onward. Next, Line 6 G&A expenses increased by 424.6 billion yen year-on-year. The increase is around 200 billion yen, excluding the FX impact of approximately 100 billion yen and impact of acquisitions around 120 billion yen. This is due to strategic expense allocation in retail and digital business group, AI, cybersecurity, etc., and the impact of inflation, among other factors. As a result, line 8, net operating profits increased significantly by 865.5 billion yen year-on-year. Next, line 9, total credit costs increased by 290.6 billion yen year-on-year. I will explain this later. Line 10, net gains on equity securities decreased by 108.1 billion yen due to the absence of large gain on sale of equity holdings in FY24. Line 12, equity and earnings of equity method investees increased significantly year on year, mainly thanks to exceptionally strong performance of Morgan Stanley. As a result, line 16, profits attributable to owners of parent, increased by 586.3 billion yen year-on-year. ROE on JPX basis reached 11.3%, exceeding 11% for the first time since MEFG was established. This demonstrates a solid improvement in both profitability and capital efficiency. ROE excluding the impact of equity holdings is approximately 10.4%, indicating steady progress toward the medium to long-term ROE target of 12%. Page 9 through 12 show the results by business group. I will not go into detail, but in line with the steady evolution of our growth strategy, NOP increased year-on-year in all business groups. Please turn to page 14 on balance sheet summary. The left diagram shows the overview of our balance sheet. Loan on the upper left increased by approximately 12.3 trillion yen from the end of FY24. Excluding government loans in Japan, the increase was approximately 17 trillion yen due to strong financing needs both in Japan and overseas, as well as large high profitability deals in Japan near the end of the fiscal year. Next, page 15 shows the status of domestic loans. The lower right graph shows the trend in domestic corporate lending spreads. The gradual uptrend in both large corporates in red and SMEs in orange continues thanks to the successful profitability improvement measures. Page 16 shows the status of overseas loans. The bottom right graph shows the trend in overseas lending spreads. It has stabilized somewhat as the replacement of low profitability assets with high profitability assets in the U.S. has run its course, but we will continue to work on improving profitability in each region and expect to maintain a gradual improvement trend. Please turn to page 17 on asset quality. NPL ratio shown on the line graph on the left remains at a low level. The bottom right graph shows the breakdown of year-over-year changes in total credit costs. It increased significantly on a bank non-consolidated basis due to reversal of large credit costs recorded mainly overseas in FY24. Overseas subsidiaries also saw an increase due to the acquisition of a subsidiary at Kroonsi in Thailand. Total credit costs were up by 290.6 billion yen, a significant increase year on year, but were in line with the initial forecast of 350 billion yen, despite the impact of the weaker yen and the acquisition of a subsidiary by Crimsey. Next, please turn to page 18 on the breakdown of our credit portfolio. While there are concerns from investors regarding private credit and the Middle East, MEFG's exposure to such areas is currently limited, and we are mainly focusing on low-risk deals. Furthermore, in response to concerns about increased future credit risk stemming from the situation in the Middle East, we recorded a certain amount of provision, roughly 25 billion yen in FY25, based on a reasonable estimate at this time.

Please turn to page 19. This shows the status of investment securities such as equity and government bonds. I will explain the unrealized gains and losses shown in the table on the upper left. Regarding the balance of domestic equity securities in the third row, while we have made progress in reducing our equity holdings, the balance has increased by 0.19 trillion yen compared to the end of March 25 due to rising stock prices. Unrealized gains and losses on domestic bonds reflected hedging positions in the upper part of the lower graph on the left remains under control at a low level of 0.2 trillion yen even amid rising interest rates. Furthermore, unrealized gains on foreign bonds reflected hedging positions in the lower section are positive. We can say that the unrealized gains on available for sale securities are in an extremely sound condition. Regarding the reduction of equity holdings on the right, the total agreed amount to be sold under the current MTBP, including those not yet sold, has reached approximately 600 billion yen. We will continue to strive to achieve our reduction target of 700 billion yen. Furthermore, the ratio of domestic listed equity securities and deemed holdings to consolidated net assets stood at 18%, partly due to a significant decrease in the balance of deemed holdings in fiscal year 25, raising the likelihood of achieving the ratio of less than 20% during the current MTBP period considerably. Page 21 outlines our capital adequacy. Set one ratio reflecting the finalized and fully implemented Basel III basis, excluding net unrealized gains, stood at 9.2%, a 1.6 percentage point decrease from the end of March 2025, and fell below the target range. This was due to capital allocation results shown in the lower right, including our investment in CRM finance and a significant increase in loans near the end of the fiscal year that I mentioned. Originally, we had stated that this ratio was inflated by approximately 30 basis points compared to the end of March 25 due to yen depreciation, and that the actual level was around 10.5%. Therefore, in real terms, this represents a decline of 1.3 percentage points. Half of this decline is attributable to the investment in share and finance, while the majority of the remainder is due to risk-related asset factors resulting from increase in lending. Given the rise in profit levels over the past few years, we believe that by steadily accumulating profits, we can restore capital while balancing shareholder returns and growth, and to return to the target range within the current fiscal year. Next, I would like to discuss our view of the business environment, forming the basis of the assumptions for FI26 targets. Please turn back to page 3. The domestic economy is supported by an accommodative financial environment and various government policies designed to boost growth. While corporate earnings in Japan is facing some downward pressure, such as from U.S. tariff policies, we believe the overall growth trend is continuing. At the same time, we currently face a highly uncertain business environment fraught with various risks, particularly the situation in the Middle East and cybersecurity risks. While we continue to monitor the situation closely, we will leverage our group's comprehensive strength and our resilient, diversified business portfolio to respond flexibly to these environmental changes. Please turn to page four regarding our performance targets for FI2026. As I just mentioned, although the current external business environment remains highly uncertain, our target for profits attributable to owners of parent is 2.7 trillion yen, representing an increase of over 10% from fiscal year 2025, which was a record high. As shown in the bottom left chart, growth in NOP, which demonstrates the strength of our core business, will continue to be the main driver of growth. Furthermore, for FY2026, as the financial target for the final year of our current MTBP, we aim for ROE of approximately 12%. We have previously referred to the two ROE 12% targets, and this will realize the 12% ROE we had expected to achieve in the short term. While there are various risk factors, including the current situation in the Middle East, none have materialized at this point. Therefore, they have not been factored into the plan's assumptions. Next, on the right side of the page, we have shareholder returns. We continue to target a dividend payout ratio of around 40%. We have raised the annual dividend for fiscal year 2025 to ¥86, an increase of ¥22 from the previous fiscal year and ¥12 from the most recent forecast. Furthermore, the projected annual dividend for fiscal year 2026 is ¥96, a further increase of ¥10 from fiscal year 2025. Regarding share buybacks, based on the trend in the SET1 ratio, we have resolved to repurchase common stock up to ¥100 billion in the first half of the fiscal year. For the second half, we will evaluate the necessary capital level to ensure financial soundness, taking into account profit progress, the expected use of capital for growth, and the external environment at that time. We will continue to pursue shareholder returns while maintaining an optimal balance between capital soundness and growth investments. Please turn to page 5. This shows the progress toward the financial targets of the current MTVP. As I mentioned earlier, we have raised the ROE target for the current MTBP to approximately 12%. At the same time, we have also raised the profit target, which is the driver for achieving the ROE target. We will continue to manage our finances with a focus on three key areas, profit, expense, and RWA. Please turn to page 6. I will now explain the progress of the three pillars of MTBP, which we position as the three years to pursue and produce growth. First, regarding the first pillar, expand and refine growth strategies, as shown in the graph on the left, the seven growth strategies are each progressing steadily, resulting in an increase in profit of approximately 440 billion yen. compared to fiscal year 2023. In particular, for domestic retail, the launch of EMUT announced last June has led to a significant increase in new account openings and expanded transactions across group companies. Going forward, we aim to further expand our services through new initiatives, such as the launch of the digital bank, the integration of Mitsubishi UFJ eSmart Securities and Wealth Navi, and a strategic partnership with Google announced recently. Finally, please turn to page 7. The left side represents the second pillar, social and environmental progress. Even amid high level of uncertainty, we will continue to pursue decarbonization while balancing economic growth. Our recently published Transition Progress 2026 report focuses on the progress of our transition plan toward a sustainable society. Specifically, regarding emissions reductions in our finance portfolio, we have revised interim targets for certain sectors and formulated a new five-year action plan aimed at achieving net zero by 2050. We are also continuing to build a solid chart record in sustainable finance. On the right is the third pillar, transformation and innovation. In our current MTBP, to fully unlock MEFC's potential, we are promoting a group-wide effort that combines ongoing cultural reform with taking on new business challenges, investing in human capital, and strengthening our infrastructure in areas such as AI and data, In particular, we are accelerating our efforts to expand the use of AI. By combining this with agile transformation, we are driving a group-wide transformation into an AI-native company. The number of implemented AI use cases is progressing at a pace exceeding our plans. The total investment amounts during the current MTBP is expected to exceed 70 billion yen, and we anticipate that nearly 40 billion yen in expected benefits will materialize early by the end of fiscal 2026. We will continue to accelerate the use of AI across the entire group and promote initiatives such as partnerships with other companies. The environment surrounding us, and I believe that I said something similar last year, is currently at a major turning point and we are living in an era of uncertainty. Even so, MUFG will strive for sustainable growth through our diversified business portfolio while working to realize our stated purpose, committed to empowering a brighter future. We ask for your continued support. This concludes my presentation.

Thank you. Thank you, Toga-san. We will now take questions from you. Let me introduce the first questioner. Mr. Takamiya from Nomura Securities, please. This is Takamiya from Nomura Securities. I have two questions. the background behind the decision on the amount of share buyback, and your underlying capabilities toward your NOP result for FY25. Regarding the share buyback, I understand the opaque environment and the fact that set one ratio of 9.2% at the end of March 26th is slightly below the lower end of the target range of 9.5%, but the gap is only 30 basis points. Considering that MEFG had previously taken a forward-looking stance and given the net income guidance of 2.7 trillion yen for FY26 and the total payout ratio target An early recovery of the set-one ratio can be expected, so some investors may view 100 billion yen as conservative. Could you explain the background and your thinking behind the points I just raised and other relevant points? That is my first question. Secondly... Regarding the increase in net interest income for FY25, what does the core underlying performance look like? If you have any views on particular business group or region driving this growth, please explain. Thank you for the question. First, regarding the basis for the 100 billion yen share buyback, We had no intention of setting a conservative amount given the uncertainty of the future. Set one ratio at the end of March was 9.2%, which was below the lower end of the target range. So clearly, we think we need to bring it back up to the lower end for the time being. As I mentioned earlier, Even with a 100 billion yen share buyback, we expect to recover to near the lower end of the target range during the first half of the year. As for the scale of the share buyback for the second half, given the progress towards the 2.7 trillion yen net income target for FY26 and the fact that the higher than expected lending resulted in a slight shortfall from the target range, we will consider the amount of buyback after carefully assessing the balance with loan growth that will contribute to future profits. Please note that we are not taking future uncertainties into too much consideration. NII was up by about 5 billion yen year on year as decline due to currency impact change in financial results closing date in FY24 was offset by a positive impact of weaker yen in FY25. That said, NII increased even with the absence of the 135 billion yen in gains on investment trust cancellation in FY24. So I believe the quality of our NII also improved significantly. I hope this answers your question. Thank you. Next, Mr. Nakamura of BOA Securities, please. This is Nakamura of BOA Securities. I also have two questions. First, regarding the set one ratio, Based on previous communications in the first half, Q3, after the Sriram deal was finalized, perhaps this is just my own assumption, but I expected Set 1 ratio at the end of March 26 to be around 9.8%, so 9.2% seems lower than expected. Please explain if there were any factors, such as a few dozen basis points from loans and others, that caused it to fall below internal expectations. To put it somewhat harshly, was it within the scope of the CEO and other management teams' expectations that set one ratio fell below the target range despite the hard work of the front offices to increase profits? If I were in the front office, I would be wondering why set one ratio is dropping like this. Since a dividend increase was also announced, only short-term investors may be concerned about the temporary drop in set one ratio, but could you explain whether it was managed with the full understanding of everyone, including the CEO? That is my first question. My second question overlaps with Mr. Takamiya's earlier question. I believe the amount of change in NOP by business group will be given at the IR presentation on the 19th. Could you explain the details of the projected growth in NOP for FY26? Thank you for the question. First, Set 1 ratio as of the end of March 25, announced in May of last year, was 10.8%. But excluding the FX impact on subsidiaries with change in financial results closing date of approximately plus 30 basis points, the actual ratio is around 10.5%. The initial expected impact when we announced the investment in Sriram Finance was approximately negative 60 basis points. Considering the negative impact of 30 to 35 basis points from increased lending, the ratio at the end of March 26 was estimated at around 9.5 to 9.7%. The fluctuations from the forecast were as follows. Approximately plus 10 basis points due to net profit upside excluding dividend increase and FX impact. Around negative 5 basis points impact from additional impact from Shriram Finance investment due to FX fluctuations. Negative 9 basis points due to the 3 trillion yen upside in the loan period and balance as opposed to the usual downtrend. Negative 4 basis points due to higher profit accumulation at equity method investees, mainly Morgan Stanley. And negative 20 basis points due to an increase in operational RWA resulting from higher gross profits. Therefore, the final set one ratio was 9.2%. While some of the upsides in operational RWA, which are technical factors, were not fully anticipated, the increase in loan balance itself was within our expectation. Looking at the results by business group, in FY25, in Japan, JCIB and commercial banking and wealth management, in particular, increased their average loan balance while securing lending spreads. And the associated fee income from loan-related activities, LBOs, MBOs, and real estate businesses, so they were significant drivers. Another driver was global CIB, where O&D business, mainly large-scale project finance deals for AI and data centers, was successful, although we hear various concerns, and loan-related fees increased significantly. I wanted to ask about the breakdown of your FY26 plan by business group. My apologies. For FY26, we forecast a 170 billion yen increase from rising yen interest rates. and ¥140 billion increase due to the rebound from the realized losses resulting from the review of yen interest rate hedging operations, both after tax basis. And as shown in the left graph on page 4, 140 billion yen increase in loan interest income and fee income. On the lending side, approximately 80 billion yen in both domestic and overseas loans, 45 to 50 billion yen in fee income, 38 to 40 billion yen in AMIS, asset management and investor services, and 17 to 18 billion yen from our Asian partner banks. where the contribution from acquisitions will be fully realized from FY26. These are the positive factors to the growth in gross profits. We need to carefully monitor the impact of the situation in the Middle East on the performance of our Asian partner banks, but these are the main areas of expected gross profit increase. I see that you have higher expectations on the domestic side. Yes, you are right. Are you expecting net gains and losses on equity securities to be around 600 billion yen? We reached 560 billion yen at the end of FY25. So in FY26, we intend to sell the remaining amount to reach 700 billion yen, including the agreed but unsold and yet to be agreed amount. Therefore, we expect unrealized gains to become gain on sale. Thank you. Thank you. Next is Mr. Matsuno from Mizuho Securities, please. This is Matsuno from Mizuho Securities. Thank you for your explanation. I have two questions. My first question is about lending. Please explain why overseas loans increased significantly. MUFG is actively promoting O&D, so is this happening because you are unable to distribute in this environment, or that is not the case? This is my first question. My second question is on credit costs. In Q4 of FY25, you accounted forward-looking credit costs related to the situation in the Middle East. Could you give us the size of these provisions and your outlook for future credit costs? Thank you for the question. Overseas lending includes bridge loans related to Japanese companies' overseas acquisitions and a temporary increase due to a timing difference between warehousing and sell-down in O&D. The increase is approximately 5 trillion yen, excluding the FX impact, so please understand that there are some ad hoc factors. Regarding credit costs, we accounted just under 25 billion yen for a specific portfolio for the Middle East. This may be less than other megabanks. But MUFG's approach to building provision for specific portfolio is to calculate the additional required amount based on the reserve ratio relative to the total amount of exposure. Therefore, if the reserve ratio is higher than that of other mega banks, the additional reserve will be smaller. Overall, the historical average over the past 10 years is 330 billion yen. So we are looking at that average. If the situation in the Middle East worsens and lingers like the COVID-19 pandemic, it could increase by about 100 billion yen, but we are not currently making such assumptions. I understand well. Thank you very much. Thank you.

Next, Mr. Yamo from J.P. Morgan Securities. Thank you. This is Yano from JP Morgan Securities. I have two questions. The first question is on the guidance for FI26. The interest rate assumption is around 1%, but when do you expect rates to rise to that level? In other words, if the BOJ's rate hike is delayed slightly, for example, if we have to wait until the end of the fiscal year, what would be the downside risk to the earnings forecast and guidance? That is my first question. My second question concerns the fund-related exposure on slide 18. I really appreciate you providing this information. Within this, for example, regarding BDCs, I'd like to know the balance or status regarding software-related companies, although I don't think this falls strictly under the BDC categories, investments in the so-called data centers. Also, please tell me about the distribution status, whether you're successfully divesting to local investors as planned and within the expected range. Since you have provided an explanation on private credit, I'd like some additional color on data center and software sectors. Thank you very much. First, regarding the assumption of when the policy rate hike will occur in fiscal year 2026, I understand that the current market consensus is that there is about a 60% chance it will happen in June, with the view that it will likely be no later than July. We have based our earnings forecast for FI26 on these timing assumptions. So as you all know, our interest rate sensitivity when the policy rate rises by 25 basis points is approximately 100 billion yen in the first year. So please understand that if the rate hike is delayed by about four months, then the impact will be shifted accordingly. Next, regarding your second question, financing for BDCs. I have spoken directly with people on the front lines, and I understand that these are extremely small and diversified loans. It was explained to me that the so-called packaged software and AI-related projects account for only about 20% of this BDC exposure, And I don't believe data centers were included at all, so there is no need for concern on that point. Thank you. Now, regarding your large-scale data center loans, perhaps in the form of syndicated loans, are there any updates on the distribution or inquiries from local investors? As of now, I haven't heard of any major cases of hung deals. Distribution is proceeding smoothly, but I believe we need to closely monitor the future environment and assess the business impact. Thank you. Understood. Thank you very much. Next, we have Mr. Matsuda from Daiwa Securities. Thank you. This is Matsuda from Daiwa. I have two questions as well. My first point concerns the profit plan and actual results. The actual results were quite strong and on top of that, the profit growth plan appears to be quite substantial. When compared to past trends, my impression is that this plan is less conservative. Could you explain what discussions took place formulating this plan? There are also some swing factors such as the situation in the Middle East, mentioned earlier, or the possibility of rate hike delays. If such risk factors materialize, are there downside risks to the 2.7 trillion yen target? in other words has the certainty or probability of achieving this target changed compared to the past that is my first question and my second point concerns the set one ratio if my memory serves me right your past comment suggested that one option for capital management was to consider the SET1 ratio based on the current Basel III basis rather than on the finalized and fully implemented Basel III basis. And looking at the current capital structure, the SET1 ratio appears sufficient. However, when you examine the details, the amount exceeding the 15% threshold for specified items has increased slightly which I suspect may be partly due to the investment in share and finance. So to summarize my question, I'd like to ask if there was any discussion about evaluating the SET1 level on the current rule basis, and also, given that the amount exceeding the 15% threshold is significant, and the capital deduction portion has expanded, if this implies that investment in other financial institutions require greater control, or if there are any differences in the direction of capital management that might arise from this balance. Thank you. First, regarding some additional color on the outlook for FY2026. We did discuss internally that we should announce the current most likely scenario and that if the external environment deteriorates and results fall short, we will revise the forecast downward. The heads of each business have agreed to this approach. So in that sense, please understand that the forecast is somewhat less conservative than in the past. In terms of downside risks, if the situation in the Middle East drags on for a long time or worsens further, and given that supply chain disruptions have already occurred in some areas, this could lead to negative impacts on both business operations and credit costs. Additionally, there is the possibility of increased costs related to the mythos issue. While these downside risks do exist, there are some upside factors that have not been included in the plan because the likelihood is still low. Please understand that taking all this into account, we are representing this figure with the view that we can achieve 2.7 trillion yen under the current environment. Regarding the SET1 ratio, while there is always debate about whether we should assess on the current rules basis, we must manage the target range for the SET1 ratio excluding unrealized gains under the finalized Basel III with greater sensitivity since the finalized and fully implemented basis will be in three years or so. We consider the gap between our set one ratio under the current Basel III basis and the finalized and fully implemented basis as a buffer in case of sudden surge in lending demand from customers or significant deterioration in the external environment. And in this instance, we believe it is best to return to the lower range of the target as soon as possible, thus setting the buyback amount at 100 billion yen. That is all for me. Oh, sorry. And regarding the 15% threshold for specified items, one unique aspect for us is that this portion increases in proportion to our stake in Morgan Stanley as its retained earnings increase. While Morgan Stanley's significant profit increase is positive in terms of our share of earnings, it has aspects that are not so welcome from a capital ratio perspective. And that is where the impact is significant. Thank you very much. And on the second point, with that in mind, are you considering the need for more control going forward for investments? Well, I can't go into much detail yet, but there is room for this to decrease. That is one. And additionally, we plan to review our business portfolio going forward, specifically regarding minority investments in financial institutions that are subject to deductions. We will periodically review the business portfolio and divest as deemed necessary. I believe that this will become even more important in terms of control thank you very much thank you there seems to be no further questions but the floor is still open no questions we still have some time left but there Doesn't seem to be any other questions, so we will conclude the Q&A session. Finally, a few words from Mr. Togawa. Thank you. And thank you so much for the lively Q&A and comments. While we are reasonably confident in our current performance and forecast, I understand that your primary concerns are the SET1 ratio and the volume of share buybacks. We intend to provide thorough explanations and continue to carefully consider our capital policy. Thank you. At the investor briefing on the 19th, our new CEO, Mr. Hanzawa, will provide a more detailed explanation of our strategy, including his own thoughts. And we look forward to your participation in that event as well. We ask for your continued understanding and support. Thank you very much for your time today, in spite of the late hour. This concludes MAFC's online conference on financial results for the fiscal year ended March 31, 2026. Thank you very much.