Mitsubishi UFJ Financial Group, Inc.
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Additional Information |
(Information which is relevant to the understanding of the readers of the consolidated financial statements as regarding the
calculation of allowance for credit losses)
The process of calculating the allowance for credit losses for MUFG Bank, Ltd.
(“the Bank”) and its domestic consolidated subsidiaries, our principal domestic consolidated banking subsidiaries, involves various estimates such as determination of borrower credit ratings which are based on evaluation and
classification of borrowers’ debt-service capacity, assessment of the value of collateral provided by borrowers, estimation of future cash flows when applying the cash flow estimation method, 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, those determination of internal credit ratings for these 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.
When calculating allowance for credit losses, the Bank, our principal
consolidated domestic banking subsidiary, determines 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.
The Bank makes such adjustments to the loss rates calculated based on historical loss experience, taking into account future
projections and other factors, especially considering the uncertain business environment arising from potential changes in the geopolitical environment, including the situation in the Middle East. These adjustments are implemented made when deemed
necessary, for example, by considering any additional expected loss amount not captured by the loss rates calculated based on historical loss experience. The amount of impact of these adjustments as of June 30, 2026 is ¥28,446 million
(¥24,357 million as of March 31, 2026).
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. Expected credit losses are adjusted for qualitative factors to compensate for expected credit losses that are not reflected in a quantitative model.
Significant assumptions used in our calculation of allowance for credit losses, including those described above, are
subject to uncertainty. In particular, certain counterparties’ prospects of improvements in their operating results and expectations as to their ability to continue as going concerns, and adjustments to the rates 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 subsidiaries which apply IFRS, are based on estimation relating to the economic environment, including changes in economic conditions, commodity prices and monetary and trade policies in each country as well as geopolitical environment,
including the situation in the Middle East, with respect to which objective data are not readily available.
In particular,
future developments concerning the geopolitical environment, including the situation in the Middle East, are subject to significant uncertainty. Accordingly, we make certain assumptions, including that disruptions in logistics and supply chain
constraints related to crude oil and other commodities may continue for a certain period, but that conditions will gradually normalize, and that prices of crude oil and other commodities, while fluctuating to a certain degree, will then be on a
gradual stabilizing trend. The recorded allowance represents our best estimate made based on such assumptions and in a manner designed to ensure objectivity and rationality.
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