Mitsubishi UFJ Financial Group, Inc.
|
(6)
|
Additional Information
|
(Estimated impact of the COVID-19 pandemic relating to provision for credit losses)
MUFG Bank, Ltd. (“the Bank”), a major consolidated subsidiary of MUFG, recorded a provision for credit losses of
¥12,684 million for the nine months ended December 31, 2020 (¥45,347 million for the fiscal year ended March 31, 2020) by estimating the impact of the COVID-19 pandemic on credit
risk, to the extent that such impact was considered not to have been reflected in the borrowers’ financial information as of December 31, 2020, considering the expected impact of the pandemic on the borrowers’ financial performance
and on the overall economic environment.
The process for preparing the recorded provision amount involved,
among other things, determining the scope of borrowers (in terms of industry, geographical region, etc.) that were expected to be significantly affected, making certain assumptions relating to economic factors based on certain scenarios, and
collectively estimating the degree to which the internal credit ratings assigned to borrowers in particular industries or geographic regions would be downgraded.
Since there was no precedent or established market view regarding the extent of the pandemic or the timing of containment
of the pandemic available for reference in considering the expected impact of the pandemic on economic conditions, the Bank made certain assumptions and estimated the amount, as best as it could under the circumstances, based on, among other things,
such assumptions and information available from external sources and through an approval process in accordance with prescribed internal rules.
As of March 31, 2020, one of our assumptions was that economic conditions would recover to the calendar 2019 level by around the end of calendar 2020 globally. As of September 30, 2020, we
updated this assumption and assumed that such economic recovery would still take some time. As a result, although the global economy has begun to recover, our assumptions included, among other things, that the pace of recovery in economic activity
would be slow and that economic recovery to pre-pandemic levels, particularly in developed countries, would thus be gradual. As of December 31, 2020, our assumptions remained substantially unchanged.
These assumptions, however, are highly uncertain, and, depending on future developments, significant additional provision for credit losses may be recognized for the fiscal year ending March 31, 2021 and subsequent reporting periods due to such
developments affecting the impact of the COVID-19 pandemic on the financial performance of borrowers and other transaction counterparties or on the economic environment.
(Major overseas subsidiaries’ total credit costs which are expected to be reflected in MUFG’s consolidated financial statements
as of and for the fourth quarter of the fiscal year ending March 31, 2021)
Major overseas subsidiaries
which were consolidated based on their financial statements as of and for the quarter ended September 30, 2020 adopted ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” the
new guidance that introduced the concept of current expected credit loss, as of the beginning of the first quarter of the fiscal year ending December 31, 2020. As a result, these subsidiaries record provision for allowance for credit losses by
taking into account certain forecasted information such as macroeconomic indicators.
Under the new guidance,
it is currently estimated that the subsidiaries’ total credit costs for the quarter ended December 31, 2020 will be approximately ¥30 billion in total. The subsidiaries’ total credit costs will be reflected in MUFG’s
consolidated financial statements as of and for the quarter ending March 31, 2021.
The definition of
total credit costs is described in “1. Financial Results” of “Selected Financial Information under Japanese GAAP For the Nine Months Ended December 31, 2020”.
8