3. |
Additional Information |
(Estimated impact of the COVID-19 pandemic and the Russia-Ukraine situation relating to 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, the prolonged COVID-19 pandemic and the uncertainty in the business environment caused by the Russia-Ukraine situation have
had a significant impact on the financial position and operating results of certain counterparties. 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, MUFG Bank, Ltd., our
principal consolidated domestic banking subsidiary, 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. 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 the rate of increase in the credit loss rate or the default probability in a more recent period, additional expected losses
and other factors, especially in light of the prolonged COVID-19 pandemic and the Russia-Ukraine situation. The amount of impact of these adjustments was ¥67,028 million as of June 30, 2022
(¥77,572 million as of March 31, 2022).
In addition, certain overseas subsidiaries which apply Generally Accepted Accounting
Principles in the United States (U.S. GAAP) have adopted Accounting Standards Codification (ASC) Topic 326, Financial InstrumentsCredit losses, issued by the Financial Accounting Standards Board and provide
for allowance for credit losses by estimating credit losses currently expected for the remaining term of the relevant contracts. 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. No allowance for credit losses was recorded for the loans reclassified as loans held for sale in connection with the execution of the Share
Purchase Agreement pursuant to which all of the shares of MUFG Union Bank, N.A. (MUB) held by MUFG Americas Holdings Corporation (MUAH) will be sold to U.S. Bancorp because these loans are measured at fair value in accordance
with ASC Topic 310, Receivables.
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 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 subsidiaries which apply U.S. GAAP, are based on estimation relating to the economic environment with respect to which objective data are not readily available. The outlook relating to the COVID-19 pandemic and the Russia-Ukraine situation, which are expected to further impact our counterparties operating environment and the economic environment, remains subject to significant uncertainty.
Accordingly, we make certain assumptions, including that, although the impact of the COVID-19 pandemic will continue, economic conditions will be on a gradually improving trend, with economic activity resuming
while infection control measures are implemented, and that the uncertainty in the business environment caused by the Russia-Ukraine situation will remain. The recorded allowance for credit losses represents our best estimation made in a manner
designed to ensure objectivity and rationality.
For the three-month period ended June 30, 2022, 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 assumptions 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 six-month period ending
September 30, 2022 and subsequent reporting periods due to developments affecting the impact of the COVID-19 pandemic and the Russia-Ukraine situation on the financial performance of counterparties or on
the economic environment.
(Transition from the Consolidated Taxation System to the Group Tax Sharing System)
MUFG and some of its domestic consolidated subsidiaries have shifted from the consolidated taxation system to the group tax sharing system from
the beginning of the three months ended June 30, 2022. Accordingly, the accounting treatment and disclosure of corporate tax, local corporation tax, and tax-effect accounting are applied and made in
accordance with ASBJ Practical Issues Task Force Report No. 42, Practical Solution on the Accounting and Disclosure under the Group Tax Sharing System (August 12, 2021) (Practical Issues Report No. 42). Based on
paragraph 32(1) of Practical Issues Report No. 42, MUFG has concluded that there is no impact from the changes in its accounting policies resulting from the application of Practical Issues Report No. 42.
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