SMFG Capital Ratio Information C. Netting of Loans against Deposits (2) Concentration of Credit Risk and Market Risk Accompanying Application of Credit Risk Mitigation Techniques SMBC verifies the legal effectiveness of netting arrangements for loans and deposits for each transaction. Specifically, lending  transactions subject to the netting of loans against deposits are stipulated in the “Agreement on Bank Transactions,” and fixed-term  deposits that have fixed maturity dates and cannot be transferred to third-party entities are subject to netting. Regarding deposits with  us submitted as collateral, their effect as credit risk mitigation is taken into account under the eligible financial collateral framework  described in A. above. Further, maturity dates and balances (including the post-netting situation) are monitored for subject loans and deposits in  accordance with the Notification. When there is a maturity/currency mismatch, netting is executed after making adjustments as  stipulated in the Notification, and the credit risk-weighted asset amount is calculated after netting.  At SMBC, there is a framework in place for controlling concentration of risk in obligors with large exposures which includes credit limit  guidelines, risk concentration monitoring, and reporting to the Credit Risk Committee (please refer to page 34). Further, exposures to  these obligors are monitored on a group basis, taking into account risk concentration in their parent companies in cases of guaranteed  exposures. When marketable financial products (for example, credit derivatives) are used as credit risk mitigants, market risk generated by these  products is controlled by setting upper limits. 2. Exposure Balance after CRM Billions of yen 2011 2010 March 31 Eligible financial collateral Other eligible  IRB collateral Eligible financial collateral Other eligible  IRB collateral IRB approach ........................................................................... ¥ 115.2  ¥45.6  ¥ 85.7 ¥59.3 Corporate exposures ............................................................ 115.2 45.6 85.7 59.3 Sovereign exposures ............................................................ — — — — Bank exposures .................................................................... — — — — Standardized approach ............................................................ 3,044.5 — 1,833.1 — Total .......................................................................................... ¥3,159.7 ¥45.6 ¥1,918.7 ¥59.3 Billions of yen 2011 2010 March 31 Guarantee Credit derivative Guarantee Credit derivative IRB approach ........................................................................... ¥7,076.9 ¥264.5 ¥7,143.3 ¥258.5 Corporate exposures ............................................................ 6,382.9 264.5 6,345.8 258.5 Sovereign exposures ............................................................ 271.6 — 412.2 — Bank exposures .................................................................... 232.2 — 182.6 — Residential mortgage exposures .......................................... 190.3 — 202.5 — QRRE .................................................................................... — — — — Other retail exposures .......................................................... — — 0.1 — Standardized approach ............................................................ 74.2 — 62.0 — Total .......................................................................................... ¥7,151.1 ¥264.5 ¥7,205.3 ¥258.5 ■  Derivative Transactions and Long Settlement Transactions 1. Risk Management Policy and Procedures (1) Policy on Collateral Security and Impact of Deterioration of Our Credit Quality (2) Netting Collateralized derivative is a CRM technique in which collateral is delivered or received regularly in accordance with replacement cost.  The Group conducts collateralized derivative transactions as necessary, thereby reducing credit risk. In the event our credit quality  deteriorates, however, the counterparty may demand additional collateral, but its impact is deemed to be insignificant. Netting is another CRM technique, and “close-out netting” is the main type of netting. In close-out netting, when a default event, such  as bankruptcy, occurs to the counterparty, all claims against, and obligations to, the counterparty, regardless of maturity and currency,  are netted out to create a single claim or obligation.  Close-out netting is applied to foreign exchange and swap transactions covered under a master agreement with a net-out clause or  other means of securing legal effectiveness, and the effect of CRM is taken into account only for such claims and obligations. SMFG  2011 191