The Financial Supervisory Agency is stepping up pressure on 13 domestic and foreign banks to review their lending policies toward “shoko” lenders, financial sources said Thursday.
The agency started interviewing officials of the banks the same day on their firms’ dealings with the lenders, urging them to submit relevant documents.
The banks are under increasing pressure to reduce or stop providing funds to the lenders, which are being criticized for their alleged strong-arm loan-collection tactics that sometimes border on extortion.
The government’s move is expected to prompt the banks to “voluntarily” halt fresh loans to the lenders.
The FSA plans to disclose the results of its findings to the Diet, the sources said.
The targeted institutions include Dai-Ichi Kangyo Bank, Mitsubishi Trust & Banking Corp., Daiwa Bank, Tokai Bank, Toyo Trust & Banking Co., Fuji Bank, Sakura Bank and Yasuda Trust & Banking Co.
Also on the list are the Tokyo branches of five foreign banks — Citibank N.A., Merrill Lynch Capital Markets Bank, Paribas, UBS AG and ING NV.
The 13 banks were among the top 10 financial institutions in terms of the amount of funds provided to Nichiei Co. and Shohkoh Fund and Co. from last January to March, the sources said.
Nichiei and Shohkoh Fund are the two largest moneylenders specializing in collateral-free, high-interest loans that require a third-party guarantor.
Shoko lenders are coming under the government magnifying glass now that asset-poor small firms are increasingly turning to them to meet capital requirements, the result of the troubled banking sector’s reluctance to loan to risky borrowers.
The government believes small firms hold a key to any economic turnaround.
The sources said the FSA will order the 13 banks to submit documents from the past five years regarding their business with the two moneylenders, including investment in and loans to the firms, personnel dispatches, in-house ratings of the firms and policies for lending to the firms.
The agency will require the banks to include information on their affiliated nonbank moneylenders regarding the shoko loan providers, the sources added.
Some of the Japanese firms have been reducing their lendings to the shoko loan firms since last spring, when criticism against the loan collection methods of Nichiei and others began to surface, the sources said. While foreign banks have so far been filling the gap, they will also come under pressure to review their lending policies toward these lenders, they added.
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