The government on Tuesday issued a business improvement order to Shoko Chukin Bank, a government-linked lender for small and medium-size firms, found to have extended shady loans and falsified documents related to a state-backed program to help crisis-hit companies.
The Ministry of Economy, Trade and Industry, the Finance Ministry and the Financial Services Agency aim to widen the investigation to the bank’s overall lending through the program.
The order came following revelations that Shoko Chukin extended emergency loans to companies that did not fulfill criteria under the state-backed policy as the bank was eager to expand loans and achieve lending targets.
Satoshi Miyamoto, head of METI’s Small and Medium Enterprise Agency, summoned Kenyu Adachi, president of the lender, and urged the financial institution to submit a business improvement plan within one month, including measures to prevent similar practices.
This is the first time since the bank was established in 1936 that it has received an administrative punishment, according to the ministry.
“We take the business improvement order seriously and will do our utmost to grasp the full picture of the problem so that we will not repeat such things,” Adachi told reporters.
But Adachi denied the possibility of resigning over the matter, saying, “My current mission is to try to acquire a full picture of the matter, prevent such practices and restore public trust.”
The bank exploited a government program in which low-interest loans are offered to small and medium-size companies whose financial standing has deteriorated due to a financial crisis or natural disaster. Under the plan, state subsidies shoulder some of the interest on the debt.
The illicit lending first came to light last October at the bank’s branch in Kagoshima Prefecture. A follow-up internal probe last month found that 99 bank employees had extended loans totaling around ¥20 billion ($177 million) to unqualified firms in 816 cases by falsifying documents.
The bank also announced in late April that board members, including those who are retired, will return 10 to 30 percent of two months’ worth of pay.
Industry minister Hiroshige Seko criticized the lender earlier in the day, saying at a news conference that the illegal practices “have continued for the past several years. The bank cannot get away with just pay cuts for executives.”
The government said it has urged the lender to punish personnel directly involved in the lending, clarify management responsibility and review its organization.
Seko also said the findings from the bank’s own investigation are just the tip of the iceberg and called on the institution to look into its lending practices further and specify causes for the breaches.
The internal probe has looked at only around 10 percent of the bank’s total emergency loans under the state-backed plan, he said.
The lender provided the loans in the wake of events such as the 2008 global financial crisis and the March 2011 quake-tsunami disaster.