The government will order regional lender Suruga Bank to suspend some of its operations, possibly as soon as this week, as punishment for a series of improper share house loans, according to sources close to the matter.
The Financial Services Agency will suspend the bank’s real estate financing operations for several months as a result of the findings by a third-party committee of lawyers released in September that management were involved in forgeries of loan screening documents, the sources said.
Having conducted on-site inspections since spring, the agency has also found that the bank had serious flaws in corporate governance.
The bank, based in Shizuoka Prefecture, will be allowed to continue its over-the-counter operations such as deposits and withdrawals. But the agency will request that the lender present a business improvement plan, the sources said.
The loan scandal has led the bank’s founding family member, Mitsuyoshi Okano, to step down as chairman, while Akihiro Yoneyama quit as president to take responsibility in September.
According to the report by the third-party committee, the improper loans were orchestrated by former senior management executive officer Haruo Aso, who pressured the screening department with orders to approve loans for people who had bought share houses for investment purposes. The bank fabricated documents, including bank balances, to smooth loan screenings for those seeking to invest in the share house sector.
It also made false sales contracts with inflated purchase prices so it could extend loans in violation of an in-house rule that puts limits on loans at 90 percent of the purchase price, the report said.
The scandal came to light because Smart Days, the operator of a women-only share house chain called Kabocha no Basha, or Pumpkin Carriage, in January ceased paying monthly rents it had guaranteed the owners of the properties due to low occupancy rates.
Many owners who had bought the apartments with loans financed by Suruga Bank were then unable to pay back their borrowings. Smart Days went under in April.
Suruga Bank said it had extended a total of ¥203.5 billion ($1.8 billion) in loans to 1,258 shared house owners as of the end of March.