October 5, 2018 / 9:14 AM / 2 months ago

Japan orders scandal-hit Suruga Bank to halt new property loans for 6 months

TOKYO (Reuters) - Japan’s Financial Services Agency (FSA) said on Friday it had ordered Suruga Bank, a midsized bank mired in a lending scandal, to stop making new loans for property investments for six months.

The scandal has sent ripples through Japan’s banking industry where Suruga was a darling of investors and a role model for carving out a niche in a crowded banking market.

A third-party panel found last month that the lender had been involved in falsifying documents on loans made to investors who built “share houses” where tenants share bathrooms and other facilities.

The FSA said on Friday it found Suruga had made improper loans to businesses related to the bank’s founding family, and had allowed “anti-social elements” to open deposit accounts.

“The six-month order is relatively a long duration compared with past cases,” a senior FSA official, who declined to be named, told reporters at a background briefing.

Suruga said in a statement it had extended 48.8 billion yen ($428 million) in loans to companies related to its founding family. It also cited 46 cases of new deposit accounts opened for “anti-social elements”, a Japanese euphemism for organized crime members and their associates.

The bank apologized, saying “we will work to prevent such matters from occurring again.”

The third-party report published in September said it found wide-spread violations of lending practices, which was spawned by an excessive profit-driven culture.

The report listed cases of bullying and other harassment of employees who did not achieve goals set by the bank.

Suruga’s chairman and president resigned following the publication of the report. Chairman Mitsuyoshi Okano, at the helm since 1985, was from the founding family, which led the bank since its establishment in 1895.

With 4.2 trillion yen ($36.88 billion) in assets, Shizuoka-based Suruga is a mid-sized lender among about 100 regional banks in Japan.

Prior to the scandal, the bank had earned praise for its business model from investors and even some FSA officials, including former commissioner Nobuchika Mori.

For example, the bank had extended mortgages to borrowers traditionally shunned by lenders, including single women and foreigners, and posted higher profit margins than its rivals.

The regulator said it should have done a better job overseeing the bank.

“It cannot be denied that the FSA failed to detect the matter at earlier stages,” the senior FSA official told reporters. “We have to learn from the lesson.”

Additional reporting by Takahiko Wada; Editing by Darren Schuettler

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