The price paid for prioritizing the expansion of profits and becoming preoccupied with making high-risk loans is high.
Regarding the problem over rental share house investments, Suruga Bank, a regional bank based in Shizuoka Prefecture, has compiled results of its in-house investigation into loans provided for those investments.
The bank has acknowledged the possibility that many bank officials were aware of wrongdoing, such as fabrication and alteration of documents needed to provide loans to the share house owners.
However, whether the bank officials were actively involved in the alleged misconduct could not be found out. The bank said that a detailed probe will be conducted by a third-party committee including external lawyers. A thorough investigation is called for.
The share house investment in question is a scheme in which a real estate company solicited individual investors to become share house owners by promising them rental revenue, and loans were provided by Suruga Bank. But the share house operating company failed to pay the rent due to its own financial crisis, causing a delay in the repayment of loans. This led to revelations of the misconduct involving loans.
Suruga Bank had provided share house related loans totaling 203.5 billion yen for 1,258 individuals as of the end of March. The bank asked the investors to prepare funds worth about 10 percent of scheduled loans, but in many cases the bank lent money even if the investors could not prepare sufficient funds.
There were many malicious actions, in which the real estate company altered documents on loan borrowers' bank balances to pretend that they had sufficient funds.
FSA's stance questionable
The real estate firm advertised that investors can be share house owner without having personal funds. The in-house investigation pointed out that "it is unthinkable that bank employees didn't know" that this violated its own share house related loan rule calling for investors to prepare funds equivalent to 10 percent of the bank loans. Suruga Bank, for its part, cannot evade responsibility for neglecting to look into the real estate firm.
Regional banks have suffered deterioration of earnings due to narrowing profit margins caused by low interest rates. Even under such severe circumstances, Suruga Bank had fared well. But it plunged into the profit-first doctrine anyway, and its screening of loan documents seemed to become lenient.
One of the share house owners has testified that the bank provided a loan "even though it amounted to 30 times [the borrower's] annual income." Loan provision based on lenient screenings has resulted in huge amounts of unrecoverable loans. As a wise adage puts it, "Not lending can be a kindness." Suruga Bank must go back to the fundamentals of a financial institution.
It is said the Financial Services Agency will impose an administrative punishment on Suruga Bank after the results of investigation by the third-party committee come out, while conducting an on-site inspection of Suruga Bank. Was the bank systematically involved in the misconduct, and to what extent did the bank's top management grasp the situation? These matters should be scrutinized strictly.
It is the FSA itself that has strongly called on regional banks to pioneer new sources of earning. The agency evaluated Suruga Bank as a "superior" regional bank. Whether the agency's existing stance on supervision was correct must be called into question.
There is no denying that there was carelessness on the part of share house owners. Reckless get-rich-quick schemes are apt to be accompanied by pitfalls. This must be kept in mind anew.
(From The Yomiuri Shimbun, May 18, 2018)
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