EXCLUSIVE: Shell Firms Created for Suruga Share-House Loans

August 12, 2018

Tokyo- Officials of Japanese regional lender Suruga Bank set up shell companies one after another to increase loans for share-house investments, Jiji Press has learned.

The shell companies were created at the instruction of a then Suruga branch head after a then executive called for stopping loans for share-house projects related to a real estate company, informed sources said.

Shared housing is popular among young people mainly thanks to low rents. Real estate companies have developed many share-house buildings and solicited investments from retail investors.

Suruga Bank and other lenders provided loans to finance these investments. Suruga boosted its share-house loans sharply from late 2014.

Around February 2015, the bank and the Financial Services Agency received documents that raised questions about a real estate company handling shared housing, the sources said.

Then Suruga Vice President Kinosuke Okano, a member of the bank's founding family, came to know of the whistleblowing and instructed that share-house investment loans related to the company be stopped, the sources continued.

After a brief stop, the bank restarted providing fresh loans to investors in projects handled by the real estate company. To do that, officials set up shell companies to make it look as if the projects were handled by the shell entities, according to the sources.

The bank's loan examination division detected the trick, but even after that, officials created new shell companies one after another in order to continue share-house loans linked to the real estate company, the sources said.

Suruga tightened its loan screening criteria for real estate-backed loans, including those tied to shared housing, in October 2017. But the bank continued to extend fresh share-house loans until around December that year.

On Thursday, Suruga said its consolidated net profit for April-June fall 70.5 pct from a year earlier to 3.1 billion yen mainly due to costs to prepare for possible losses on real estate loans.

A third-party panel created by the bank is expected to draw up a report on its investigations into the share-house loan problem by the end of August. Jiji Press