Regulator orders Japan's scandal-hit Suruga Bank to halt new property loans

The bank is embroiled in a scandal over improper lending practices.

Reuters reports that Japan’s financial regulator is said to be planning on ordering regional lender Suruga Bank to stop extending new loans for property investments and work on its governance standards in the aftermath of a lending scandal which has pushed its top executives to resign. 

A third-party panel discovered that Suruga Bank falsified documents on loans made to retail investors who built “share houses” in a move highlighting the struggles of regional banks to find profits amidst an unprofitable low interest rate environment.

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Japan’s Financial Services Agency (FSA) has determined that improper lending at Suruga was widespread and its governance functions had failed, sources told Reuters.

“[T]he tough domestic environment has affected the whole Japanese banking sector, and other banks may have allowed governance standards to slip in response to these challenges,” Fitch Ratings said in a statement, citing the resignation of Higashi-Nippon Bank chairman in August over improper lending practices.

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Regional banks have come under the most pressure as they generate around 85% of gross profit from net interest revenue, noted Fitch. They also do not have the luxury of turning to overseas markets like their mega-counterparts MUFG Bank, SMBC, Mizuho Bank, Saitama Resona Bank and Resona Bank who have been steadily growing footholds to weather crippling conditions back home.

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