By Jeff Wynkoop
Following the recent Suruga Bank scandal, another Japanese financial institution is suspected of giving out bogus real estate loans to meet internal sales goals.
On Oct. 31st, the Financial Services Agency (FSA) announced that it was going to carry out an on-site inspection of Seibu Shinkin Bank. According to the FSA, the goal of the inspection is to ascertain whether the bank ‘s internal controls functioned properly, and whether in fact employees of the bank cooperated with real estate companies to forge and accept documents showing inflated deposit amounts for borrowers applying for real estate loans (similar to the Suruga Bank scandal).
Market participants are especially concerned about this new turn of events because of the relative size of Seibu Shinkin Bank. Being a smaller credit institution, both Seibu Shinkin (and its customers) will have less ability to shoulder any type of unexpected financial burden when compared to much larger regional banks. Concern is growing that with the likelihood that there are several “mini-Surugas” lurking in the industry, we may see some attention-getting bankruptcies by the end of March 2019. This could mean the death knell to the recently-popular salaryman-landlord investment scheme (サラリーマン大家), whereby even regular salarymen were able to qualify to borrow money to buy well-performing residential apartment buildings.
Since news of the Suruga Bank scandal broke, many Japanese banks have postponed all real estate lending to individuals, except to the highest net worth individuals. It seems even in the banking industry there is fear of a bubble in salary-landlord investment schemes. In the April-June period 2018, new real estate loans for individuals buying a residential apartment building totaled 560.3 billion yen, which is half of the peak reached during the July-September 2016 period.
With the wounds of the Suruga bank scandal still fresh, the FSA is worried that to date we may have merely seen the tip of the iceberg. There could be one or several more Suruga-Bank-sized problems yet to be uncovered, and many mini-Surugas, with potential fallout most likely being felt by younger, more aggressive domestic real estate companies. Investors have grown cautious of real estate stocks since the Suruga Bank scandal, and analysts are closely watching shares of real estate firms with significant salaryman-landlord lending ventures, for instance the Shinoken Group, with its slogan of “making no money down apartment management possible.”
Source: Business Journal, October 31, 2018