Japan Bank Falls Most Since 1975 Over Faked Documents Report

(Bloomberg) -- Suruga Bank Ltd., the worst-performing bank stock in Japan this year, tumbled the most since 1975 after the Asahi newspaper reported that it gave property investment loans based on faked applications.

Real estate companies provided the regional bank with documentation for loan applications that had been falsified to make borrowers look more creditworthy than they were, the Asahi reported. The shares closed down 19 percent in Tokyo on Wednesday, taking this year’s decline to 48 percent.

Suruga Bank is already being probed by Japan’s financial regulator following its loans to investors in troubled shared-home projects. Analysts and investors are now looking to see whether the Asahi report indicates more fundamental problems with the bank’s lending practices.

“With this latest report we now expect it will take some time until a complete picture can be established, including potential business improvement orders and management responsibility for the incidents involved,” SMBC Nikko Securities Inc. analyst Masahiko Sato wrote in a note.

It wasn’t clear who was responsible for faking the loan applications, the Asahi reported, without saying where it got the information. A spokeswoman for Shizuoka-based Suruga Bank declined to comment on the report.

FSA Scrutiny

The Financial Services Agency has begun an onsite inspection of Suruga Bank to examine its lending practices, including the loans made to investors in shared properties built for single women, people with knowledge of the matter said last week. Smart Days, the company that managed those projects, filed for bankruptcy protection this month after rental income fell short of expectations due to low occupancy rates.

The shared-home lending amounted to about 200 billion yen ($1.9 billion) of Suruga Bank’s 3 trillion yen loan balance, according to Rie Nishihara, a senior bank analyst at JPMorgan Securities Japan Co. “If the amount of improper lending rises further, then we also need to be concerned about the impact on Suruga’s profit and its financial position,” Nishihara said.

To contact the reporters on this story: Gareth Allan in Tokyo at gallan11@bloomberg.net, Shingo Kawamoto in Tokyo at skawamoto2@bloomberg.net.

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Russell Ward, Colin Keatinge

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