The lending irregularities that have been exposed at Suruga Bank, a regional bank based in Numazu, Shizuoka Prefecture, are all the more problematic given that the bank was once hailed by the Financial Services Agency as a role model. The FSA touted its highly profitable operation at a time when the regional banking industry as a whole is suffering from a declining pool of clients in the struggling regional economies and the protracted low interest rate environment is reducing their lending profits. What's also disturbing are industry rumors that the practice of financial institutions colluding with real estate companies to use lax screening to lend to prospective investors who otherwise would not qualify for the loans may not be unique to Suruga Bank.

A report released last week by a third-party panel of lawyers commissioned to probe the alleged misconduct at Suruga Bank stated that in the bank's pursuit of sales over compliance, a large number of its workers, led by a former managing director, were involved in the falsification of loan-related documents and other irregularities so they could increase lending to investors in a share-house business led by a real estate operator. It accused the bank of "an extreme lack of sense of legal compliance" as a financial institution and highlighted its "failure of corporate governance."

In the business scheme in question, a share-house operator solicited investors — many of them ordinary company employees — to build women-only share houses by claiming guaranteed rental income, with Suruga Bank providing the loans to the investors to pay for the construction of the properties. In providing such loans, lenders will normally take a hard look at the business prospects of the share-house scheme as well as the borrowers' means to repay the loans. Instead, the loan-related documents were manipulated so that the loans would be provided to borrowers who otherwise would have been disqualified during screening.