March 20, 2018 / 4:07 PM / a year ago

Japan's financial watchdog seeks details on Suruga loans-sources

TOKYO, March 20 (Reuters) - Japan’s financial watchdog on Tuesday ordered Suruga Bank to report on loans it made for home investment, a person involved in the matter said, heightening concerns over lending that has driven the small bank’s shares down this year.

The Financial Services Agency is seeking details on the loans to retail customers who invested in housing facilities, some of which may not be recovered, the source told Reuters on condition of anonymity as the measure has not been announced.

Media representatives for the FSA and Suruga Bank could not be reached after office hours on Tuesday.

Suruga Bank’s market value has slid 40 percent since mid-January on concerns over how much it can recover of the 100 billion yen ($940 million) that analysts reckon it has lent to some 800 customers to build “share houses” - where tenants share bathrooms and other facilities.

Many of Japan’s more than 100 regional banks are struggling to find profits as their depopulating local economies shrink and the Bank of Japan’s near-zero interest rates squeeze lending margins.

Only Suruga Bank, based in Shizuoka prefecture 100 km (60 miles) southwest of Tokyo, has branched out into share-house loans, analysts say. The bank told Reuters this month the borrowers built facilities managed by property firm Smart Days Inc and other companies.

This has helped Suruga Bank achieve a lending margin of 3.51 percent as of December, much higher than 1.12 percent average for regional banks. But concerns have risen that the properties are not generating enough rent to enable the investors to repay their loans because of low occupancy rates.

“Suruga Bank was taking a risk that many other banks didn’t want to take, which is why the bank was able to achieve higher lending margins,” banking analyst Shinichi Ina at UBS Securities Japan Co told Reuters recently.

Smart Days, which guaranteed rents for as long as 30 years to investors, told Reuters this month it had cut some rent payments since October and had fallen “into a very difficult condition” to make rent payments since the end of January.

The company did not immediately respond to a request for comment late on Tuesday.

The firm said in a recent statement to Reuters it operated 11,259 share-house units in 845 buildings, mainly in Tokyo, owned by about 700 investors.

Nearly 90 percent of Suruga Bank’s 3.28 trillion yen of outstanding loans as of December were to retail customers, according to a bank statement. ($1 = 106.3900 yen) (Reporting by Takahiko Wada Writing by Junko Fujita Editing by William Mallard and Robin Pomeroy)

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