70 Shinginko debtors go under

The Yomiuri Shimbun

At least 70 businesses clients of Shinginko Tokyo, a bank backed by the Tokyo metropolitan government, collapsed in the period since the bank opened for business in April 2005 through February, resulting in uncollectible loans totalling more than 2 billion yen, The Yomiuri Shimbun learned Tuesday.

The bank, established by the metropolitan government on the initiative of Tokyo Gov. Shintaro Ishihara, is now weighed down by losses of 93.6 billion yen accumulated since its start.

Meanwhile, it also was learned that during the time the former management team was in place, executives set less stringent standards for approving unsecured loans to applicant firms than other banks.

This suggests lenient screening of borrowers was a part of the reason massive losses were incurred, and responsibility of former management officials and others will be pursued under both civil and criminal codes.

It is the first time details about the loans provided by the bank, based in Chiyoda Ward, Tokyo, have been revealed.

The Yomiuri Shimbun learned in 2005, soon after the bank started, only a few of the bank's borrowers had declared themselves bankrupt or applied for court protection under the Civil Rehabilitation Law. However, by 2006, the number of such cases had grown rapidly, and the number continued to increase in 2007. In addition, at least five more of the bank's corporate clients have failed since the beginning of this year. Most of them are said to have received unsecured loans from Shinginko Tokyo.

According to a survey by a private credit research company, three of the 70 failed firms are suspected of falsifying their accounts, via such means as declaring false profits. Among them, a communicating system developer in Tokyo received loans of 300 million yen in 2006, and soon after applied for court protection under the Civil Rehabilitation Law.

In addition, there are many cases in which borrower firms have fallen behind in their repayments immediately after being granted a loan. A Tokyo-based advertising company borrowed 10 million yen from the bank in February 2006, but failed to make a repayment in the first month and filed a petition for bankruptcy in March 2007.

According to an in-house investigation by Shinginko Tokyo, former management executives, aiming to increase the amount of loans approved, set lax standards for the approval of unsecured loans, while also telling its employees that when screening borrowers, they need not visit the applicant's business or check their banking history. The management is also said to have indicated to its employees that a loan should be approved if a firm seeking funds was judged to be unlikely to fail in the following six months.

Shinginko Tokyo does not make available to the public the number of failed loans on its books or the amounts of each uncollectible loan. But many other firms are thought to have fallen behind with their repayments but have not yet sought legal protection.