Japan’s mega-banks struggling to shut out mobsters amid ‘anti-social’ loans scandal

Mega-banks struggling to shut out mobsters amid ‘anti-social’ loans scandal

JIJI

NOV 16, 2013

The nation’s three mega-banks are still struggling to shut out yakuza and other “anti-social” groups, sources in the industry say. The issue entered the spotlight after the Financial Services Agency in September scolded Mizuho Bank for failing to halt lending to mobsters via consumer lending unit Orient Corp. What started as a local scandal involving so-called tie-up loans has now developed into an industrywide problem encompassing loans extended directly by the mega-banks themselves.At a Diet session Wednesday, Mizuho Bank President Yasuhiro Sato acknowledged that the lender had made direct loans to members of groups deemed to be “anti-social.”

Sumitomo Mitsui Banking Corp. President Takeshi Kunibe and Bank of Tokyo-Mitsubishi UFJ President Nobuyuki Hirano made similar confessions when they announced their April-September earnings last week.

The three leaders said they learned that some of their borrowers were shady after the fact. Although none disclosed details, such as the number of problem borrowers or tainted loans, all emphasized they were trying hard to terminate the contracts.

Japan’s banking industry was tormented by yakuza-linked loans for a long time after the bubble economy started to collapse in the early 1990s. Mobsters, for example, acquired properties that had been put up as collateral for bad loans to stymie banks’ loan collection efforts. Yakuza obstructionism was one of the reasons why the nation’s financial institutions took so long to sort out the bad-loan problem.

In a move to shut out gangsters, banks built databases on anti-social elements to screen out suspicious clients before concluding loan transactions. In November 2011, the industry introduced a special clause in loan contracts to allow them to request lump sum repayments once borrowers are confirmed as members of underworld groups.

But it is not easy to shun gangsters completely, according to the industry sources.

The banks have only limited information on crime groups and their members. In addition, there are cases in which lending to normal borrowers later turn into yakuza-related loans. Typically, mobsters become involved when they are added as debt guarantors and when they replace the original guarantors, the sources said.

Loans extended under contracts with the anti-yakuza clause can be canceled if the police confirm the borrowers are members of crime and other underworld groups. But the definition of “anti-social” groups differs between banks and the police, Mizuho’s Sato said.

Of the total tie-up loans to members of shady groups, 37 cases were based on contracts containing the special clause. But only one case was confirmed by police as a loan to a member of such a group, Sato said.

Banks cannot cancel loans not bound by the special clause unilaterally. If the lenders want to terminate a loan contract, they must contact the anti-social groups involved and persuade them to accept the termination.

Collecting loans from gangsters is even more dangerous. Sato said some transactions are hard to terminate even with help from the police.