Suruga Bank's improper property lending. Falsified evidence was ordered as “ebi”

The report lists numerous cases in which bankbooks or online-banking balances were altered to make borrowers appear to have the required funds.

In one case, the leader of the metropolitan-area special promotion team asked a contractor to prepare approximately JPY 15 million of falsified supporting material called “ebi,” shorthand derived from “evidence.”

In another case, a contractor sent three versions of an online-banking balance for the same account. In one version, a digit was entered incorrectly and the balance exceeded JPY 200 million—so much money that, as the report notes, the borrower would not have needed the loan. A corrected version followed.

The Committee also cautions that its findings were based largely on evidence it could detect in email and therefore do not represent a complete count of all falsification.

Before a loan application was submitted for approval, Suruga Bank required a sales employee to inspect the property onsite. The report says employees often told contractors in advance when the inspector would arrive.

That made it possible for contractors to stage occupancy—for example by drawing curtains in vacant rooms so that fewer rooms appeared empty.

The Committee lists advance notice of inspection schedules, messages saying curtains would be installed, and photographs sent after installation.

The report also records a separate case in which a contractor asked whether curtains should be put in vacant rooms and the employee replied that the property could be left as it was.

The report’s document-falsification analysis covered forensic work on 99 employees. Of them, 87 could have received supporting material for income-producing real-estate loans directly from contractors.

Suspicious emails were detected for 74 of the 87. Of the other 13, nine were interviewed and three admitted involvement.

The Committee established involvement in falsification for 77 of the 87 employees (88.5%) through email evidence or their own admissions.

The report explicitly warns against treating 88.5% as a rate for all Bank employees involved in investment-property lending. These 87 people had been selected for forensic review precisely because the Committee considered their possible involvement.

The Bank’s screening function could place problematic real-estate contractors on a stop list. Yet the report says sales branches openly continued relationships by using separate corporate entities referred to as “hako,” literally “boxes.”

The Committee sampled six interviewed employees and found 595 emails exchanged from October 2016 through May 2018 with stopped contractors and entities regarded as their hako.

One branch manager testified that, after consulting Aso, he was instructed that the stop was a Bank-created local rule and that ordinary business could continue if the property itself was acceptable. The Committee said using another legal entity so the screening department would not know had become chronic practice.

The Committee identified disclosure of screening conditions to contractors as conduct that created fertile ground for misconduct. Employees disclosed information such as required borrower income, lending limits, interest rates and yields—in effect, information about what kind of deal would pass screening.

In June 2016, the head of metropolitan-area sales sent a contractor three figures for purchase price, loan amount and sale price and asked the contractor to structure the deal on that basis.

The message gave the contractor the figures “purchase 133, loan 168, sale 187,” effectively telling it the loan amount before the deal was assembled.

The same section records an internal complaint that employees were telling contractors the Bank’s property valuation and asking them to make the sale contract fit it.

Suruga Bank had official sales targets that formed a basis for personnel evaluation and awards. Personal Bank, which handled much of the income-producing real-estate lending, then added its own higher monthly targets for branches. These were sometimes called “stretch targets.”

For fiscal 2016, Personal Bank’s official target was labelled net growth in secured FL (free-purpose loan) balances.

The official target was JPY 89.31 billion, while the annual stretch target for net growth in secured-loan balances was JPY 150.8 billion.

Interviewees told the Committee that whether the number could actually be cleared became secondary and described targets at roughly 1.5 times the official sales target as abnormal.

The Committee surveyed all Bank employees and received 3,595 responses. Of the 343 respondents with asset-formation-loan sales experience, 248 (72.3%) said they had been reprimanded by a superior because their sales performance was not improving.

The report reproduces selected free-text examples of particularly severe reprimands. One respondent said that after answering that they would keep trying even if it killed them, they were told, “Then try dying.”

One questionnaire response said: “If you can’t make the numbers, jump off the building.”

These are employee questionnaire responses reproduced by the Committee, not independent findings that each quoted statement was in fact made. Other responses on the same page describe employees being made to stand for hours, being shouted at, and desks or chairs being kicked.

The employee questionnaire also asked whether respondents had executed, or seen, loans that violated internal rules in order to meet loan-balance targets. Of the 343 respondents with asset-formation-loan sales experience, 52 said they had executed such lending and 27 said they had seen or heard of it, a combined 23.0%.

One response said customers were asked to take out short-term loans they did not need.

The Committee said the answers indicated that some lending in violation of internal rules was being carried out in order to improve sales results.

In cases known to the Committee, the screening department had entered concerns such as unreasonably high rent assumptions in its screening-opinion field for 261 cases.

Of those, 159 questioned rent or occupancy rates.

The Committee concluded that falsification and other improper conduct had spread broadly across branches, employees, transactions and contractors rather than remaining isolated in one office.

The Committee identified another defining feature: the misconduct continued for a long time across many branches, while personnel transfers should have caused knowledge of it to spread. Yet that knowledge did not turn into reporting that stopped the conduct.

Within the screening function, many doubts about misconduct were widely recognized at the working level, but ultimately were not reported to formal bodies such as the Board of Directors or Management Meeting. The same passage notes, however, that the Loan Management Department had shared the information with Vice President Okano.

The Committee emphasized that, despite the spread of the information, no one made an ordinary report to a superior or reported it through the internal whistleblowing channel.

The report immediately connects this failure to what it calls a marked deterioration of the Bank’s corporate culture.

The report devotes a section titled “The structure of this matter” to what it calls the sanctuary-like position of Personal Bank. As a general control problem, the Committee explains that a unit generating exceptional profits, or a highly specialized unit with little personnel movement, can become difficult for other departments to challenge.

In such a unit, checks stop functioning. People inside may recognize that they are not being checked, allowing inappropriate risks to continue and expand until they materialize.

The Committee said Personal Bank appeared to have been acquiring this kind of “sanctuary-like” character.

It also pointed to multiple warning signs: rapidly growing share-house lending, reports of document alteration, growing sales pressure on screening, and the Bank’s increasing dependence on Personal Bank for performance.