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Suruga Bank: Stock price down by 30% and share house loan concerns

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Tokyo, March 6th, Reuters News

Suruga bank’s (8358 trillion) stock has dropped 30% in a declining trend since January. Suruga bank had made a loan for the construction of a share house, but there are concerns that part of this loan cannot be paid back. They are currently investigating the main cause of this drop.

What makes it become problem is that they had made a loan for a real estate companies called Smart Days. On March 6th, Suruga bank replied to Reuters via email. Suruga bank has acknowledged that they had made a loan to Smart days to do their business in share house as well as other properties.

A share house is a kind of rental in which tenants have their own room, but share facilities such as the kitchen, toilet, and bathing area with other tenants. The owner took a loan from the bank and began construction under the management of Smart Days. The owner had also received sublease rent, which was guaranteed by Smart Days for 30 years.

In the March 6th interview with Reuters, Smart Days had said that, from the end of October 2017, they had reduced the rent payments to the owners. At the end of January this year, it was said that the rent payments turned into “a very difficult business situation.” On January 17th and 20th, a meeting was held for the owners, but this is when Suruga Bank’s stock began to fall.

According to Smart Days, as of January 2018, there were 845 share houses (with 11,259 rooms), which are located mostly in Tokyo, and the number of owners is around 700 people. With the reports that most of the share house owners were receiving the loan from Suruga bank, Smart Days could not say anything due to the contracts between the bank and the owners.

Mr. Shinichi Ina, a bank analyst at UBS Security, has assumed that according to the report on February 28 regarding number of the share house owners of up to 800 people, Suruga bank has likely given a loan of up to 100 billion yen.

While there is the possibility that the loans may not be paid back in full, it is also possible that there may be a 20 billion yen credit until March 2019.

Suruga bank received an assessment from investors that if the bank actively expands personal loans, they would be guaranteed a higher profit rate than other regional banks. In December 2017, around 90% of the loans were personal loans, and the loan deposit margin was 3.51% and is exceeding over 1.2% above the local bank average.

Mr. Ina of UBS’s said, “There is no guarantee to get a high profit without taking a risk”. It was also supposed that in case that a 20 billion yen credit cost occurred, there is a possibility that it could be a profit to make up for lost funds.

Original article