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Politics : Dutch Central Bank Sale Announcement Imminent? -- Ignore unavailable to you. Want to Upgrade?

To: sea_urchin who wrote (8343)	11/9/1999 12:08:00 PM
From: m.philli	Read Replies (2) \| Respond to of 81177

off topic, banks don't you love em, A MAJOR scandal is brewing in Japan over the activities of supposedly respectable finance companies which lend to smaller Japanese companies at extortionate rates and then using vicious strong-arm tactics to force repayment of the loans. The bullying and sometimes gruesome tactics employed by the so-called shoko lenders, who take advantage of the plight of smaller Japanese companies unable to obtain bank loans, are likely to be debated soon in the Japanese Parliament. An official clampdown also appears imminent. The scandal threatens to spread beyond the finance companies and to embroil domestic and foreign banks in Japan which help finance the activities of the shoko by lending money to them. Questions are expected to be asked in Parliament about why banks are unwilling to lend to small and medium-sized companies and yet are happy to lend through finance company intermediaries. An investigation into the funding activities of the shoko in overseas markets is also likely. Owners of small firms that borrow money from these companies and cannot afford to repay are sometimes pressured to find money by any means -- even by selling their organs, such as a kidney or an eyeball -- to medical establishments. The activities of the shoko -- which have also led some of their debtors to commit suicide or flee their homes in order to escape extortion -- have become so rampant that a group of Japanese lawyers have formed a special association to fight the abuse. Japan's official Financial Supervisory Agency (FSA) is also stepping up pressure on leading Japanese and foreign banks not to provide funds to the shoko, which in turn use them to fund their own loans. Officers of the Tokyo Metropolitan Police Department are expected this week to question board members of one leading shoko company, Nichiei Company, and an official of the Finance Reconstruction Commission indicated that the firm may be ordered to suspend operations. Unlike traditional loan-sharking operators (sarakin) operating at the fringe of Japan's financial system, the shoko lenders form an important part of the system and have become prominent as a result of the sharp cutback in direct lending by Japanese banks. They do not require the collateral needed by Japanese banks but instead demand a third-party guarantor. Interest rates charged by the shoko are well above the 15 per cent limit set by the Interest Regulation Law but they operate in a grey zone which allows them to charge rates of up to 40 per cent set under the Investment Law. According to the National Lawyers' Group set up to counter abusive activities of the shoko, they usually charge interest of 30-40 per cent annually on loans to small and medium-sized Japanese firms unable to obtain credit directly from banks. When borrowers cannot meet repayment schedules, the shoko "start acting aggressively against company owners and their families as well as against those who guaranteed the loans", a statement by the group said. Just how aggressive these tactics can be became apparent recently when the Tokyo Metropolitan Police arrested a former employee of Nichiei on suspicion of attempting to commit extortion. The lawyers' group said the man arrested allegedly pressured the person who guaranteed a loan with repeated phone calls, badgering his victim to "sell one of your kidneys and find money for repayment", adding that "an eyeball can be sold for one million yen" (S$15,900). According to the lawyers' group, some hundreds of thousands of similar cases nationwide have been brought to light. Many other incidents have occurred, such as in cases of people committing suicide and families skipping out at night to avoid their creditors. The lawyers' group is planning to organise a national meeting of attorneys and others next month to make public the activities of the shoko. Thirteen domestic and foreign banks in Japan have been asked by the FSA to reduce or stop their lending to shoko companies. Japanese banks are reluctant to lend at present to all but blue-chip borrowers because of the strained state of their balance sheets. But it seems likely that questions will be raised over why they are willing to lend to shoko finance companies which then on-lend to the small and medium-sized firms. The banks appear to be interested in maximising their own profits by funding other lenders that in turn charge extortionate interest rates, say some critics. The FSA is planning to disclose to Parliament the findings of its inquiries into the activities of shoko. These are expected to become a major topic of discussion during the current session and legislation tightening controls over the activities of the shoko is likely. This may include restrictions on the rate of interest they are allowed to charge for loans. According to press reports, the domestic banks approached by the FSA in connection with its inquiries include Dai-Ichi Kangyo, Daiwa, Fuji and Sakura among the commercial banks, and trust banks Mitsubishi, Toyo and Yasuda. The Tokyo branches of five foreign banks -- Citibank, Merrill Lynch Capital Markets Bank, Paribas, UBS and ING Bank -- were also interviewed. These banks were reportedly among the largest lenders to Nichiei Company and Shohkoh Fund and Company, the two largest lenders of the shoko. Daiwa Bank has already announced that it plans to reduce business with Nichiei, and Mitsubishi Trust is expected to follow suit. Some banks began reducing their lending to shoko last spring when criticisms started to emerge. The shoko then approached foreign banks. The lawyers' group said some shoko raised funds outside Japan "by issuing stocks and bonds to foreign