Japan’s Finance Watchdog Warns Regional Banks Over Real Estate Loans

Japan’s financial watchdog has warned regional banks about the risks of increased real estate lending, saying it could lead to repayment defaults, sources close to the matter said, Kyodo News reported.

The move comes amid growing concerns that a recent rise in interest rates may cool investment, possibly pushing down land and property prices. (Photo: Kyodo News)

Based on its hearings with lenders, the Financial Services Agency (FSA) has found cases in which banks extended loans to individuals and real estate business operators without sufficiently assessing their credit quality, the sources said.

By warning these banks, the agency hopes to prevent financial institutions from being saddled with massive nonperforming loans, as seen in the aftermath of the burst of the asset price bubble in the early 1990s, Mainichi Japan also reported.

The move comes amid growing concerns that a recent rise in interest rates may cool investment, possibly pushing down land and property prices.

In one case, a loan was extended without setting a lending limit, while one bank was not fully using “stress tests,” an evaluation system designed to anticipate unforeseen situations, such as a possible fall in land prices, the sources said.

In regular exchanges with local banks, the agency has expressed in writing its concerns about the increase in real estate loans and urged lenders to take steps to “enhance risk management,” the sources added.