On December 25 the Mainichi Shimbun newspaper reported that related parties allege that Seibu Shinkin Bank may have overvalued investment properties and over-lent to borrowers as a result.
In some cases, the ‘service life’ of buildings was doubled, which led to much longer loan terms. The service life of a building is used to determine its depreciation of use. It is used for tax purposes, and, in a corporate setting for balance sheets. Banks will look at the remaining years of service life on a property when assessing an investment loan and, as a general rule, will not provide a loan for a term longer than the remaining service life. The service life is 47 years for reinforced concrete, 34 years for steel-frame construction and 22 years for wood frame. An investor buying a 10-year old wooden block of flats would, theoretically, be looking at a loan term of around 12 years. The older a building gets, the more the amenities and structure become aged, causing vacancies to increase and rents to decrease.
The bank is alleged to have relied on appraisals that highly inflated the remaining service life of buildings. In some cases concrete buildings, with no consideration for repairs and maintenance, were said to be fine for 80 ~ 100 years. A representative from the bank’s management department informed the newspaper that the estimates provided were appropriate.
Last year a major scandal involving Suruga Bank and numerous investment property spruiking realtors was unmasked, causing the Financial Services Agency (FSA) to start a nationwide investigation into regional banks and credit unions. In November, the FSA started an investigation into Seibu Shinkin with suspicions of similar fraudulent investment loan activity.
Sources: The Mainichi Shimbun, December 25, 2018, The Asahi Shimbun, October 31, 2018.
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