Suruga Bank to receive $2.2b credit line Malaysia’s new gov’t sets bigger budget
TOKYO — Japan’s scandal-hit Suruga Bank will receive a credit line for as much as 250 billion yen (US$2.2 billion) from the country’s central bank after seeing two quarters of deposit outflows, two people with direct knowledge of the matter said.
The mid-sized lender in central Japan is reeling from a scandal over retail property-investment loans that has slammed its shares and led to the departures of top executives.
Regulators do not expect Suruga to suffer a liquidity crunch but they have asked the lender to secure funding from the Bank of Japan (BOJ) to be ready for any contingencies, the sources told Reuters. They spoke on condition of anonymity, as they were not authorised to discuss the matter publicly.
Some depositors pulled money out of the bank in the wake of the scandal, with net outflows of 220 billion yen, equivalent to about 5 per cent of the lender’s total deposits, in the April-June quarter. The sources said outflows continued at roughly that level in the July-September quarter.
That compares with virtually flat levels for deposits between October last year and March.
A BOJ spokesman declined to comment, saying the central bank does not disclose specific collateral conditions. A Suruga spokesman said he could not comment on specific transactions. Officials for Japan’s Financial Services Agency were not immediately available for comment.
Shares in Suruga ended 2 per cent higher after Reuters reported the move shortly before the close of trade in Tokyo yesterday. That gave the lender a market value of about $1.1 billion.
The Shizuoka prefecturebased lender will use a programme introduced in 2016, in which the central bank accepts beneficial interest of a trust in mortgage loans as eligible collateral for funding, the sources said.
The bank’s shares have fallen some 80 per cent since the start of the year when its troubles surfaced. The scandal has sent ripples through Japan’s banking industry where Suruga was a darling of investors and a role model for carving out a niche in a crowded banking market.
Japan’s bank regulator last month ordered Suruga to stop making new loans for property investments for six months, after a third-party panel found that Suruga had been involved in falsifying documents on loans made to investors who built “share houses” where tenants share bathrooms and other facilities.
The government also found that the bank had made improper loans to businesses related to the bank’s founding family, and had allowed “anti-social elements”, a euphemism for organised crime in Japan, to open deposit accounts.
The BOJ does not accept mortgage loans directly as collateral, so Suruga’s assets will essentially be securitised by a trust bank into beneficiary rights for the loans as a package, which is eligible to be used as collateral with the central bank, the sources said.
Suruga will initially pledge about 300 billion yen worth of loans, which would enable it to receive 150 billion yen from the BOJ, the sources said. It will later increase the pledged collateral to secure up to 200-250 billion yen in funding, they said. — REUTERS KUALA LUMPUR — Malaysia announced an expanded budget for 2019 and forecast a wider fiscal deficit as Prime Minister Mahathir Mohamad’s new administration tussles with shrinking revenue and a large debt left by the previous administration.
The new government is resetting “its fiscal consolidation path starting from 2019 to account for narrow revenue base, additional provision for off-budget items and tax refunds,” it said in a fiscal outlook report released on Friday alongside the presentation of next year’s budget.
Malaysia has budgeted 314.6 billion ringgit (US$75.53 billion) for government expenditure in 2019, up 8.3 per cent from this year’s revised budget of 290.4 billion ringgit, according to the report.
Total revenue is projected to rise to 261.8 billion ringgit next year, up from 236.5 billion ringgit from 2018.
The government said it has decided to settle outstanding tax refunds of around 37 billion ringgit, much of which will be funded by a one-off special dividend of 30 billion ringgit from state energy firm Petronas.
The oil and gas company will also pay a regular annual dividend of 24 billion ringgit, according to the report.
The fiscal deficit, which is closely tracked by ratings firms, is expected to hit 3.4 per cent of gross domestic product in 2019. The deficit will come in at 3.7 per cent for this year, higher than an earlier forecast of 2.8 per cent, the government said.
It is undertaking a more rigorous expenditure optimisation exercise, the report said, adding that a tax reform committee has been set up to review tax incentives and explore new sources of revenue.
Friday’s budget announcement is the first by Mahathir’s government since Malaysians ended former leader Najib Razak’s near decade long rule at a general election in May.
Analysts had widely predicted cuts to public spending, especially after Mahathir in October announced plans to reduce development spending and blamed Najib’s administration for saddling the country with debt of more than 1 trillion ringgit.
Revenue collection had also taken a hit after the new government scrapped a six per cent consumption tax and reintroduced fuel subsidies earlier this year.
In an economic report released on Friday, Malaysia said it will cut public spending sharply despite foreseeing the economy growing more slowly. — REUTERS
Suruga will initially pledge about 300 billion yen worth of loans, which would enable it to receive 150 billion yen from the BOJ. — Photo ft.com