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SMBC gets a warning on sales of risky products

The Fair Trade Commission on December 2 ordered Sumitomo Mitsui Banking Corporation (SMBC) to stop forcing small and medium-sized companies to buy risky financial products in return for loan rollovers, a practice that violates the Antimonopoly Law.

The Financial Services Agency will impose administrative penalties on SMBC, including an order to improve its business operations.

According to the Fair Trade Commission, since April 2001, SMBC has systematically taken advantage of its dominant bargaining position to force small business borrowers to purchase high-risk financial products, such as interest-rate swaps and derivatives, as a condition for loan extensions.

An administrative order against major banks has been issued twice before to the former Mitsubishi Bank in 1953 and the former Industrial Bank of Japan in 1957. The warning against SMBC this time marks the first in almost half a century. This is a consequence of financial deregulations under the "structural reform" policy promoted by Prime Minister Koizumi Jun'ichiro.

Japanese Communist Party member of the House of Councilors Daimon Mikishi commented on the case, stating, "This is only the tip of the iceberg. Many more compulsory sales are being imposed on small business owners. The Fair Trade Commission and the Financial Services Agency should conduct thorough investigations into other major banks and take strict action."

Daimon pointed out that many banks are eager to boost their earnings in other areas besides loans under Koizumi's "structural reform" policy and that front-line bankers are trying hard to meet their tough sales quotas. The need now, Daimon said, is to establish a financial administration and institutions that truly focus on the people.
- Akahata, December 3, 2005