Status of Suruga Bank’s Response to Loans for Investment Real Estate Other Than Shared Housing(Updated Version)
August 8, 2024
Suruga Bank
Introduction
In response to the organizational negotiation of loans for investment real estate other than sharedhousing (hereinafter, the “Apaman Issue”), Suruga Bank announced in April 2023 three policies withthe strong desire that this issue will be resolved as quickly as possible. The three policies are: (1)propose a plan for early settlement, (2) reduce obligations on debtors by assisting with negotiated sales,and (3) make decisions on an individual basis.
The following is an explanation of the status of our response in accordance with these policies.
Overview of the Apaman Issue
In May 2019, the “Report (Investigation of All Investment Real Estate Loans)” (hereinafter, the“Investigation”) was published1 revealing the full extent of the problems in the Bank's real estate
investment-related lending. In light of the fact that the Investigation uncovered falsification or forgeryof screening documents in approximately 20% of the total number of investment real estate loans
granted (on 37,907 properties, including shared housing), the bank has offered consultations andprovided extensive repayment support, by for example, cutting a portion of the principal of these debts.
Currently, as of the end of June 2024, organizational negotiations on 819 properties2 (approximately
2.2% of the 37,907 properties) are currently ongoing with the Bank and the Suruga Bank Victims
Defense Team (hereinafter, the “SI Defence Team”). In some cases, debtors (hereinafter, the“Organizational Negotiation Debtors”) have been withholding rental income earned on theseproperties and have stopped paying principal or interest to the Bank for an extended period of time. To
ensure financial soundness, Suruga Bank has appropriately recorded allowances for these liabilities
with a coverage ratio3 of 99.65%.
Reference Materials 1: Status and coverage of investment real estate loans and organizational
negotiation partners

1. Early settlement proposal
With regard to our first policy to propose a plan for early settlement, Suruga Bank proposed an Early
Resolution Framework to the SI Defense Team in May 2022. The Early Resolution Framework
proposes a three stage process. The first stage is to consider the issue of inflated4 property valuations,the second is to consider whether it is highly likely that Suruga Bank and its employees were involved
www.surugabank.co.jp/surugabank/common/english/info/pdf/190515_4_a_en.pdf
Due to voluntary sales and other factors, from the end of September 2022 to the end of June this year, 109 properties were no longer
in organizational negotiations.
3 The figures are as of June 30, 2024.
4 The term "inflated" here broadly means that the falsified rent roll led to the “mistake” of thinking that the property in question was
more profitable than it actually was, resulting in a higher price than if the “mistake” had not occurred.
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in falsifying rent rolls presented to debtors, and the third is to consider the calculation of a settlement
figure based on the amount of damage and the degree of responsibility. Consultations have now
progressed to the third stage.
However, even now, two and a half years since the SI Defence Team filed for mediation5, there are still
differences of opinion on some basic points. For example, Suruga Bank has insisted on the need tomake decisions on an individual basis6, but the SI Defense Team has effectively demanded a blanket
settlement, something which we have not been able to come to agreement on.
We will continue to respond in good faith to negotiations involving the courts, and in light of thesituation where differences of opinion between the two parties have remained unresolved for an
extended period of time, we are communicating to the SI Defense Team our proposal to the effect thateven for individual cases that are not under specific consideration, we would like to receive all thenecessary information from those debtors who wish to seek early resolution in accordance with ourproposed framework.
Through these efforts, Suruga Bank will continue to take the stance of “actively cooperating to clarify
the loan circumstances in an effort to achieve an early resolution for certain types of cases where theBank is likely to be found liable in tort in a lawsuit,” thereby making every effort to resolve the issue
as quickly as possible.
2. Reduce obligations on debtors by assisting with negotiated sales
With regard to our second policy to reduce obligations on debtors by assisting with negotiated sales,
there have been cases through various proposals and consultations in which measures to assist withnegotiated sale have been applied resulting in the sale of such properties. As stated in the document
addressed to Organizational Negotiation Debtors (Reference Material 2) described below, we offer
consultation and in-depth support in cases where the value of the property is not enough to repay theloan even if private sale proceeds are used7, such as in the preparation of a repayment plan after thesale proceeds have been appropriated, depending on the circumstances of each individual case.
3. Decisions on an individual basis
Regarding our third policy, as an example of the need to make decisions on an individual basis, Suruga
Bank’s approach to so-called “break-even properties” is explained as follows in a document publishedin November 2023.
A break-even property is one that has a high possibility of securing positive “real estateincome” even if scheduled repayments continue as per the loan agreement with Suruga Bank.

The SI Defense Team filed a petition for mediation with the Tokyo District Court in February 2022, but since then, negotiations
involving the court alone have taken place 18 times.
6 Reasons why we believe that decisions on an individual basis are necessary (summary of materials published in April 2023):(1) In the results of all investigations, no fraud was found in approximately 80% of Apaman loans, so we cannot assume that Suruga
Bank committed illegal acts in all cases; (2) The circumstances of the parties involved differ depending on the individual case (Forexample, there was a report of a real estate agent falsifying documents at the request of the Bank, deceiving property owners.
However, Suruga Bank has also seen cases where a real estate agent falsified documents deceiving both the owner and the Bank, andcases where the owner and real estate agent jointly falsified documents to obtain a larger loan from the Bank); and (3) Fairness withdebtors with whom individual lawsuits and settlements have already been made (judicial rulings and settlements have already beenreached in accord with individual circumstances, so from the perspective of fairness, it is difficult for Suruga Bank to opt for a blanketresolution).
7 In the case of Organizational Negotiation Debtors who have been withholding rental income earned on their properties and havestopped paying principal or interest to the Bank, we request that approximately 70% of the amount withheld (after deduction ofappropriate and necessary expenses) be added to their repayment.
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As such, we believe that, in principle, there is no justifiable reason to suspend loan repayments
for an extended period of time.
The term “real estate income”8 here refers to the amount obtained when 30% of the rental
income from the property is deemed as necessary expenses, and those necessary expenses andloan payments (interest and scheduled repayments paid to Suruga Bank) are deducted fromthe rental income. The expenses ratio for a single apartment building, which includes
management fees, utilities for common areas, property tax, city planning tax, andrefurbishment costs when empty, is generally said to be around 15–20%, but Suruga Bank
conservatively assumes an expenses ratio of 30% when calculating “real estate income”.

As explained in the materials released in April 2024, Suruga Bank has prepared a document requesting
debtors who own such break-even properties to resume scheduled repayments, consider reducing their
repayment obligations through voluntary sale of properties, or to contact us if there are any specificcircumstances that make it difficult to make scheduled repayments. We have been sending out thisdocument to debtors from March 2024.
Furthermore, with regard to properties whose real estate income is estimated to be in the red based onmaterials provided by the debtor and not just for the break-even properties mentioned above, inaddition to reducing repayment obligations through voluntary sale of properties, we have been
informing debtors from May 2024 that we will be accepting consultations for resuming scheduled
repayments by working to create surplus real estate income through interest rate reductions.
 Reference Material 2: Template of document including consultation on interest rate reduction(example)
Suruga Bank is also providing written notice that we will accept inquiries and consultations in othercases, such as when there are special circumstances (e.g., excessive property repair costs) that havenot been taken into account in estimated real estate income, or when it is unclear whether the property
is profitable or not.
We hope you will understand that we are doing our best to resolve the Apaman issue as quickly as
possible by providing repayment advice based on individual circumstances and by proposing measures
to reduce repayment obligations to the greatest extent possible, regardless of whether the property isproducing income or not.
If however, despite these proposals, you do not respond to our communication to resume repayments,
we will be forced to go back to the principles stipulated by law and file our claim that as a bank, it isextremely difficult for us to allow you to miss repayments for an extended period of time.

Future Actions
We will continue to do our utmost to resolve the issue as soon as possible in accordance with the threepolicies we announced in April 2023.
In particular, we believe that it is essential to take prompt measures with our second policy to reduce
obligations on debtors by assisting with negotiated sales, given the urgent need to reduce the burden
In response to a question regarding the definition of “real estate income,” we have provided an explanation that further expands on
our previous disclosures.
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on Organizational Negotiation Debtors who are struggling to make repayments, and to those who may
not be able to achieve the expected sales price depending on future real estate market conditions.
For this reason, we offer the maximum level of support possible to all Organizational Negotiation
Debtors. We will do our utmost to bring relief as soon as possible to the many Organizational
Negotiation Debtors by quickly reducing their debt obligations, providing assistance in the form of
repayment plans, and creating a path to resolving individual issues on a case-by-case basis.

Reference Materials 1p. 4

Reference Materials 2p. 5

*This document is an update of some figures (underlined portions) from the document released on July
1, 2024, based on information as of the end of June 2024.
*This document has been translated from the Japanese original for reference purposes only.In the eventof any discrepancy between this translated document and the Japanese original,the original shall prevail.
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