Prosecutors raid Japan’s UFJ bank

Japanese banking giant UFJ has been raided by prosecutors investigating whether the group hindered an official probe into bad loans.

The raid is thought to have come in response to a complaint filed by Japan’s markets watchdog on Thursday.

The Financial Services Agency also banned UFJ from lending to new clients for six months.

The crackdown is seen as a setback for UFJ, which has agreed to merge with rival Mitsubishi Financial next year.

UFJ is also being pursued by Sumitomo Mitsui Financial Group.

However, UFJ and Mitsubishi insisted the latest investigation would not derail their merger plans.

The prosecutors are probing allegations that UFJ held back information on the financial health of some ailing corporate borrowers during an inquiry last year into bad loans accumulated by Japan’s banks.

Japan’s major banks are under pressure to consolidate in the face of growing global competition.

The proposed tie-up between UFJ and Mitsubishi would create the world’s biggest bank, with assets worth more than 160 trillion yen ($1.6 trillion; £896bn; 1.3 trillion euros).

Osaka based UFJ is the smallest of Japan’s “Big Four” banks, and the only one yet to recover from the impact of hefty bad loans built up during Japan’s 1980s boom.

The bank reported a loss of 402 billion yen in its most recent financial year, prompting the resignation of senior executives.