Japanese financial regulators raided the Tokyo headquarters of a state-linked bank on Wednesday over shady loans provided under a scheme to assist crisis-hit companies.

State-backed lender Shoko Chukin Bank, known for dealing with small and medium-sized enterprises (SMEs), was found by the the Financial Services Agency (FSA) as well as the Ministry of Economy, Trade and Industry to have been extending emergency loans in an improper manner while maintaining a problematic organizational system.

The Financial Services Agency headed up the on-site inspection Wednesday and is looking into those responsible for the bank extending emergency loans to firms and companies that did not fulfill the criteria as set under the state-backed scheme.

Those with knowledge of the matter said Wednesday that the FSA spearheaded the raid amid concerns that the bank itself would not be able to conduct a sufficient probe into its banking irregularities by itself.

In addition, the bank's most senior position has been held by retired officials from the Ministry of Economy, Trade and Industry, and concerns were voiced about the bank's ability to conduct its own objective investigation.

The bank's officials are suspected of routinely altering loan application documents to ensure that low interest loans could be approved for the SMEs applying for them across the country.

While a third-party panel set up by the bank itself came to the conclusion that forging loan applications were not based on executive orders and the bank had conducted no systematic coverups of the shady deals, the dodgy practices have since been found to be endemic in the bank's business culture.

The probe into the state-backed bank has found that the bank has approved inappropriate loans solely to achieve its own lending targets and had fabricated documents at its branches nationwide in an attempt to conceal the fraud.

Officials from the FSA are currently questioning the bank's staff to determine if the bank's management was involved in the fraudulent practice.

The bank has already been on a watchlist and was issued an improvement order by the agency and the Ministry of Economy, Trade and Industry and the Ministry of Finance on May 9 after revelations of the shady loans came to light.

The bank could face serious additional administrative punishments if new cases of fraud are turned up by Wednesday's raid.