— Drop in August Bank Lending Widens From July’s -1.9%

TOKYO (MNI) – Outstanding loans by Japanese banks fell 2.0%
year-on-year to Y394.20 trillion in August, marking the ninth straight
y/y drop, with the pace of decline accelerating slightly from the
unrevised -1.9% rate in July, Bank of Japan data released on Wednesday
showed.

“The pace of the y/y drop accelerated from the previous
month but there is no major change in the bank lending trend,” a BOJ
official said.

“The on-year drop of bank lending is fluctuating monthly but
the trend is unchanged that corporate demand for funds used for
operations and capital spending remains weak,” he added.

Demand for bank loans remains sluggish as many firms are still
cautious about resuming business investment in equipment amid continued
overcapacity and the growing uncertainty over the outlook for the global
economy.

However, the BOJ said in its latest monthly economic report for
August that “business fixed investment is showing signs of picking up.”

“Although signs of a pick-up are expected to gradually become
evident with the recovery in corporate profits, the improvement in
business fixed investment is likely to remain moderate for the time
being amid the strong sense of excessive capital stock among firms,” it
said.

The year-on-year decline in lending ranged from -1.6% to -2.1% in
the first eight months of this year.

Today’s data is consistent with the latest quarterly loan survey by
the BOJ.

The decline in Japanese corporate demand for financing via bank
loans accelerated in April-June from the previous quarter as increasing
profits continued to supply private firms with ample funds, the BOJ’s
quarterly survey of senior loan officers showed.

The BOJ’s index for corporate fund demand, which measures the
percentage of banks that saw an increase in lending demand minus those
that reported a decline, fell to -17 in April-June from -10 in
January-March.

The latest survey showed that the number of banks that said
corporate fund demand was moderately weaker increased, with the index
rising to 13 from 8 for the January-March period.

The number of banks that said corporate fund demand was the same
from the previous quarter fell to 35 from 41.

In Wednesday’s lending data, outstanding loans by city banks fell
3.9% from a year earlier in August, marking the 10th consecutive month
of y/y drops, with the pace of decline accelerating from an unrevised
-3.7% in July.

Combined lending by banks and shinkin credit unions fell 1.9% to
Y456.76 trillion in August after dropping 1.8% in July. August marked
the ninth consecutive month of y/y drops.

The balance of commercial paper issuance was Y10.06 trillion at the
end of August, down 14.0% from a year earlier.

The pace of decline was faster than -11.7% in July, but slower than
-20.4% in June, 22.7% in May, -21.6% in April and -33.9% in March.

Companies continued to shift their financing to long-term
instruments, such as corporate bonds, from short-term instruments
including commercial paper.

The balance of CP issuance posted the 24th consecutive y/y drop.

Lending by large regional banks was up 0.5% in August from a year
earlier after rising 0.2% in July.

Lending by second-tier regional banks fell 0.8% year on year in
August, following the 0.7% fall in the previous month.

Loans extended by credit unions were down 1.3% on year in August,
posting the eighth straight y/y drop after falling a revised 1.4% in
July.

After adjusting for special items such as loan securitization,
foreign exchange rates and write-offs of bad debt, lending fell 1.7%
year on year in August, marking the ninth straight y/y drop after
falling 1.7% in July.

The 0.9% fall in December 2009 was the first on-year drop in 53
months.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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