TOKYO (MNI) – Outstanding loans by Japanese banks fell 2.1%
year-on-year to Y394.43 trillion in June, marking the seventh straight
y/y drop after falling at the same pace in May, Bank of Japan data
released on Thursday showed.

Lending continued to drop due to weak corporate fund demand,
although the annual rate was held down by sharp gains in lending seen a
year earlier.

Demand for bank loans remains sluggish as many firms are still
cautious about resuming business investment (capex) amid continued
overcapacity.

However, the BOJ’s latest economic report for June noted 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,” the
BOJ said.

“The trend (in bank lending) is unchanged — corporate demand for
funds used for operations and capital spending remains weak,” a BOJ
official told reporters in a briefing on the bank lending data today.

The 2.1% drops in both June and May were the largest since August
2005, when bank lending fell 2.2%.

The year-on-year drop in lending has been sharp in the first five
months of this year, ranging from -1.6% to -2.1%.

But the annual rate was affected by the surge in bank lending a
year ago, when the global crisis paralyzed financial markets and made it
harder for firms to raise funds via commercial paper and corporate
bonds.

From January to May 2009, bank lending posted on-year growth rates
of +3.3% to +4.0%.

Outstanding loans by city banks fell 4.1% from a year earlier in
June, marking the eighth consecutive month of y/y drops, following an
unrevised -3.9% in May.

Combined lending by banks and shinkin credit unions fell 2.0% to
Y457.03 trillion in June after dropping 2.0% in May and marking the
seventh consecutive month of y/y drops.

The 2.0% falls in both June and May were the largest on-year drops
since July 2005, when it fell 2.1%.

The balance of commercial paper issuance was Y9.76 trillion at the
end of June, down by 20.4% from a year earlier.

The pace of decline decelerated slightly from an unrevised -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, but the latest data indicated that the trend
has eased somewhat.

The balance of CP issuance posted the 22nd consecutive y/y drop.

Lending by large regional banks was up 0.2% in June from a year
earlier after being flat in May.

Lending by second-tier regional banks fell 0.5% year on year in
June, following a 0.5% fall in the previous month.

Loans extended by credit unions were down 1.3% on year in June,
posting the sixth straight y/y drop after falling a revised 1.5% in May.

After adjusting for special items such as loan securitization,
foreign exchange rates and write-offs of bad debt, lending fell 1.9%
year on year in June, marking the seventh straight y/y drop after
falling 1.9% in May.

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

tokyo@marketnews.com
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