TOKYO (MNI) – Outstanding loans by Japanese banks fell 2.0% in
March from a year earlier to Y401.13 trillion, marking the fourth
consecutive y/y drop after -1.6% in February in payback for sharp gains
in lending about a year before when the global crisis paralyzed
financial markets, Bank of Japan data released on Monday showed.

The March decline was the largest since August 2005, when bank
lending shrank 2.2% from a year before.

Demand for bank loans has also been sluggish as many firms are
still cautious about resuming business investment amid continued
overcapacity.

Bank lending posted year-on-year gains for 46 months from February
2006 through November 2009, but the pace of growth was already slowing
for 11 months in a row until November because some firms opted to raise
cash by issuing corporate bonds rather than relying on loans in light of
a recovery in capital and credit markets.

Firms tried to preemptively increase cash-holdings for the
October-December quarter of 2008 as well as January and February 2009
amid the global financial crisis following the failure of Lehman
Brothers in September 2008.

The highest y/y growth on record in Japanese bank lending, +4.1%,
was marked in December 2008 and February 1992.

Outstanding loans by city banks fell 3.6% from a year earlier in
March, marking the fifth consecutive month of y/y drops, following -3.3%
in February.

The March fall was the largest since September 2005, when the loans
by major banks dropped 4.4% from a year earlier.

Combined lending by banks and shinkin credit unions fell 1.8% to
Y464.35 trillion in March, after dropping 1.5% in February and marking
the fourth consecutive month of y/y drops.

The December 2009 decline in overall lending was the first on-year
drop since January 2006, when it was flat with a slight negative bias
(-0.0%) and December 2005, when it fell 0.2% on the year.

The balance of commercial paper issuance was Y8.71 trillion at the
end of March, down by a record 34.1% from a year earlier.

The March drop accelerated from -29.1% in February and surpassed
the previous record drop of 31.2% marked in September 2009.

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 19th consecutive y/y drop.

Lending by large regional banks was unchanged with a slight
negative bias (-0.0%) year-on-year last month, after a revised 0.1% rise
in February.

Lending by second-tier regional banks fell 0.7% year on year in
March, following an unrevised 0.8% rise in the previous month.

Loans extended by credit unions were down 0.9% on year in March,
posting the third straight y/y drop after falling a revised 0.7% in
February.

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 March, marking the fourth straight y/y drop after
falling 1.3% in February.

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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