TOKYO (MNI) – Outstanding loans by Japanese banks fell 2.1%
year-on-year to Y396.12 trillion in May, marking the sixth straight y/y
drop after a revised -1.9% (initially -1.8%) in April, Bank of Japan
data released on Tuesday showed.

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

Demand for bank loans remains sluggish as many firms are still
cautious about resuming business investment amid continued overcapacity,
although the BOJ has recently said there are signs of a pickup in capex.

“The trend is unchanged — corporate demand for funds used for
operations and capital spending remains weak,” a BOJ official said.

The 2.1% drop in May was the largest fall 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
calculations has been adversely 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 3.9% from a year earlier in
May, marking the seventh consecutive month of y/y drops, following an
unrevised -3.4% in April.

Combined lending by banks and shinkin credit unions fell 2.0% to
Y458.75 trillion in May after dropping 1.8% in April and marking the
sixth consecutive month of y/y drops.

The 2.0% fall is the largest on-year drop since July 2005, when it
fell 2.1%.

The balance of commercial paper issuance was Y9.59 trillion at the
end of May, down by 22.7% from a year earlier.

The pace of decline accelerated slightly from an unrevised -21.6%
in April but decelerated from -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 21th consecutive y/y drop.

Lending by large regional banks was unchanged in May from a year
earlier after -0.1% in April.

Lending by second-tier regional banks fell 0.5% year on year in
May, following a 0.2% fall in the previous month.

Loans extended by credit unions were down 1.3% on year in May,
posting the fifth straight y/y drop after falling 1.1% in April.

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 May, marking the sixth straight y/y drop after falling
1.7% in April.

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

tokyo@marketnews.com
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