TOKYO (MNI) – The level of outstanding loans by Japanese banks fell
2.0% year-on-year in October to Y394.34 trillion, marking the 11th
straight y/y drop, with the pace of decline accelerating slightly from
an unrevised -1.8% rate in September, Bank of Japan data released on
Tuesday showed.

Weak corporate fund demand continues to be the main cause of the
bank lending decline, a BOJ official told reporters.

Corporate demand for bank loans remains sluggish as many firms
remain cautious about resuming business investment in equipment amid
continued overcapacity and the growing uncertainty over the global
economic outlook.

“Signs of picking up in business fixed investment are expected to
gradually become more evident as the improvement in corporate profits
continues,” the BOJ’s economic report for November released on Monday
said.

“However, with firms’ persistent sense of excessive capital stock,
the pace of improvement in business fixed investment is likely to remain
moderate,” it added.

The year-on-year decline in lending has held to a narrow range of
-1.6% to -2.1% in the first 10 months of this year.

In October, outstanding loans by city banks fell 4.3% from a year
earlier, the 12th consecutive month of y/y drops, with the pace of
decline accelerating from an unrevised -3.9% in September.

Combined lending by banks and shinkin credit unions fell 1.9% y/y
in October to Y456.98 trillion after dropping 1.8% in September.

September marked the 12th consecutive month of y/y drops.

The balance of commercial paper issuance was Y9.73 trillion at the
end of October, down 8.2% from a year earlier. The pace of decline was
slower than -9.6% in September.

The balance of CP issuance posted the 26th consecutive y/y drop.

Lending by large regional banks was up 0.7% in October from a year
earlier, up for the fifth consecutive month, after rising 0.6% in
September.

The BOJ official said that households’ demand for housing loans
from regional banks remained strong.

Lending by second-tier regional banks fell 0.6% year on year in
October, following a 0.6% fall in the previous month.

Loans extended by credit unions were down 1.2% on year in October,
posting the 10th straight y/y drop, after falling a revised 1.4% in
September.

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 October, marking the 11th straight y/y drop after
falling 1.6% in September.

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

At its Oct. 4-5 policy meeting, the BOJ board made a drastic policy
shift, cutting the target for the already super-low overnight interest
rate to a range of 0.0% to 0.1% from a fixed 0.1% in order to counter
growing risks of an economic slowdown.

It was the first rate cut by the BOJ since December 2008, when it
lowered the target for the overnight lending rate among commercial banks
to 0.1% from 0.3%.

BOJ officials continue to monitor the impact of the additional
credit easing on banks’ lending rates as the rate cut is aimed at
lowering corporate funding costs.

tokyo@marketnews.com
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