TOKYO (MNI) – The level of outstanding loans by Japanese banks fell
1.8% year-on-year in September to Y394.27 trillion, marking the 10th
straight y/y drop, with the pace of decline slowing slightly from an
unrevised -2.0% rate in August, Bank of Japan data released on Wednesday
showed.

A BOJ official said that weak corporate fund demand continues to
be the main cause of the bank lending decline.

Corporate 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 global
economic outlook.

“Signs of a pick up in business fixed investment are expected to
gradually become more evident as the improvement in corporate profits
continues,” The BOJ said in its latest monthly economic report for
October.

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

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

In September, outstanding loans by city banks fell 3.9% in
September from a year earlier, the 11th consecutive month of y/y drops,
with the pace of decline slowing from a revised -4.0% in August.

Combined lending by banks and shinkin credit unions fell 1.8% y/y
in September to Y456.85 trillion after dropping 1.9% in August.
September marked the 11th consecutive month of y/y drops.

The balance of commercial paper issuance was Y9.25 trillion at the
end of September, down 9.6% from a year earlier. The pace of decline was
slower than -14.0% in August and -11.7% in July.

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 25th consecutive y/y drop.

Lending by large regional banks was up 0.6% in September from a
year earlier, up for the fourth consecutive month. after rising 0.4% in
August.

Lending by second-tier regional banks fell 0.6% year on year in
September, following a 0.8% fall in the previous month.

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

After adjusting for special items such as loan securitization,
foreign exchange rates and write-offs of bad debt, lending fell 1.6%
year on year in September, marking the 10th straight y/y drop after
falling 1.7% in August.

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

The BOJ’s policy board on Oct. 5 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 monitoring the impact of the additional
credit easing on banks’ lending rates as the rate cut is aimed at
lowering corporate fund-raising costs.

tokyo@marketnews.com
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