Japan Sept bank lending down 3.1 pct year-on-year; 81st straight fall -
Wednesday, October 13, 2004 3:55:40 AM
afxpress.com
TOKYO (AFX) - Lending by Japanese banks fell 3.1 pct in September from a year earlier, the 81st straight month of decline, the Bank of Japan said in a preliminary report, reflecting weak corporate demand for bank financing amid a continued shift in fund-raising to capital markets
Bank lending dropped by 3.1 pct in August and by 3.9 pct in July
The data shows credit demand remains weak despite Japan's economic recovery, as many companies remain focused on slashing debt or use capital markets to finance spending by selling shares or bonds
Over the past week, three initial public offerings (IPOs) have been announced that are each expected to raise at least 100 bln yen. Oil explorer INPEX Corp could raise as much as 200 bln yen through its IPO, and chip maker Elpida Memory Inc and NTT Urban Development, the property unit of NTT Corp, are both expected to raise around 100 bln yen through their IPOs
Japanese companies are also rushing to sell bonds to take advantage of interest rates which remain near record lows, but could rise if Japan's recovery continues. Mitsui Fudosan Co Ltd, Japan's largest property developer, last Friday said it plans to raise 10 bln yen by selling 10-year bonds paying 1.81 pct
Ryota Sakagami, an economist at Nomura Securities, said the outstanding balance of bank loans may continue falling for for more than another year, or "even after the end to deflation", due to a structural change in corporate financing
"Even after non-financial companies end their efforts to slash debt, it is unlikely bank lending will return to the level it used to be as there is a structural change from indirect financing (through bank lending) to direct financing via capital markets," Sakagami said
Furthermore, many Japanese companies are now limiting their capital spending to amounts that can be financed through cash flows and without recourse to borrowing, he added
But Sakagami took issue with the often-heard claim that bank lending is dropping because banks remain reluctant to lend to small- and mid-sized companies for fear of incurring new bad debts
"The Bank of Japan's Tankan survey and other statistics show that there is no difference in financial institutions' attitude on lending... to large companies and to small- and mid-sized companies," Sakagami said
He also noted that in an attempt to halt the decline in lending, major banks are broadening their lending from a traditional focus almost exclusively on the corporate market, to lending money to individuals to buy homes, cars and for other purposes
"Japanese households traditionally had abundant savings. But those savings began to be eroded due to the decade-long recession. This has created on opportunity for banks to lend money to individuals," Sakagami said
Home mortgage lending in particular is increasing, and Sakagami said the recent wave of tie-ups between banks and consumer loan companies will continue to fuel an increase in lending to individuals
The Bank of Japan said the year-on-year decline in September in bank lending is significantly less after adjustment for special items such as loan securitization, foreign exchange rates and write-offs of bad debt. After adjusting for such factors, lending fell by just 1.2 pct, compared to a revised fall of 1.1 pct in August and by 1.2 pct in July
In September, lending by banks with branches nationwide -- so-called "city banks" -- fell 4.7 pct year-on-year. This followed declines of 4.9 pct in August and 6.3 pct in July
Lending by regional banks fell 1.1 pct in September, after falling 0.9 pct in August and 0.8 pct in July. Lending by second-tier regional banks dropped 0.5 pct year-on-year, after declining 0.4 pct in August and being unchanged in July
Lending by credit unions fell by 0.7 pct, following declines of 0.8 pct in August and 0.4 pct in July |
