TOKYO (MNI) – The decline in Japanese corporate demand for
financing via bank loans accelerated in April-June from the previous
quarter as increasing profits continued to supply private firms with
ample funds, a survey of senior loan officers by the Bank of Japan
released on Wednesday showed.

The BOJ’s index for corporate fund demand, which measures the
percentage of banks that saw an increase in lending demand minus those
that reported a decline, fell to -17 in April-June from -10 in
January-March.

The latest survey showed that the number of banks that said
corporate fund demand was moderately weaker increased to 13 from 8 for
the January-March period.

The number of banks that said corporate fund demand was the same
from the previous quarter fell to 35 from 41.

The survey results are consistent with the latest bank lending
data.

Outstanding loans by Japanese banks fell 2.1% year-on-year to
Y394.43 trillion in June, marking the seventh straight y/y drop after
falling at the same pace in May.

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

Demand for bank loans remains sluggish as many firms are still
cautious about resuming business investment (capex) amid continued
overcapacity.

The index surged to a record high of +43 in the final quarter of
2008 from -5 in the previous quarter as corporate financing conditions
worsened sharply after the failure of the U.S. investment bank Lehman
Brothers and the resulting financial crisis hurt companies’ ability to
borrow directly from financial markets.

Corporate demand for bank loans is unlikely to recover sharply in
the near future given that firms remain leery of capital investment as
past excesses continue to weigh on them.

Also, firms continue to have plenty of funds on hand, including
cash and deposits.

The survey also continued to show a large difference in the funding
situation for large and small firms.

The index for major companies rose to -10 from -15 the previous
quarter, while the index for small- and medium-sized firms fell to -14
from -5.

The BOJ’s latest Tankan corporate sentiment survey released on July
1 showed that the ratio of liquidity — assets (cash, deposits and
securities) divided by sales — at major firms improved to 1.21 at the
end of March 2010 (the latest period available) from 1.08 at the end of
December 2009.

The ratio of liquidity at smaller firms at end-March stood at 2.07,
up slightly from 2.04 three months earlier.

Those figures indicate that companies have sufficient funds on hand
given their reluctance to make large-scale capital investments.

Meanwhile, the latest survey of loan officers showed that the index
for fund demand among municipalities fell to +6 in the April-June period
from +15 for the previous quarter.

Consumer demand for bank funding also remained weak in the second
quarter.

The index for mortgages fell to -3 in the second quarter of 2010
from -2 in the first quarter, while demand for consumer loans stood at
-2, unchanged from the previous quarter.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

[TOPICS: M$J$$$,M$A$$$,MMJBJ$,MAJDS$,MT$$$$]