TOKYO (MNI) – The decline in Japanese corporate demand for
financing via bank loans decelerated in July-September from the previous
quarter as firms suffered from the impact of the strong yen amid
increased uncertainty over the global economy, a survey of senior loan
officers by the Bank of Japan showed Thursday.

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, rose to -5 in July-September from -17 in
April-June.

The latest survey showed that the number of banks that said
corporate fund demand was moderately weaker fell to 4 from 13 for the
April-June period.

The number of banks that said corporate fund demand was the same
from the previous quarter rose to 44 from 35.

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

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.

A BOJ official has 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.

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.

Despite today’s survey results, 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.

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 -4 from -10 the previous
quarter, while the index for small- and medium-sized firms rose to -1
from -14.

The BOJ’s September Tankan released on Sept. 29 showed that the
ratio of liquidity — assets (cash, deposits and securities) divided by
sales — at major firms fell to 1.12 at the end of June (the latest
period available) from 1.21 at the end of March.

The ratio of liquidity at smaller firms at end-June stood at 2.03,
also down from 2.07 three months earlier.

Those levels are still high, indicating that companies have
sufficient funds on hand as they remain reluctant to make large-scale
capital investment.

Meanwhile, the latest survey of loan officers showed that the index
for fund demand among municipalities fell to +1 in the July-September
period from +6 for the previous quarter.

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

The index for mortgages rose to -1 in the third quarter of 2010
from -3 in the first quarter, while demand for consumer loans stood at
+1, rising from -2 the previous quarter.

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

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