TOKYO (MNI) – The decline in Japanese corporate demand for
financing via bank loans decelerated in October-December from the
previous quarter as corporate fund demand is somewhat encouraged by
lower lending rates, a quarterly senior loan officer survey by the Bank
of Japan released on Friday 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, rose to -2 in October-December from -5 in
July-September and -17 in April-June.

The index for demand from major companies fell to -5 from -4 in the
previous quarter while the index for small businesses improved to zero
from -1.

Last October, the BOJ adopted a “comprehensive” monetary easing
policy through lowering interest rates, buying riskier assets and making
loans to banks that are lending to growth areas in order to fight
deflation and guide the economy on to a sustained recovery track.

New long-term lending rates offered by banks in November stood at
1.213%, down 0.016 percentage point from the previous month, the latest
available data showed.

BOJ Governor Masaaki Shirakawa on Monday noted that financial
conditions have shown further signs of easing, as seen in the declining
trend in firms’ funding costs and the improvement in lending attitude of
financial institutions.

The latest survey showed that of the 50 banks polled, three said
corporate fund demand slightly increased, up from one in the
July-September quarter.

The number of banks that said corporate fund demand was moderately
weaker rose to five in Q4 from four in Q3.

The number of banks that said corporate fund demand was unchanged
from the previous quarter fell to 42 from 44.

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

The level of outstanding loans extended by Japanese banks fell 2.1%
year-on-year in December to Y393.86 trillion, marking the 13th straight
y/y drop, with the pace of decline being unchanged from an unrevised
-2.1% in November.

The 2.1% on-year fall (also marked in November and October) is the
largest decline since June 2010, when it was also down 2.1%.

In 2010, bank lending fell 1.9% from a year earlier, marking the
first year-on-year drop since 2005, in contrast to +2.2% in 2009.

Corporate demand for bank loans generally remained sluggish because
many firms remain cautious about expanding business investment in
equipment amid continued overcapacity and uncertainty over the global
economic outlook.

The senior loan officer 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.

On corporate financing, the latest Tankan business survey released
last month showed that the financial position among borrowers and the
lending attitude among financial institutions improved for the seventh
straight quarter.

Meanwhile, the latest survey of loan officers showed that the index
for fund demand among municipalities fell to -2 in the October-December
period from +1 in the previous quarter.

The index for mortgages rose to zero in the fourth quarter of 2010
from -1 in the third quarter while demand for consumer loans fell to -4
from 1 in the previous quarter.

The BOJ conducted the survey from Dec. 10 through Jan. 12.

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

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