TOKYO (MNI) – Outstanding loans by Japanese banks fell 1.8% in
April from a year earlier to Y399.6 trillion, marking the fifth
consecutive y/y drop after -2.0% in March in payback for sharp gains in
lending about a year before when the global crisis paralyzed financial
markets, Bank of Japan data released on Thursday showed.

Demand for bank loans has also been sluggish as many firms are
still cautious about resuming business investment amid continued
overcapacity.

“Bank lending continues falling from a year earlier because of weak
corporate demand for funds to be used for operations and capital
spending,” a BOJ official told reporters.

It is difficult to determine whether the downtrend in bank
lending has hit bottom yet, he added.

The pace of decline in bank loans slowed in April from March for
the first time since February, when lending the pace decelerated to
-1.6% from -1.7% in January.

Bank lending posted year-on-year gains for 46 months from February
2006 through November 2009, but the pace of growth was already slowing
for 11 months in a row until November because some firms opted to raise
cash by issuing corporate bonds rather than relying on loans in light of
a recovery in capital and credit markets.

Firms tried to preemptively increase cash-holdings for the
October-December quarter of 2008 as well as January and February 2009
amid the global financial crisis following the failure of Lehman
Brothers in September 2008.

The highest y/y growth on record in Japanese bank lending, +4.1%,
was marked in December 2008 and February 1992.

Outstanding loans by city banks fell 3.4% from a year earlier in
April, marking the sixth consecutive month of y/y drops, following
revised -3.7% (preliminary -3.6%) in March.

Combined lending by banks and shinkin credit unions fell 1.8% to
Y462.6 trillion in April, after dropping at the same pace in March and
marking the fifth consecutive month of y/y drops.

The December 2009 decline in overall lending was the first on-year
drop since January 2006, when it was flat with a slight negative bias
(-0.0%) and December 2005, when it fell 0.2% on the year.

The balance of commercial paper issuance was Y9.76 trillion at the
end of April, down by 21.6% from a year earlier. The pace of decline
slowed from a revised -33.9% in March (preliminary -34.1%) and -28.9% in
February.

Companies continued to shift their financing to long-term
instruments, such as corporate bonds, from short-term instruments
including commercial paper, but the latest data indicated that the trend
has eased somewhat.

The balance of CP issuance posted the 20th consecutive y/y drop.

Lending by large regional banks was down 0.1% in April from a year
earlier, after being unchanged with a slight negative bias (-0.0%) in
March.

Lending by second-tier regional banks fell 0.2% year on year in
April, following a revised 0.6% fall in the previous month.

Loans extended by credit unions were down 1.1% on year in April,
posting the fourth straight y/y drop after falling an unrevised 0.9% in
March.

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

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

tokyo@marketnews.com
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