— Japan 2010 Bank Lending -1.9%, 1st Drop In 5 Years

TOKYO (MNI) – 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, Bank of Japan data released on
Wednesday showed.

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.

Weak corporate fund demand continues to be the main cause for the
bank lending decline, a BOJ official told reporters.

“There was fund demand for business settlements and bonus payments
in December but they didn’t filter through to bank loans as companies
continue to have ample cash on hand,” the official said.

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

The BOJ said in its latest economic report released in December,
“Signs of picking up in business fixed investment are expected to
gradually become more evident as the improvement in corporate profits
continues.”

“However, with firms’ persistent sense of excessive capital stock,
the pace of improvement in business fixed investment is likely to remain
moderate.”

Economists don’t expect a rise in bank lending in the near future.

In December, outstanding loans by city banks fell 4.7% from a year
earlier, the 14th consecutive month of y/y drops, with the pace of
decline being flat from a revised -4.7% in November (preliminary -4.6%).

Combined lending by banks and shinkin credit unions fell 1.9% y/y
in December to Y456.53 trillion after dropping 2.0% in November.

December marked the 13th consecutive month of y/y drops.

The balance of commercial paper issuance was Y10.28 trillion at the
end of December, down 10.1% from a year earlier. The pace of decline was
faster than the 9.0% drop in November.

The balance of CP issuance posted the 28th consecutive y/y drop.

Lending by large regional banks was up 1.1% in December from a year
earlier, up for the seventh consecutive month, after rising 0.9% in
November.

Lending by second-tier regional banks fell 0.5% year on year in
December, following a 0.5% fall in the previous month.

Loans extended by credit unions were down 1.1% on year in December,
posting the 12th straight y/y drop, after falling a revised 1.3% in
November.

After adjusting for special items such as loan securitization,
foreign exchange rates and write-offs of bad debt, lending fell 1.8%
year on year in December, marking the 13th straight y/y drop after
falling 1.9% in November.

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

tokyo@marketnews.com
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