Japanese bank lending declines most in four years

Lending, excluding loans by credit associations, dropped 1.7 percent last month from a year earlier, the largest decline since September 2005, the Bank of Japan said Monday. The drop, amid a five-year low in demand for loans, compares with a 1.2 percent contraction in December.

With more than a third of factory capacity sitting idle in Japan, companies remain reluctant to increase spending even as the economy recovers from its worst postwar recession. Those that do seek funds are returning to bond markets that are warming after the credit freeze triggered by the collapse of Lehman Brothers Holdings Inc. in September 2008.

“We're seeing the reverse of high-loan demand at the start of last year when access to capital markets was difficult,” Seiichi Shimizu, associate director-general at the Bank of Japan's bank surveillance department, said at a briefing Monday. “Demand by companies for funds for capital expenditure and working capital remains weak.”

Acom Co. and Nippon Building Fund Inc. sold bonds in January for the first time since 2008, and were among 32 Japanese companies to issue bonds since the start of the year. Bonds issued by Japanese companies rose by 50 percent in January to 795 billion yen (US$8.9 billion), from 529 billion yen in the same month a year earlier, Bloomberg data show.

Machinery orders, an indicator of business investment, plunged to a record low in November. Large companies plan to cut capital spending 13.8 percent in the year ending March, according to the Bank of Japan's Tankan survey.

“It just highlights how weak domestic demand is at this point,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. “Since the yen's strengthening, it's likely that exporters will continue to move their factories overseas. That means capital spending at home is going to stay low.”

An index of demand for loans to businesses plunged to minus 17 in January from October, the lowest since July 2004, the Bank of Japan said in a quarterly survey of loan officers.

Lending by Japan's 10 so-called city banks, including Mitsubishi UFJ Financial Group Inc., fell 3.4 percent following a 3.1 percent drop the previous month, the Bank of Japan said.

Mitsubishi UFJ rose 0.2 percent to 458 yen at the lunch time break in Tokyo. Sumitomo Mitsui Financial Group Inc., Japan's second largest bank behind Mitsubishi UFJ, declined 0.8 percent. The Topix Banks Index, which tracks 84 lenders, rose 0.1 percent.

“Companies aren't willing to take on the risk of increasing borrowing and spending amid deflation,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo.

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