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Japanese Bank Loans Rise at Fastest Pace

Tuesday, 11 November, 2008

Lending growth at Japanese banks accelerated in October to the fastest pace in more than 16 years as the global credit squeeze shut off other funding avenues for companies that had previously shunned borrowing.

Loans, excluding those by credit associations, rose 2.5 percent in October, the fastest pace since August 1992, the Bank of Japan said today. Lending grew by 1.8 percent in September.

``Because of turmoil in the markets, companies are turning to banks for funds as they can't issue bonds and commercial paper,'' said Michio Kitahara, associate director-general of the central bank's surveillance department. ``Banks are now receiving a lot of requests for funds from large companies.''

Increasing loan demand comes as a slowing economy is already pushing bad loans costs higher, hurting profitability. Japan's five largest banks reduced profit forecasts last month, citing worsening credit quality and the impact of slumping asset values.

The amount of outstanding commercial paper underwritten by banks dropped 8.5 percent to 12.8 trillion yen ($131 billion) in October, the central bank said today.

Lending by Japan's 10 so-called city banks, including Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc., rose 1.6 percent after climbing 0.9 percent in September. Regional banks continued to expand lending at a faster rate, by 3.4 percent, compared with 2.9 percent a month earlier.

BOJ Cuts Rate

Mitsubishi UFJ, the nation's biggest bank, fell 2.9 percent to 633 yen as of the 3 p.m. close on the Tokyo Stock Exchange. Mizuho, the second-largest by revenue, dropped 1.7 percent.

The Bank of Japan cut its benchmark lending rate to 0.3 percent from 0.5 percent last month to stave off a prolonged recession as the global economic slowdown crimps exports and makes companies less willing to invest. Exports to the U.S. fell 10.9 percent in September from a year earlier, the Finance Ministry said last month.

``It's uncertain whether we'll see similar loan growth for November,'' said Keisuke Moriyama, an analyst at Nomura Holdings Inc. in Tokyo. ``Company results are worsening, so good lending opportunities are decreasing.''

Rules on banks' capital-adequacy ratios, which require lenders to set aside capital as a buffer against risk, will be relaxed until March 2012 to free up funds for lending amid the global credit squeeze, Finance Minister Shoichi Nakagawa said last week. Banks that comply with international capital-adequacy rules, including Mitsubishi UFJ, won't have to reflect losses on government and municipal bonds in their capital bases.

Source: http://www.bloomberg.com/