Japan Jan bank lending down 4.7 pct yr/yr

Reviewed By Hitoshi URABE

Article:
"Japan Jan bank lending down 4.7 pct yr/yr"
http://www.forbes.com/markets/bonds/newswire/2003/02/09/rtr874428.html
(Reuters) Forbes

Comments:

Another grave figure for Japan's economy was revealed. Bank lending balance for January decreased, again for 61 consecutive months, to 4.7% less than a year earlier.

It was just last month that the average balance for the whole year of 2002 was announced to be 425.9 trillion yen, which was down 4.7% from the average of 2001. The decline was not necessarily a shock, as it was after all an accumulation of year-to-year figures that had been announced monthly, which kept showing 4 to 5 percent decline through the year. But it did not help boost the morale in any way, either, to see the figure to downslide for six consecutive years.

It was explained as the result of policy realization on both the lenders and borrowers. While demands for funds were shrinking at corporations, banks were aspiring to contract their balance sheets by way of decreasing loans. But looking at it closely reveals interesting intricacies.

It is true for many larger corporations have been endeavoring to cut costs and decrease debts. As many had not been successful in cutting costs through increased productivity, they resorted to laying off people. (The term "risutora", an abbreviated form of the English word "restructure", is a synonym for laying-off, in Japanese.) They also succeed in paying back their debt to banks, if their businesses had failed during the endeavor. This, however, meant losing large volume borrowers for large banks, and during the while, they were not quite equipped to efficiently search for and make loans to many good but small companies.

The January figures announced show the trend to be still apparent and also support this analysis. While the decrease of loans for total banks in January was 4.7% from a year earlier, it was only 0.3% decline for regional, or smaller banks, where the larger banks' figure was 7.5%. It means that larger banks are drastically cutting down their loans. In fact so drastically that at the end of last month, one of the big four banks, Mizuho Holdings, was ordered by the Financial Services Agency, in an unprecedented manner, to improve their operations. The FSA claimed that Mizuho was cutting loans to small corporations merely to shrink its balance sheet without regard to the business and credibility of individual companies.

The trend for larger banks reducing loans while smaller banks maintaining it has been going on almost since the collapse of the bubble. Although this is not to say that all the small banks are doing well, it could be suggested that there are quite a number of good small banks out there to support good small companies, while all the large banks are in agony together with many large corporations.