Japanese bank lending plunges to all-time low since 2005

Japanese bank lending slumped to its lowest since 2005, with some firms deferring capital investments while others turned to bond markets in a bid to raise funds.

A Bloomberg report said lending, excluding loans by credit associations, went down 1.7 percent last month from a year earlier, the biggest decline since September 2005, quoting the Bank of Japan.

The drop, which compares with a 1.2 percent contraction in December, comes amid a five-year low in demand for loans.

Companies remain reluctant to increase spending, with more than a third of factory capacity sitting idle in Japan, even as the economy shows signs of recovering from its worst postwar recession.

Companies seeking funds are meanwhile returning to bond markets that are warming after the credit freeze following 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," said associate director-general Seiichi Shimizu of the Bank of Japan's bank surveillance department at a briefing Monday.

"Demand by companies for funds for capital expenditure and working capital remains weak," he added.

Acom Co. and Nippon Building Fund Inc., for example, sold bonds in January for the first time since 2008. The two were among the 32 Japanese companies to issue bonds since the start of the year.

Based on Bloomberg data, bonds issued by Japanese companies rose by 50 percent in January to 795 billion yen ($8.9 billion), from 529 billion yen in the same month a year earlier.

As this developed, machinery orders, an indicator of business investment, plummeted to a record low in November, as large companies disclosed plans to cut capital spending 13.8 percent in the year ending March, according to the Bank of Japan's Tankan survey.

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

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