Corporate loan demand drops in Japan again


Interest in household loans has returned but companies are still not eager to increase their debt load in Japan

Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan (CNN) -- Demand for loans continues to fall on the corporate front in Japan, despite signs of an economic rebound.

But demand for personal loans is stronger in April, the central Bank of Japan reported on Tuesday.

Corporate demand for loans is down 25 percent for April, the same level of decline seen three months ago in January.

The strength lies in household loans, where people are looking for money from banks. Demand for loans is 10 percent stronger for households, on average, according to the BOJ survey.

In January, the level of interest was flat, neither improving nor declining.

The BOJ compiles the statistics through interviews with senior loan officers at large banks. It asks them to rate customer interest in loans on a scale from "substantially stronger" to "substantially weaker".

Small companies particularly loan-averse

Small- and medium-size companies are particularly reticent to seek fresh funds. About 24 percent of small companies are actually less likely to ask for new loans than in January.

That's a greater drop than the 22 percent decline in interest seen in January. Big companies are much more mixed in their views, with interest down by just 8 percent, less than the 9 percent drop seen in January.

Economists say Japan's economy is unlikely to recover fast unless capital spending by companies -- for machinery and plant improvements and the like -- returns. But even virtually "free" loans have done little to stimulate demand, after Japan's decade-long economic slump.

Companies may have good reason to hold back. Separate from the loan-demand report, the central bank is also pushing the major banks to get tougher on problem borrowers.

The BOJ made on-site inspections through the end of last year, visiting 97 banks and checking their records of more than 21,000 borrowers.

It is encouraging banks to shift 1,900 companies from a category of "sound borrowers" into two groupings that show the borrower is in trouble -- watchlist borrowers or borrowers in bankruptcy.

Bank analysts are troubled by the "gray area" of problem borrowers in Japan, with companies occasionally shifting from sound footing directly into bankruptcy with little official warning.

Stocks moving ahead

According to the Financial Services Agency, the industry's watchdog, there was 36.8 trillion yen ($284 billion) in nonperforming loans at the end of September 2001. But analysts say that vastly underestimates the size of the problem.

The FSA, in turn, has criticized overseas analysts for misunderstanding and misinterpreting data on the problem.

The benchmark Nikkei index is up 0.6 percent at 11,792.45 in afternoon trade in Japan, mainly stemming from optimism on tech earnings.

The broader Topix index, which maps bank-stock performance more closely, is up 0.17 percent at 1,107.74.