Outstanding loans fall 5.9%

The balance of outstanding loans at Japanese commercial banks in fiscal 1999 fell 5.9 percent from a year earlier, the biggest fall since the Bank of Japan began tracking the statistic in fiscal 1992, the central bank said in a preliminary report Wednesday.

“Although commercial banks became more willing to lend than before, firms were continuing their debt reduction. Demand for funds thus remained weak,” a central bank official said.

The BOJ survey covers five groups of private-sector banks. They are: the nine major banks with a nationwide presence, known as city banks; the seven major trust banks; the three long-term credit banks; the 60 first-tier regional banks; and 64 second-tier regional banks.

Record declines were marked in all five categories for the fiscal year.

Meanwhile, the balance of outstanding loans for the month of March alone fell 6 percent from a year earlier, marking the 27th straight month of decline.

The daily balance averaged 475.91 trillion yen, with the pace of decline narrowing from February’s 6.3 percent, the central bank said.

The declining streak underscores the fact that firms continued to put priority on restructuring and reducing debt, rather than becoming aggressive by increasing borrowing. Meanwhile their earnings remain weak in the midst of a prolonged economic slump.

After adjustments for special factors such as loan securitization and exchange rate variations, the average daily balance of commercial bank lending fell 2.1 percent, the BOJ said.

Sumitomo bond issue

Sumitomo Bank said Tuesday it plans to domestically float 1 trillion yen in subordinated bonds over the next 10 years to replenish its capital base, which is under pressure from bad loans.

The bank said it plans to issue 100 billion yen worth of the bonds within the current fiscal year, which ends March 31, 2001, and an equal amount in each of the following nine fiscal years.

The 10-year subordinated bonds can be redeemed only upon reaching maturity but will give investors a higher yield than other fixed-income investment tools available on the Japanese capital market.

“We will seek to raise our capital in a stable and smooth manner . . . since our outstanding subordinated loans and bonds will be steadily coming due in the future,” the bank said.

Sumitomo wants to offset a fall in its capital-adequacy ratio with the planned public offering, as the maturity periods of outstanding subordinated loans issued in the past, mainly to life insurance companies, are approaching.

Under the accounting rules of the Basel-based Bank for International Settlements, banks operating internationally are required to maintain capital levels of at least 8 percent of their outstanding loans as a cushion against defaulting on their deposits and other liabilities.

The BIS rules allow banks to count subordinated bonds as a complementary capital-raising item under the Tier 2 portion of their capital. The rules allow 100 percent of the money raised through the sale of both subordinated bonds and loans to be counted as Tier 2 capital.

Sumitomo reported a parent-only capital-adequacy ratio of 12.25 percent in closing its midterm books on Sept. 30, 1999.

The bank plans to sell the subordinated bonds mainly to trust banks, wealthy individuals and life insurers entrusted with managing pension funds, with the minimum investment set at 100 million yen, the officials said.