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BOJ boost limited by weak lending

Cash-rich firms spurn banks’ offers

by Keiko Ujikane

Bloomberg

Banks are the most keen to lend companies money in 17 years. Corporate treasurers don’t need the cash.

The Bank of Japan’s “tankan” business confidence index released Tuesday showed that the prevalence of midsize companies saying banks are willing to lend to them rose to 19 in March, the highest since June 1997.

Yet demand for loans from businesses remains below levels before the global financial crisis, other central bank data show.

The BOJ’s unprecedented monthly buying of about ¥7 trillion of sovereign notes has flooded Japan’s markets with funds to encourage banks to boost lending, as Prime Minister Shinzo Abe tries to beat deflation. Companies including SoftBank Corp. and Toyota Motor Corp. have built buffers since the financial crisis, with total cash holdings of nonfinancial Topix index members reaching the equivalent of $636 billion in the latest filings, from $417 billion in March 2007, data compiled by Bloomberg show.

“It’s a positive that banks are more willing to lend, but the problem is that there’s just not much demand for funds among borrowers,” said Norio Miyagawa, a senior economist at Mizuho Securities Research & Consulting Co. in Tokyo. “We need to see the impact of the tax increase and the economic outlook.”

The economy will probably shrink 3.5 percent in the quarter started April 1 as the increase in the sales tax to 8 percent from 5 percent this month weighs on spending and boosts inflation, according to a survey of economists by Bloomberg. Large manufacturers expect the tankan sentiment index to worsen to 8 in June from 17 in March, according to a recent BOJ survey.

BOJ Gov. Haruhiko Kuroda and his board started their aggressive unorthodox easing policy last April in an effort to stamp out 15 years of deflation in the world’s third-largest economy.

The central bank is trying to fuel investors’ risk-taking by artificially stoking inflation of 2 percent. Companies forecast that consumer price growth will pick up to 1.5 percent over the next 12 months, reaching 1.7 percent in three years, where it will remain through 2019, the BOJ said Wednesday. Prices excluding fresh food rose 1.3 percent from a year earlier in February.

This week’s tankan data signal a turnaround in banks’ lending stance since the global financial crisis. The index, which subtracts the percentage of companies saying banks are severe in their lending attitude from those saying they are accommodative, was at minus 11 in March 2009 compared with 19 for midsize companies in this week’s survey.

Even so, while outstanding lending to companies rose by 2.2 percent from a year earlier in February, the total amount of ¥275 trillion in loans remains below levels in 2009, according to BOJ data.

An index measuring corporate demand for bank loans was 8 in January, versus 9 in mid-2007, a year before the bankruptcy of Lehman Brothers Holdings Inc. accelerated the global financial turmoil, the BOJ’s quarterly loan officer survey shows.

“There’s no bottleneck for supplying funds,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. “The problem for most companies isn’t a lack of funds, but that there aren’t good investments to make.”

Retained earnings by companies rose to ¥293.5 trillion in the October-December quarter of 2013, the highest since the data going back to 1954, according to the Finance Ministry data.

SoftBank’s cash has risen to the equivalent of $19.4 billion in the latest filing from $2.6 billion in March 2007, while that of Toyota, the world’s biggest carmaker, rose $1.4 billion to $17.5 billion, data compiled by Bloomberg show.

The BOJ doubled to ¥7 trillion a loan program to encourage banks to lend in February and said individual firms could borrow twice as much low-interest money as previously under the second facility.

Large companies plan to boost capital spending by only 0.1 percent in the year started April after an estimated 3.9 percent increase in fiscal 2013, according to the tankan data.