Lending by Japanese banks fell 4.6 percent in July from a year before, declining for the 55th month in a row, the Bank of Japan said Thursday.

The average daily lending balance for July came to 422.77 trillion yen, the BOJ said in a preliminary report.

The drop was attributed to weak fund demand from businesses for new capital investment and the reluctance of banks to lend because of the need to book large loan-loss charges as the economy remains weak, analysts said.

The figures cover banks with branches nationwide, known as city banks, and trust banks, regional banks and second-tier regional banks.

When adjusted for special factors -- loan securitization, exchange-rate fluctuations and the allocation of loan-loss reserves -- lending by banks fell 2.5 percent to 432.14 trillion yen in July, down for the 46th straight month, the BOJ said.

On an unadjusted basis, the July average daily lending balance, including the balance of loans by "shinkin" credit banks, fell 4.5 percent to 485.06 trillion yen, down for the 19th consecutive month.

The unadjusted balance at city banks and trust banks fell 7 percent to 249.48 trillion yen, while that at regional banks inched down 0.6 percent to 130.3 trillion yen. The lending balance at second-tier regional banks dropped 1.8 percent to 42.99 trillion yen, while that of shinkin banks fell 3.6 percent to 62.29 trillion yen.

The balance of lending at foreign banks operating in Japan rose 23 percent to 8.64 trillion yen.

Quasi-money plunges

Japan's most closely watched money supply gauge rose 3.3 percent in July from a year earlier, while the balance of quasi-money -- most of it in time deposits -- logged a near-record drop of 13.6 percent, the Bank of Japan said Thursday.

The average daily balance of M2 -- cash in circulation, demand deposits and quasi-money -- plus certificates of deposit came to 673 trillion yen, compared with a revised 669.4 trillion yen in June, the central bank said.

The balance of time deposits has been steadily falling, in step with a surge in the balance of demand deposits, since before the government on April 1 imposed a 10 million yen ceiling on the state guarantee for time deposits in the event of bank failures. Many companies and individuals have shifted time deposits into demand deposit accounts.

The balance of quasi-money fell to 319.8 trillion yen, following a revised 13.8 percent drop in June, which was a record high margin of decline for the eighth straight month.

Quasi-money refers to time deposits and other types of savings at banks that cannot be immediately cashed, including foreign-currency deposits and nonresidents' yen deposits.