The departures of Tokyo-based loan executives from Citigroup Inc. and General Electric Capital Corp. highlight the retreat of foreign banks from the nation’s lending market.
Nobuhiko Ito, head of acquisition finance and syndicated lending at Citigroup, and Masahiko Horiba, an executive director in GE Capital’s structured finance unit, both said last month they are stepping down.
Outstanding loans by foreign banks dropped to a record low ¥1.846 trillion in November as borrowing costs slump, Bank of Japan data going back to 1995 show.
Stricter financial rules are forcing foreign banks to be more picky about the risk of assets they take on including loans, according to Bank of America Corp.
Japan’s interest rates on new loans fell to an unprecedented 0.767 percent last year as the BOJ accelerated monetary stimulus, squeezing profits on financing.
“The big reason that foreign bank loans are decreasing is that it doesn’t pay to expand their balance sheets here when they can make much more money in other countries,” said Yusuke Ueda, a credit analyst at Bank of America Merrill Lynch in Tokyo. “They can get better returns than Japan just by going to the money market or corporate bond market in the U.S.”
The average gap between loan rates and funding costs in Japan was 0.14 percent in the year to last March, matching the least on record, according to data from the Japanese Bankers Association. That compared with an average net interest margin of 3.14 percent in the U.S. in the third quarter of 2014, according to the Federal Deposit Insurance Corp.
Lending by foreign banks is falling even as Japanese counterparts are boosting activity. Domestic firms’ loans to companies came to ¥287.4 trillion in December, the most since March 2009, according to BOJ data.
Syndicated loans, which are a major business area for overseas firms, dropped 19 percent to ¥25.2 trillion in 2014, according to Japanese Bankers Association data.
“Increased competition as companies choose to raise money via corporate bonds and stagnant demand for funds among large companies” are weighing on syndicated lending, according to Satoshi Oda, the head of the syndication department at Credit Agricole SA in Tokyo.
Elisa Fukui, a spokeswoman for Citigroup in Tokyo, declined to comment on personnel matters. A spokesman at GE Capital in Tokyo, who refused to be named, declined to comment.
Encouraging Japanese companies to sell notes are falling borrowing costs. Average corporate debt yields decreased to a record low 0.2572 percent in January, according to Bank of America Merrill Lynch data. That compared with 3 percent for U.S. company bonds.
SoftBank Corp. took out a ¥1.98 trillion syndicated loan in 2013 to refinance debt from its purchase of Sprint Corp. Excluding that deal, such lending has decreased every year since 2009, according to figures from the Japanese Bankers Association.
BOJ Gov. Haruhiko Kuroda’s Policy Board expanded already-unprecedented monetary stimulus in October, increasing sovereign note purchases to as much as ¥12 trillion a month to fuel inflation. The benchmark 10-year debt yield dropped to a record-low 0.195 percent last month and was at 0.385 percent Wednesday.
“Foreign banks can’t raise funds as cheaply as Japanese banks,” said Yoshinobu Yamada, an analyst at Deutsche Bank AG in Tokyo. “The incentive for foreign banks to lend in Japan is decreasing because of falling interest rates.”
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