Japan bank lending slows sharply as big firms emerge from COVID-19 strains

TOKYO: Japan's bank lending slowed sharply in April as corporate fund demand stabilised from last year's pandemic-driven spike, data showed on Thursday, a sign the wall of money pumped by the central bank is working its way through the economy.

But loans extended by regional banks and credit unions continued to increase steadily, suggesting that funding conditions remained tight for small firms and retailers hit hardest by the COVID-19 pandemic.

"Overall, we're not seeing funding conditions tighten," Makoto Kasai, an executive at the BOJ's division overseeing the financial sector, told a briefing.

"But there's divergence among sectors and companies, with some companies being hit by slumping sales."

Total balance of lending was up 4.8per cent in April from a year earlier at 579.6 trillion yen (US$5.3 trillion), slowing sharply from a 6.2per cent gain in March and marking the smallest rise since May last year, Bank of Japan data showed.

The slowdown was mostly due to waning fund demand among big firms, some of which were paying back loans as they benefit from rising profits thanks to a rebound in global demand.

The year-on-year increase in lending by major banks, which mainly targets big firms, slowed to 3.9per cent in April from 6.7per cent in March, the data showed.

By contrast, the balance of lending by "shinkin" credit unions, which cater more to small regional firms, rose 8.3per cent to a record 76.5 trillion yen. It was up 8.6per cent in March.

The year-on-year growth in lending is expected to slow quite sharply in coming months as some firms pay back huge loans extended in May and June last year, when they were hoarding cash to meet the pandemic's initial impact, Kasai said.

Japan's economy is likely to have suffered a contraction in the first quarter and analysts expect any rebound to be modest in April-June, as new state of emergency curbs to prevent the spread of the virus continue to cool consumption.

(US$1 = 109.6300 yen)

(Reporting by Leika Kihara; Editing by Shri Navaratnam)