Date
19 November 2017
The slowdown may force Mitsubishi UFJ Financial Group and Japan's other megabanks to expand overseas, Francis Chan (inset) says. Photo: AFP
The slowdown may force Mitsubishi UFJ Financial Group and Japan's other megabanks to expand overseas, Francis Chan (inset) says. Photo: AFP

Sluggish growth may spur Japan to boost easing, drag on loans

Japan’s economy grew 1.5 percent in the last quarter, less than earlier reported, amid falling business investment and inventories. Also, exports rose 2.4 percent, slowing from double-digit growth in January and December.

Slow growth could eventually prompt the Bank of Japan to boost its stimulus program even after deciding to inject 80 trillion yen (US$670 billion) a year into the financial system.

This may have ramifications for Japan’s megabanks. Further easing could spur investment gains for the country’s three largest banks, which hold 68 trillion yen worth of Japanese government bonds and 12.8 trillion yen worth of domestic stocks.

Growth in corporate loans cooled to 2.9 percent in January from a year earlier, ending five months of acceleration.

The slowdown may worsen if companies continue to cut investments and draw down inventories, as they did last quarter. Mitsubishi UFJ Financial Group, Sumitomo Mitsui Banking Corp. and Mizuho Bank held 112 trillion yen of corporate loans as of last September. Mizuho was the most reliant on domestic lending with 78 percent of its loan book made up of local debt.

Contracted lending rates at Japan’s 10 city banks fell to 1.02 percent in January, the lowest since at least 1992, while new-loan rates dropped to 0.56 percent. The decline was caused by falling business investments and inventories denting corporate-loan demand.

The trend may further encourage the three megabanks to expand overseas. They increased foreign loans 31 percent in the nine months ended December to 78.3 trillion yen.

The views expressed in this article are those of Francis Chan, a senior banking analyst at Bloomberg Intelligence.

– Contact us at [email protected]

CG



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