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September 10, 2005

Falling Knife Finally Caught

After at least 7 years of year-on-year contraction, Japanese bank lending has finally ticked up a less-than-robust 0.2% in August, in a possible precursor to what the WSJ calls "a cycle of expansion." Although the turn for the Japanese banking sector has been called perhaps a dozen times in as many years with no success, this looks like a solid economic breakout.

The Journal noted:

...[B]anks are much healthier as they have been cleaning up their bad-loan problem. If banks start to play the essential role as the provider of credit, economists say, Japan's economy could enter a positive growth cycle. In such an environment, corporations take out loans to invest in production and sales facilities and households borrow money to build homes or purchase big-ticket items such as cars. Already, capital spending by Japanese companies is projected to expand by 10% or so in the current year ending March 31, which could eventually encourage them to borrow more from banks.

Analyst response is positive but not as effusive as the press:
* Kobayashi-san at Deutsche notes that the moving factor behind the good numbers was expansion at the Tier-1 regional banks, with both the larger city banks and smaller Tier-2 regionals still down YoY.
* CLSA has no specific loan growth comment that we saw (probably busy with the conference), but is generally bullish on regionals, having initiated Musashino Bank (8336.JP) on Friday with a Buy.
* UBS sees as a "surprise" but notes "underlying loan demand has stabilised."
* That's where we got bored and left off.

Posted by The Banker at September 10, 2005 02:06 PM

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