Commercial credit: Japanese banks put brakes on overseas lending

Commercial credit: Japanese banks put brakes on overseas lending

TOKYO — After expanding rapidly to fill the vacuum left by gun-shy Western banks in the wake of the global financial crisis in 2008, Japanese banks are putting the brakes on overseas lending and investments.

     On a quarterly basis, the balance of Japanese banks’ overseas loans and investments shrank by 1.2%, or $42 billion, at the end of June compared with the end of March. The banks’ pullback comes as demand for funds declines amid a slowdown in the Chinese economy. They also face growing pressure to manage risks related to extending credit for overseas resource projects.

     According to the Bank of Japan, the country’s central bank, the balance of Japanese commercial banks’ overseas loans and investments in all major regions, including the U.S. and Europe, declined at the end of June versus the end of March. After dropping for the first time in six years on a quarterly basis at the end of March, the balance of Japanese banks’ overseas loans and investments in Asia outside Japan fell again in the quarter ended in June.

     The balance of loans and investments in resource-rich Indonesia posted the first quarter-on-quarter decline in seven quarters at the end of June. “Project financing has also become difficult due to falling resource prices,” said an official at Mitsubishi UFJ Financial Group.

     U.S. and European banks curbed their overseas loans and investments in the wake of the 2008 global financial crisis, while their Japanese counterparts expanded aggressively. Mitsubishi UFJ increased its overseas lending by 60% over the past two years. The balance of the industry leader’s overseas loans came to 42 trillion yen at the end of June, or about 40% of the group’s total lending balance.

     Overseas loans also account for around 30% of the total at the two other Japanese megabanks — Sumitomo Mitsui Financial Group and Mizuho Financial Group.

     The three Japanese megabanks have increased lending for overseas resource projects in recent years. According to U.S. research specialist Dealogic, Mitsubishi UFJ was the world’s largest provider of syndicated loans for the oil and gas industry extended between 2012 and 2014. Mizuho and Sumitomo Mitsui ranked fifth and 10th, respectively.

     (Nikkei)

Commercial credit: Japanese banks put brakes on overseas lending