Japan Banks' Willingness to Lend Holds at 8-Year Low

By Toru Fujioka

Oct. 21 (Bloomberg) -- Japan's banks willingness to lend to small and midsized companies stayed at the lowest level in at least eight years as lenders hoard funds on signs the world's second-largest economy is in a recession.

An index of willingness to lend money to smaller companies was at 5 this month, unchanged from July, the Bank of Japan said in a quarterly survey of loan officers in Tokyo today. The bank started the survey in April 2000.

Business failures rose at the fastest pace in eight years in September, led by construction and real-estate companies that struggled to obtain funding. Policy makers are considering reviving a law that would allow them to pump public funds into ailing regional lenders, which are a source of funding for small and midsized companies.

``Banks are reluctant to lend because of the worsening economy,'' said Yoshimasa Maruyama, a senior economist at BNP Paribas Securities Japan Ltd. in Tokyo. ``The government wants to make sure banks aren't scared because if they are, they will stop lending and that will worsen the economy further.''

Small and midsized companies employ 70 percent of the nation's workforce.

The government yesterday acknowledged that it has probably entered its first recession in six years. It downgraded six components of the evaluation including exports, industrial production and consumer spending, the most in a decade.

Stifling Growth

Bank of Japan Governor Masaaki Shirakawa yesterday said rising bankruptcies are making it more costly for some companies to borrow, stifling growth in the world's second-largest economy. Banks' appetite to lend to large companies fell to minus 2 from minus 1, a record low, today's report showed.

``The livelihood of companies depends on funding,'' said Yasuhide Yajima, a senior economist at NLI Research Institute in Tokyo. ``The depth and duration of Japan's recession will depend on whether companies have enough money to keep themselves running.''

Fuji Biomedix Co., a Japanese tester of medicines for drugmakers, was forced out of business last week after failing to obtain funding from its lenders. Corporate bankruptcies rose 34 percent last month, the biggest jump since March 2000.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net