/www.bloomberg.com/ By Kanako Chiba
Tokyo, Oct. 10 (Bloomberg) -- Japanese bank lending fell last month to extend its slide to six years, choking the flow of money to companies and threatening to slow a recovery in the world's second-biggest economy.
Bank lending fell 4.7 percent in September from a year earlier, extending a slide that began in October 1996, a Bank of Japan report showed. M2 plus CDs, the main measure of money supply that tracks bank savings, cash in circulation and certificates of deposit, rose at an annual 2.8 percent pace in September, from a revised 3.6 percent in August.
The central bank has kept interest rates near zero since March 2001 and made trillions of yen available to banks to try to stop the slide in lending and end a 12-year economic slump. Providing more liquidity probably won't solve the problem, economists and policy makers said.
``The government needs to push banks to write off bad loans if it wants the economy to start growing again,'' said Kazuyuki Tazawa, a senior economist at Sumitomo Mutual Life Insurance Research Institute.
Prime Minister Junichiro Koizumi last week appointed Heizo Takenaka as the new Financial Services Minister to speed up the disposal of 52.4 trillion yen ($422 billion) of bad loans held by Japanese banks, as estimated by the government. Standard & Poor's puts the amount at three times that.
Bad Loans
The build-up of bad loans means banks can't, or won't, lend money to viable businesses, starving the economy of the fresh credit it needs to grow. At the same time, a strong push to clear bad loans may boost the number of corporate failures as banks cut off deadbeat borrowers, adding to Japan's near-record 5.4 percent unemployment rate and damping consumer spending.
Bank lending -- which totaled 483.4 trillion yen in September -- is the leading source of credit for Japan's small businesses, which employ four in five of the nation's workers.
From a year earlier, money supply rose 3.3 percent, compared with the 3.4 percent gain expected by the median forecast of 39 economists surveyed by Bloomberg News.
Broad liquidity, which includes postal savings, government and overseas bonds and other trust accounts, rose at an annual 2.4 percent pace in September, today's money-supply report showed. From a year earlier, liquidity rose 1.4 percent.
Japan's recovery is waning as a slowing U.S. economy hobbles exports and the Nikkei 225 Stock Average's drop to a 19-year low hurts confidence, the government said in its monthly economic report yesterday.