TOKYO: Growth in Japan's bank lending slowed sharply in May as corporate demand for funds subsided, data showed on Tuesday, a sign the economy is steadily emerging from last year's severe hit from the coronavirus pandemic.
The slowdown in fund demand may affect the fate of the Bank of Japan's pandemic-relief programme, though many policymakers have signalled their readiness to extend it beyond the current deadline in September.
Total lending by banks rose 2.9 per cent in May from a year earlier at 578.4 trillion yen (US$5.3 trillion), slowing at a record pace from a 4.8 per cent increase in April, BOJ data showed.
The slowdown was due largely to the base effect of a surge last year, when companies were scrambling for funds to cope with the pandemic's initial outbreak.
Lending by major banks rose 0.2 per cent in May from a year earlier, as some big firms paid back loans they took in last year, the data showed.
"Year-on-year growth in bank lending is expected to slow further in coming months," a BOJ official told a briefing.
"The balance of total loans remains at a high level but may gradually fall," with no clear sign of a pick-up in new fund demand, he said.
Deposits held by banks rose 8.0 per cent in May from a year earlier at a record 833.5 trillion yen, as companies parked more funds from rising revenues, and consumers held back on spending due to renewed state of emergency curbs to combat the pandemic, the official said.
The BOJ last year ramped up asset purchases and put in place a loan programme aimed at channelling money to cash-strapped small firms to cushion the blow from the health crisis.
The central bank is expected to extend the current September deadline with the decision expected as early as its rate review next week, sources have told Reuters.