Japanese Banks Curtail US Activity

By Peter Ennis, | The Christian Science Monitor, October 17, 1990 | Go to article overview

Japanese Banks Curtail US Activity


Peter Ennis,, The Christian Science Monitor


JAPAN's major banks plan to sharply curtail the growth of their lending in the United States. That will raise financing costs for the many American municipalities and corporations that have come to depend on Japanese funds.

"Our forecast is that Japanese banks will slow their expansion, but will not halt or reverse it," says Robert Dugger, chief economist at the American Bankers Association (ABA). "The bad news is that some American companies will not be visited now, and some will be offered credit only on more expensive terms."

Fuji Bank, the world's fourth largest bank, plans zero or slightly negative growth in its American assets over the next six months, says Masahiro Nagayasu, vice president for planning. "Overall, there will be less Japanese money available in the US," he says. Fuji is not alone, says Yutaka Inoue, vice president at Sumitomo Trust. "The rate of asset growth for all Japanese banks in the US will probably be slower."

Herbert Baer, an economist at the Federal Reserve Bank of Chicago, says the slowdown in Japanese lending has begun to affect American corporations. "The Japanese are not trying to make the same inroads they were before," he said. "We already see prices on loans firming up."

The Japanese banks have been compelled to retrench by the decline of the Tokyo Stock Exchange and tough new international banking regulations.

When the Tokyo Stock Exchange was soaring, the major banks raised huge pools of funds for overseas expansion by simply issuing stock. Easy access to cheap funds enabled the banks to charge less on loans. Lagging profits were bolstered by occasional sales of shares from the large portfolios of corporate stock held by each bank. Unlike their American counterparts, Japanese banks are allowed to own large blocks of corporate stock.

The dramatic drop in Tokyo share prices that began early this year hit banks two ways, devaluing their portfolios and cutting off the source of cheap funds - issues of new bank stock. The banks are now scrambling to meet more stringent capital/asset ratio requirements adopted by the Bank for International Settlements (a Basel, Switzerland, institution owned by major central banks), which are scheduled to become effective in early 1993. …

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