Strong Acceleration In Real Estate Lending In Japan: Morgan Stanley

By Mani
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Strong growth revealed in Japanese real estate lending is likely driven by regional banks actively increasing real estate and rental management loans, notes Morgan Stanley.

After gleaning through loan data published by the Japanese Bankers Association on May 15, Takaaki Nishino and Hideyasu Ban of Morgan Stanley in their May 21, 2015 research report titled: “Strong Growth in Real Estate Lending and Capex Funding for Manufacturing” highlight that corporate loan growth also points to real improvement in loan quality.

Pick up in manufacturing and real estate lending

Highlighting two key features of the BoJ data, the Morgan Stanley analysts point out that growth in real estate lending is accelerating strongly as the lending growth to the industry picked up to +3.7% at end-March 2015 from +2.3% at end-December 2014:

Nishino and Ban note it may be too early to anticipate growth in real estate overall around the 2-digit mark, as in 2006-07, but real estate lending trends are a likely focus for 2015.

Highlighting their second key feature, the Morgan Stanley analysts note manufacturing lending also continues to recover in Japan. They point out that while growth in working capital is limited, capex funding is accelerating strongly.

Manufacturing loan growth Real Estate Lending

Non-manufacturing also seeing positive growth

Nishino and Ban note the May 15 data reveal nationwide bank loans growing at a 2.4% rate (April 2014, YoY). They point out that after peaking at +3.6% in November 2013, lending then bottomed in September 2014 and currently continues to grow at a mid-2% rate:

Domestic loan growth Real Estate Lending

The analysts break down the YoY increases (as of end-December 2014) in loans: corporate loans 63%, retail loans 27%, and local government loans 10%. As can be deduced from the following graph, the share of retail loans is high, but the contribution of corporate loans has slightly increased based on the year-ago shares of 39% for retail loans and 50% for corporate loans:

Loan growth - Share by industry Real Estate Lending

The MS analysts attribute the currently higher contribution of loans to corporations to pick-ups in lending to other non-manufacturers and the real estate industry.

Turning their focus towards non-manufacturing industries, they point out that overall lending to other non-manufacturing industries turned positive YoY at the end of June 2013 (+0.1% YoY) for the first time in almost 15 years, and the balance continued to increase solidly through March 2015 (+2.3% YoY).

Lending to other non-manufacturing Real Estate Lending

Nishino and Ban also note non-manufacturing loan growth is ongoing, though signs of changing trends by industry are visible. While domestic loan growth (YoY) at end-March 2015 reveals easing growth for financials, utilities and retail, growth remains high in healthcare/welfare and goods leasing.

Breakdown of other non-manufacturing lending Real Estate Lending

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