After more than a decade of heady growth in the United States, Japanese banks are on the retreat.
Senior executives at major Japanese banks confirmed that their banks have reduced banking activities in the United States or are considering cutbacks.
Reasons Are Complex
Behind the pullback, they added, are rising problem loans and reduced lending opportunities in the United States, along with global capital shortages and declining credit ratings.
Senior officials of the Japanese Finance Ministry deny the reduction is a long-term trend or signals a major cutback in operations in the U.S. market.
They argue that reduced lending in areas such real estate or leveraged buyouts is only natural, since demand for such credit has shrunk dramatically.
"The reduction we've seen so far has been negligible," said Kunimitsu Yoshinaga, chief representative of the ministry in New York.
"It's more of a leveling off that's coming in response to redued credit demand."
However, banking analysts and U.S. banks dispute such assertions.
"The figures show an outright contraction," said Ricardo Kleinbaum, a banking analyst with Fitch Investors Services. "Japanese banks as a group are moving toward reducing their operations.
And J.P. Morgan & Co. noted in a report this summer:
"There is some concern that Japanese banks will be forced to sell assets to meet required capital ratios, and particular concern abroad that Japanese financial institutions will liquidate their holdings in overseas markets." Liquidations "have indeed been going on," Morgan said, "and more will no doubt occur."
Looking for Cuts
Senior Japanese bankers acknowledge they are conducting extensive reviews of their U.S. operations and that low-profit operations, such as participations in large corporate loans, are being scaled back.
"We're giving ourselves two to three more years to see if we can make money in this market," said one senior Japanese banker bluntly. "Syndicated lending at little or no spread is definitely out."
Analyst say the Japanese pullback does not necessarily result in less credit available to U.S. borrowers, since loan demand has been slackening for several years as a result of the economic recession.
But they add that it does mean reduced competition and better business opportunities for U.S. banks and strongly capitalized European banks, especially in middle-market lending, which Japanese banks once coveted for expansion.
Worries over Continuity
"Their ability to convince the head office to make riskier middle-market loans is going to be a lot harder," Mr. Kleinbaum predicted.
"Stronger middle-market companies also like to approach a bank that they know is going to be in the U.S. market in four to five years," he added. "There's some concern Japanese won't be here."
Quarterly balance-sheet figures supplied to the Federal Reserve Board as well as data on letters of credit issued in the U.S. also show that Japanese banks have already significantly reduced their assets.
According to the Newark, N.J.-based Securities Data Corp., Japanese banks issued $1.58 billion worth of letters of credit over the first six months of this year.
That compares with $3.1 billion over the same period last year.
Commercial and industrial lending by Japanese banks is also falling.
Loans Have Weakened
At Kyowa Saitama Bank Ltd., for example, commercial and industrial loans out of the bank's New York branch fell 10%, to $1.25 billion, over the nine months ended March 31. Similar lending out of Mitsubishi Bank's New York branch declined by more than 14% to $3 billion.
Japanese banks are also putting planned expansions on hold and closing some U.S. offices.
For example, Nippon Trust Bank Ltd., Japan's seventh-largest trust bank, announced in August that it was closing its New York representative office, while Kyowa Saitama Bank closed a representative office in Dallas in January.
The reduction in U.S. business is part of a broader pullback in international operations by Japanese banks.
The cutbacks mark a sharp reversal from their singleminded push for worldwide market share during the 1980s, when the international assets of Japanese banks, fueled by cheap capital, grew quickly.
Cutbacks Elsewhere, Too
"We've had to reduce all our business, and not only in the U.S." says another senior Japanese banker in New York.
"We're looking at which markets bring us in the best profits and how we should allocate our resources."
According to data published by the Switzerland-based Bank for International Settlements, Japanese banks' international assets fell by $143.3 billion in the year ended March 31, to nearly $1.8 trillion.
"The medium-term shift in the strategies of Japanese banks away from the pursuit of market shares and in favor of asset quality continued to play a role in overall developments," the settlements bank noted in its latest report on international bank lending.
The report cited a slowdown in domestic and international credit demand, heightened credit concerns, and difficulty in meeting international capital minimums as the main reasons behind the reduction.
"Japanese banks were one of the primary reasons for the over-capacity in lending in the wholesale market in the mid- to late '80s and were part of the collapse of pricing and competition over terms," said Lowell Bryan, a banking analyst with McKinsey & Co.
Though the Japanese pullback may not bring immediate benefits for U.S. banks, he said, it puts them in a good position to capitalize on any increase in demand.