New Financial Services research report from Business Monitor International is now available from Fast Market Research

Boston, MA -- (ReleaseWire) -- 08/31/2012 --BMI View: Real estate related loans on Japanese banks balance sheets have seen relatively slow growth compared to the growth in portfolio assets, a trend that we expect to reverse over the medium term. With the IPD rental index returning to positive growth territory for the first time in 29 months, real estate could present itself as a more attractive investment compared to government bonds. Growth in loans related to real estate could help banks to increase their capital as profitability improves and in turn, provide a buffer to withstand losses that may arise from their government bonds holdings. The percentage of loans to bank assets in Japan has fallen to an all-time low of 50% as of January and this trend is bound to reverse, in our view. The loan growth rate only turned positive in Q311, after recording negative growth for seven quarters. In the past four years, most of the asset growth of banks can be attributed to the increase in securities, mainly in the form of central and local government bonds, which now stand at 21% of total bank assets (or 67% of investment securities held). Positive Returns From Japanese Real Estate On The Horizon Of the total loans extended by banks, close to 40% are real estate related. As a significant portion of loans, weak growth from loans has severely impacted the overall asset composition of banks. The chart above shows that while growth in loans to real estate companies has been on the decline from mid-2007, it has now returned to a steady upward trend. Over the past five years, a large part of the reason for weak Japan Commercial Banking Report Q2 2012 © Business Monitor International Ltd Page 32 loan growth has been due to the relatively poor returns from Japanese real estate. Compared to Japanese Government Bonds (JGBs), which have provided excellent returns in the last five years, Japanese real estate hardly seemed like a good alternative. Price losses from real estate during these years have largely outweighed investors' stable but declining income from rent. However, an improvement in returns from this asset class is growing more probable as price declines have started to stabilise and signs of price and rental growth have been more frequent in the last two years. The total area of construction started in January grew by 1.7% year-on-year (y-o-y). Recent land sales surveys have also shown some degree of stabilisation of land prices in the larger cities, although overall price growth remains subdued. Small Improvements In Non-Dwelling Real Estate Could Persist Non-dwelling private building construction starts have seen some growth since their low in 2009, with the manufacturing and healthcare sectors registering the strongest growth in FY2010-11 (April to March). With the reconstruction of capacity lost in the tsunami likely to continue into 2012, manufacturing related real estate construction is also likely to continue to be a source of growth over the short-term. A bigger and longer-lasting boost c

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