UPDATE 4-Japan bank lending grows at record pace amid crisis

(For more stories on the financial crisis click [ID:nCRISIS]) (Adds extra budget bills, S&P rating)

By Tetsushi Kajimoto and Hideyuki Sano

TOKYO, Jan 13 (Reuters) - Japanese bank lending grew at a record pace in December from a year earlier as companies, shut out from raising funds in markets, grabbed cash from their bankers amid a global recession.

The plunge in overseas demand and subsequent collapse in Japanese industrial production are paralysing the country's export-oriented economy, with Japan's current account surplus shrinking for a ninth straight month.

With much of the rich world in recession and growth slowing in China and other big emerging markets, many economists expect corporate anxiety over fund-raising to persist and even strengthen should the economy deteriorate further.

"Corporate executives are very worried because their cashflow is clearly dwindling," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

"Corporate managers have recently been gossiping a lot about things like 'Such-and-such a company that's had no debt went to the bank just in case'. That kind of talk is fuelling their worries."

Japan's lower house of parliament passed on Tuesday an extra budget worth 4.79 trillion yen ($53.58 billion) aimed at keeping the world's second-biggest economy from sliding deeper into recession.

But the budget and related bills -- including a plan for 2 trillion yen in payouts to households that opposition parties say would do little to shore up the economy -- could face a delay in clearing the opposition-controlled upper chamber.

Despite deteriorating economic conditions, Standard & Poor's Ratings Services affirmed Japan's sovereign debt ratings, citing its robust net external asset position and relatively sound financial system. Still, such strengths were moderated by factors such as large fiscal deficits and outstanding debt, it added. [ID:nT169003]

SQUEEZED

Lending by Japanese banks rose 3.7 percent in December from a year earlier, the largest increase since the Bank of Japan started publishing the data in 2000 and faster than 3.2 percent in November. [JPBNK=ECI]

The country's biggest banks, for which the BOJ has data going back further, increased their lending by 4.2 percent, the largest rise since December 1991.

Borrowers have been turning to banks as rates on new commercial paper (CP) have jumped and issuing corporate bonds has become difficult for firms with low credit ratings, while companies are feeling the pinch from the economic slump.

Outstanding commercial paper issued in Japan fell 15 percent in December from a year earlier, the biggest fall in nearly two years.

For graphics on bank lending and outstanding CP, click on -- here