Lending, excluding loans by credit associations, dropped 1.7 percent last month from a year earlier, the largest decline since September 2005, the Bank of Japan said today. The drop, amid a five-year low in demand for loans, compares with a 1.2 percent contraction in December. With more than a

The Rudd government said yesterday it will scrap its $190 billion wholesale funding guarantee on March 31. That could create a new reason for banks - many of which hiked rates by much bigger margins than the 25-basis-point rise announced by the central bank in December - to ask borrowers to

As other economies that are in worse shape have already taken steps to dismantle similar programs, Australian banks continue to have access to one of the world's lowest cost guarantee schemes. Part of this is because they are heavy users of wholesale borrowings to fund their lending books.

The guarantee has been vital to the stability of Australia's financial system as others were collapsing, but a nasty side effect was diminishing competition in Australian banking as the big four grabbed bigger slices of home loans, small-business loans, credit cards and deposits. Recent figures