Feb. 8 (Bloomberg) -- Japanese bank lending fell by the most in more than four years in January as companies returned to bond markets to raise funds. 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 as credit markets thaw, compares with a 1.2 percent contraction in December. “We’re seeing the reverse of high-loan demand at the start of last year when access to capital markets was difficult,” Seiichi Shimizu, associate director-general at the Bank of Japan’s bank surveillance department, said at a briefing today. “Demand by companies for funds for capital expenditures and working capital remains weak.” Acom Co. and Nippon Building Fund Inc. sold bonds in January for the first time since 2008, and were among 32 Japanese companies to issue bonds since the start of the year.

The collapse of Lehman Brothers Holdings Inc. in September 200 triggered a spike in demand for bank loans, which has eased as financial markets bounce back from the credit crisis. Bonds issued by Japanese companies rose by 50 percent in January to 795 billion yen ($8.9 billion), from 529 billion yen in the same month a year earlier, Bloomberg data show. An index of demand for loans to businesses plunged to minus 17 in January from October, the lowest since July 2004, the Bank of Japan said in a quarterly survey of loan officers.

Lending by Japan’s 10 so-called city banks, including Mitsubishi UFJ Financial Group Inc., fell 3.4 percent following a 3.1 percent drop the previous month, the Bank of Japan said. Mitsubishi UFJ rose 0.9 percent to 461 yen as of 10:03 a.m. in Tokyo. Sumitomo Mitsui Financial Group Inc., Japan’s second- largest bank behind Mitsubishi UFJ, declined 0.4 percent. The Topix Banks Index, which tracks 84 lenders, rose 0.4 percent.