After two years of the Bank of Japan guiding key interest rates into negative territory, lenders here have seen loan rates slide toward zero, pushing financial institutions to reassess their business models.

Japanese banks had 471 trillion yen ($4.42 trillion) in loans outstanding at the end of 2017, up 6% from two years earlier. The BOJ imposed negative rates in February 2016 on certain deposits held at the central bank, aiming to spur lending and encourage businesses to borrow more money for expansion and investment.

But roughly 290 trillion yen of those loans -- 62% of the total -- carry interest rates of less than 1%. Only 10% have rates of 2% or more, down 5 percentage points from the end of 2015, as businesses and individual borrowers have refinanced to lock in more preferable terms.

Real estate financing has played a larger role in the increase in lending than loans to businesses. Over half of listed companies are effectively debt-free, and "demand for financing is not particularly strong," according to a senior official at one of Japan's top banks. What is more, soaring property prices in major metropolitan areas are slowing demand for real estate financing as well. In recent months, banks' total loan balance has grown only 2-3% in year-on-year comparisons.

In the meantime, deposits grew 12% to 760 trillion yen from the end of 2015 to the end of 2017 despite interest rates near zero. Japan's falling birthrate and aging population have made many uncertain about the future of social security, keeping the overall propensity to save strong.

The upshot is that the funds the BOJ hoped would revitalize the economy are instead being locked away. Banks, too, are unwilling to take risks such as lending to startups. For the nine months through December, net business profit declined at 70% of Japan's 82 publicly traded regional banks or banking groups as margins grew tighter.