[TOKYO] Fukuoka Financial Group Inc and Eighteenth Bank, both based in southern Japan, said on Tuesday they would indefinitely put on hold plans to integrate their operations, citing anti-monopoly issues.

Last year, Fukuoka Financial Group, the largest banking group on Japan's southern-most main island of Kyushu, said it planned to buy Eighteenth Bank with an intention of merging it with Shinwa Bank, which it controls.

"We will continue our efforts to achieve the integration soon," the two banking groups said in a statement.

The banks said they would delay the integration plans, saying they were still under review by the country's Fair Trade Commission, and did not give a specific date for the merger.

The merger had already been postponed once by six months to October from April. Sources had said last month that the merger may be delayed for a second time.

Japan's regional banks have struggled as the country's dwindling population has led to weaker loan demand. Banks'profits are also being squeezed by thin lending margins under the Bank of Japan's negative rates policy.

Sources have said the Fair Trade Commission (FTC) was objecting to the merger because the combined entity would control about 70 per cent of loans in Nagasaki prefecture, where Shinwa Bank and Eighteenth Bank operate, undermining competition.

Some analysts and experts have warned that it would be hard for the bank to mollify the FTC's anti-monopoly concerns, although Nana Otsuki, chief analyst at Monex Group Inc, said that modern transportation systems and the use of the internet have loosened the grip any bank could have over a local market.

"The meaning of borders between prefectures has become less significant," Ms Otsuki said.

Two smaller banks in Niigata prefecture Sea of Japan coast, Daishi Bank Ltd and Hokuetsu Bank Ltd, have also agreed to merge their operations and are awaiting authorities' approval.

REUTERS