LTCB, once the country's second largest long-term credit bank, was taken over by the state in October as it struggled under the weight of massive bad loans and a crumbling share price. The Yomiuri Shimbun said the bank decided to offer dividends worth 7.1 billion Yen ($61.2 million) at a shareholders' meeting in June even though the Bank of Japan had warned it a month earlier that it was in serious financial crisis.

At the meeting, the bank decided to distribute three yen per share to its shareholders as a dividend for the financial year that ended March 1998, as it did during the previous financial year, the daily said.

The Commercial Code bans firms from offering dividends totalling more than their profits, in order to prevent the loss of their assets.

The central bank learned in May that 70 per cent ofthe 2.79 trillion yen in loans LTCB had extended to some 100 affiliates were non-performing, the daily said.

The Financial Supervisory Agency suspects LTCB's distribution of dividends under such dire financial conditions may constitute a violation of the Commercial Code, it said.