The repayment would also free them from some of the strict supervision that was a precondition for the government aid, doled out to big banks in 1998 and 1999 to help them write off massive problem loans left over from a late 1980s asset price bubble.

"We aim to repay the public funds as quickly as possible to show our confidence that we can stand on our own two feet," a Sumitomo Bank spokesman said.

The banks said they would pay back half the amount by March 2005 and the remainder within another two to three years.

Although the government's trillions of yen in capital injections into the banking sector gave no deadline for repayment, analysts said Japan's big banks, most of which are merging with others to bolster their competitiveness, would be keen to emulate Sumitomo's and Sakura's plans.

"Every bank would like to repay the public funds as soon as possible, to regain autonomy in their business operations, but not all of them can do so immediately because it would mean slashing their capital base," said Kazumasa Ise, analyst at Tsubasa Research Institute.

"Only those that are really confident in their financial strength are able to repay, and Sumitomo and Sakura must be among those, as we could see in the half-year earnings results."

Last week, Mitsubishi Trust & Banking Corp said it would repay 150 billion yen in public funds this month ahead of a merger in April to form the Mitsubishi Tokyo Financial Group, which will include the Bank of Tokyo-Mitsubishi and Nippon Trust Bank Ltd and will be the nation's third-biggest banking group.

Bank of Tokyo-Mitsubishi, which alone among Japan's top commercial banks did not file for public funds last year, in February made an early repayment of money received in 1998.

Japan's two other nascent banking mega-groups - MizuhoFinancial Group, formed by a three-way merger in September and the world's biggest banking group, and UFJ Holdings Inc, to be formed next April by Sanwa Bank, Tokai Bank and Toyo Trust and Banking Co - have not made any decisions on repayment, spokesmen for the banks said. Sumitomo and Sakura, whose combination will create the world's second-largest bank in terms of assets, also on Tuesday received final approval for their merger from banking regulators.

The two said in April that the merged bank, Sumitomo Mitsui Banking Corp, will aim for a group operating profit of 1.15 trillion yen and a return on equity (ROE) of more than 10 per cent in 2004/05 (April-March).

That compares with their forecast of a group operating profit of 730 billion yen for the business year to March 2001.

Tuesday's news came after the Tokyo stock market closed.Shares in Sumitomo Bank rose 0.18 per cent to close at 1,131 yen. Sakura Bank's shares ended up 0.6 per cent at 666 yen.

Sumitomo Bank is down 30 per cent from its high for the year marked on April 5 while Sakura Bank has shed nearly 20 per cent over the same period, in line with declines across Japan's banking sector. Banks' shares have been hit by fears that a rise in bankruptcies will boost their bad loan burden while falling Tokyo share prices have trimmed latent profits on their shareholdings.