Japan's Financial Reconstruction Committee (FRC) said that it was putting troubled Kokumin Bank under state control and would assess the good and bad loans on the bank's books.

Tokyo has already forcibly taken over two major banks and pushed others into mergers in the past six months as it finally tries to tackle a widespread banking crisis. Under a bank recapitalisation programme begun last October, Tokyo has injected more than $ 60 billion of public money into 15 major banks to prop up their capital and encourage them to clear out bad loans.

Now the financial supervisory agency is concerned about Kofuku Bank and has ordered management there to quickly build up their capital levels, theNihon Keizai Shimbun business daily said.

The FRC said it would try to find a buyer for Kokumin Bank after disposing of its bad loans to a government-run debt-collection body, but would set up a "bridge bank" to wind up its business if no taker for its good assets could be found. Kokumin Bank is owned 75.3 per cent by corporate groups, led by Kokusai Kogyo Co Ltd, an unlisted transport company.

Analysts said the nationalisation of the small regional bank, which had 524.74 billion yen ($4.34 billion) in deposits and 745 employees as of the end of September, would not rock the nation's financial system. But many said it could be a prelude to more failures at Japanese regional banks.

Last year, regulators put two big banks -- Nippon CreditBank and the Long-Term Credit Bank of Japan -- under state control. Fears about more top bank failures have been largely erased after an injection of more than seven trillion yen into 15 large institutions last month.

But regulators are now shifting their attention toregional banks as well as insurers and brokers, and analysts expect shakeouts in all three sectors as financial liberalisation proceeds under Japan's "Big Bang" reforms.

"Banking authorities will likely find more and more debt that regional banks had not disclosed, so probably more than 10 regional banks may turn out to have virtually negative equity," Yushiro Ikuyo, a senior analyst at Commerz Securities (Japan), said after reports of Kokumin Bank's woes surfaced on Thursday.

The committee's action is based on financial reform legislation passed last year to restore the health of the nation's ailing banking sector, burdened with massive bad loans left over from the early 1990s bursting of Japan's economic "bubble" of inflated asset prices.

Japanese media reported on Thursday that financial regulators would soon declare Tokyo-based Kokumin Bank insolvent after completing a 45-day inspection last month. The reports said the bank had a negative net worth of 50billion to 80 billion yen ($413 million to$661 million). The news led to a run by depositors, worsening the bank's financial condition.