TOKYO: Bank of Yokohama and Chiba Bank Ltd are considering a business tie-up, the banks said on Tuesday, after the Nikkei newspaper reported that the two regional lenders would form a comprehensive partnership.

The tie-up, which would bring two of Japan's biggest local banks closer together, is the latest to highlight the strain on smaller banks in the world's third-largest economy, where years of near-zero interest rates have made traditional banking barely profitable, meaning scale is needed for survival.

Most regional lenders are facing weak demand from dwindling populations in many of Japan's prefectures. But Yokohama and Chiba are both part of the greater Tokyo area, meaning that demographics and loan demand are among the most favourable in the country.

"It is true that we are considering a business partnership but nothing else has been decided yet," a spokesman for Chiba Bank said.

Bank of Yokohama's parent company, Concordia Financial Group , also confirmed that a business tie-up was being considered, adding that nothing had been decided.

The banks could cooperate on everything from mergers and acquisitions and development of new products, working together to share customers, the Nikkei newspaper said.

The heads of both banks will hold a news conference on Wednesday, the Nikkei said.

Bank of Yokohama is Japan's largest regional lender. Chiba Bank is the country's third-largest regional lender, according to the Nikkei.