Japanese Finance Minister Shunichi Suzuki has called on regional banks to take more proactive measures in supporting local economic development as interest rates rise.

"If regional financial institutions fail to provide loans that bolster local growth, rural areas 'will have no future,'" Suzuki stated in an interview. "The impact would be significant."

Japan's regional economies have long struggled with population decline and aging, issues far more severe than in major cities like Tokyo. After decades of ultra-loose monetary policy, the Bank of Japan (BOJ) is gradually raising interest rates, but this may not be a cure-all for local banks grappling with weak deposit and loan demand.

Suzuki emphasized, "To make Japan a country that thrives on regional strengths, we need reputable local financial institutions that actively channel funds into their respective areas."

During the wide-ranging interview, which covered topics from yen weakness to fiscal policy, Suzuki also addressed potential consolidation among Japan's roughly 100 regional banks.

She clarified that the government "absolutely will not" force mergers among regional lenders. "To achieve profitability, sound investment in the system is necessary. If mergers are considered, the key is evaluating whether they will yield benefits."

Suzuki, who handled financial sector affairs as a Ministry of Finance official during Japan's 1990s banking crisis, witnessed the formation of so-called megabanks through large-scale mergers.

Last week, Japan's Financial Services Agency (FSA) released a document outlining measures to strengthen regional lenders, with one key pillar being expanded fiscal support to cover merger and integration costs.

Japanese bank stocks have surged in recent years on expectations that a shift in the BOJ's monetary policy would boost lending profitability. The central bank recently raised its benchmark overnight rate to 0.75%, the highest level in three decades.

However, higher rates have also intensified deposit competition, posing risks to local banks reliant on these deposits for cheap funding.

Suzuki stressed that the critical factor is not just gathering deposits but effectively deploying them through loans and investments to drive regional growth. "The economic fate of regions will partly hinge on how banks respond," she said.