After two months of probing the LTCB, suspicion is growing that the Financial Supervisory Agency (FSA) has delayed a conclusion because of political pressure and that a whitewash is in the works.

"We had expected the agency to scrutinise the bank's loanbook and to take appropriate action. But it seems it is difficult for the agency to do so because of political pressure," said Nozomu Kunishige, a senior analyst at Lehman Brothers.

On Monday morning, shares in LTCB briefly fell as low as 19 yen on a weekend newspaper report that said the government is considering putting LTCB under national control to inject public money, analysts said.

Akira Takai, a senior analyst at Daiwa Institute of Research, said LTCB's future would depend on political decisions. "As the share price fell rapidly (on Mondaymorning), the government may have to make decisions soon," he said.

The FSA, launched on June 22, took over the inspection and supervision functions of financial institutions from the ministry of finance (MoF).

It began a probe of LTCB on July 13 and eight other big banks on July 24 as part of inspections of the nation's 19 biggest banks.

It has already finished inspecting the eight other major banks but is still in the process of inspecting LTCB.

"We hope to inspect as much updated data on LTCB as possible, so inspection of the bank may take longer than others," FSA's deputy commissioner Hideichiro Hamanaka told reporters last week.

Most analysts believe that ruling Liberal Democratic Party (LDP) politicians have already decided to inject taxpayers' money into LTCB to help facilitate a planned merger with Sumitomo Trust & Banking Co Ltd.

If LTCB is insolvent, current laws would prevent the government from injecting public funds.

"LTCB is in a tight corner. If action is delayed, this will notend as a matter of one bank. It will also cause a loss of credibility for Japan's economy. I am also worried that it could cause trouble for other nations," Bank of Japan (BOJ) Governor Masaru Hayami told parliament on Thursday.

Some analysts suspect the poor capital position of LTCB in the wake of its massive bad loan disposals for fiscal 1998-99, ending next March, means the government has already worked out a scenario to use public money for LTCB.

The government will inject public funds worth 500 billion yen to 600 billion yen ($3.78 billion to $4.54 billion) into the bank initially, analysts said, noting it will not be able to inject more than the bank shareholders' equity of 787 billion yen. If it does, that would show LTCB is insolvent, they said.

But they said that such an amount of public funds would not be enough to fulfil LTCB's bad loan disposals and unrealised stock losses.

"The government will say that LTCB is not insolvent after the FSA's inspection and inject public funds.... Sometimeafter or just before LTCB merges with Sumitomo Trust, it may say that LTCB was actually insolvent, aiming to inject additional public money," said a senior analyst at a Japanese brokerage.

Last month, LTCB, desperate to win support for an injection of public funds announced a restructuring plan in which it said it would dispose of 750 billion yen in problem loans.

International rating agency Standard & Poor's said, however, that the planned disposals remain well below the potential losses on its loan portfolio.

FSA commissioner Masaharu Hino has said that he will undertake "tough and transparent" supervision of the nation's troubled financial sector, but analysts are sceptical.

"The right thing for the FSA to do would be to order banks to dispose of problem loans strictly and to let them post losses," said Koyo Ozeki, a vice president of Merrill Lynch Japan.