Bank of Yokohama Ltd (8332.T), Japan's second-largest regional lender, said on Tuesday it is considering a merger with smaller rival Higashi-Nippon Bank Ltd (8536.T), a major move in an industry urged by regulators to consolidate amid bleak growth prospects.

There have been mergers of small lenders in recent years, but a tie-up involving a regional lender as big as Bank of Yokohama could herald a new stage in Asian bank consolidation, a shake-up considered overdue by authorities and industry insiders.

A merger between Bank of Yokohama, with 13.8 trillion yen ($121.2 billion) in assets and Higashi-Nippon, with 1.96 trillion yen in assets, would create the biggest regional lender in Japan, topping the current leader Fukuoka Financial Group Inc (8354.T). There are about 100 regional banks in Japan.

In separate statements, Bank of Yokohama and Higashi-Nippon said they were considering a merger but nothing had been decided.

Twenty-three Japanese banks melded into today's four major banking groups over the tumultuous 15 years of post-bubble economic and financial crisis through 2005. Regional banks, which extend roughly half of Japan's $4 trillion worth of outstanding bank loans, have largely been spared the knife so far.

The Nikkei business daily reported earlier that the two are in talks to merge under a joint holding company, a move that would create Japan's biggest group of regional banks.