UPDATE 1-Japan to offer subsidies to spur regional bank mergers - Nikkei

* Move would follow BOJ plan to incentivise mergers

* PM Suga has signalled need for consolidation

* Government to create subsidy scheme in 2021 (Adds details, background on recent steps to spur consolidation)

TOKYO, Nov 12 (Reuters) - Japan will create a scheme next year that offers subsidies to regional banks that merge or consolidate, the Nikkei newspaper reported, underscoring premier Yoshihide Suga’s resolve to boost the ailing sector.

Such a move would follow the Bank of Japan’s announcement on Tuesday that it will create a scheme to pay regional lenders that consolidate or cut costs interest of 0.1%.

In a scheme set to be created by summer 2021, the government will pay up to around 3 billion yen ($28 million) per merger or consolidation to subsidise the cost of integrating computer systems, Nikkei reported, without citing sources.

The move reflects the government’s view that the cost of merging is keeping regional banks from choosing the option to boost their profitability, the newspaper said.

Regional banks will not need to pay back the subsidies, which will be funded by reserves held by a state-affiliated deposit insurance body, the Nikkei said.

The government will submit legislation to introduce the scheme, as well as adopt measures to deregulate the industry, to next year’s parliament session, the paper said.

Suga has said revitalising regional economies, many of which are struggling with a dwindling and ageing population, was a priority for achieving sustained growth in Japan.

He has also said there were too many regional banks in Japan, signalling his desire for some weaker ones to consider mergers or consolidation. ($1 = 105.3400 yen) (Reporting by Leika Kihara; Editing by David Evans and Alexander Smith)