Mizuho, the world's largest bank by assets, has said its estimated losses will increase more than ninefold this financial year.

The dramatic increase - from 220bn yen to 1.95 trillion yen ($16.5bn) - is due to the acceleration of bad loan disposals.

The bank also announced plans to shore up its finances by raising one trillion yen from shareholders.

If the cash injection goes ahead, it will be the largest ever capital boost for a Japanese bank.

The loss will also be the biggest in Japanese corporate history.

Debt burden

Nearly 20,000 firms went bankrupt in Japan during 2002, leaving the banking sector struggling under the weight of loans which can never be repaid.

Japanese banks carry outstanding loans worth at least 50 trillion yen.

The government of Prime Minister Junichiro Koizumi has promised to halve the number of bad bank loans by March 2005.

Despite the enormous losses expected at Mizuho, the stock markets reacted favourably.

Traders applaud action

Mizuho shares rose 4% during the day's trading.

Traders said they would prefer to see banks post losses as a result of dealing with the bad loans problem, rather than delaying decisive measures still further.

Mizuho's news comes after the Japanese regulator said it would conduct a new round of inspections of bank assets.

The inspections come as the government tries to enforce the banks' plans to dispose of bad loans as part of the master plan to revive the economy.