Loans held by the Japan's main categories of banks has reached 463 trillion yen (5.12 trillion dollars) in February, a fall of 1.5 percent from the same month a year earlier, the Bank of Japan (BOJ) said on Monday.

Exacerbating the decline were loans made by city banks, which dropped 3.3 percent to 206 trillion yen (2.28 trillion dollars). The category city banks includes four trust banks (Mitsubishi UFJ, Mizuho, Chuo Mitsui, Sumitomo), Saitama Resona Bank, Shinsei Bank and Aozora Bank.

Regional banks, meanwhile, saw the number of loans given out increase by 0.3 percent to 193 trillion yen (2.13 trillion dollars).

Shinkin banks also saw a decline of 0.5 percent in the number of loans they made in February. This type of bank loaned out 63 trillion yen (697 billion dollars) through the course of the month. Shinkin banks are institutions which serve small- and medium-sized local enterprises, and are not allowed to deal with companies of more than 300 employees.

With Japan still under financial strain in the aftermath of the credit crisis that spread throughout the world in the second half of 2008, banks are been encouraged through Bank of Japan (BOJ) policy to pump more money into markets in an effort to increase business investment.

In December, the BOJ pumped trillions of yen into the economy in an attempt to stimulate lending and tackle deflation. The February decline in loans suggests that despite measures by the bank, companies currently struggling with too much stock and too many employees are not interested in further investment.

With the nation currently in the grip of deflation, the decline in loans is likely to set off alarm bells within the government, which has said it would like to see deflation tackled by the end of the year.