The efforts by Nanto Bank, based in Japan's ancient capital of Nara, come as Suga calls for regional banks to boost local economies reeling from an ageing and dwindling population.

Nara's tourism industry, for instance, is struggling to draw money from visitors, who typically flock to its World Heritage temples but don't stay overnight. The coronavirus pandemic has added pain for retailers, with Japan closing its doors to most foreign tourists.

Knowing the bank's fate could be tied to Nara's economy, Nanto last year set an ambitious target to boost the prefecture's gross domestic product (GDP) by 10% over a decade.

"We asked ourselves whether regional banks would be around a decade from now and concluded that without a vibrant regional economy, we can't stay relevant," Nanto President Takashi Hashimoto told Reuters.

Helping boost tourism infrastructure was a first step, he said: "We want to turn Nara into a place to stay for a night, rather than a place where people just stop by."

Nanto invested in a 1.5-billion-yen ($14 million) fund in projects that rehabilitate ancient neighborhoods and turn centuries-old buildings into boutique hotels.

One such example is Maruto Shoyu, a three-centuries-old "shoyu" soy sauce brewery-turned hotel that opened three months ago near one of Japan's oldest shrines worshipping Mount Miwa.

"This area may be underdeveloped, but I took that as a positive because visitors can enjoy Japan's old, largely unscathed landscape," said Maruto's owner, Hiroyuki Kimura.

Before the pandemic, Nara was one of Japan's most popular tourist destinations and home to renowned sites such as the Great Buddha, built when the area was Japan's capital during the eighth century.

But the prefecture has the fewest number of hotel rooms in Japan, and tourists stay in neighboring big cities. Nanto has worked with local government and firms to create demand on its home turf.

After more than a decade of convincing, JW Marriott opened a hotel in Nara this year, becoming the first luxury foreign brand to set foot in the prefecture. About 14 more hotels have opened this year or plan to do so by 2022, prefecture officials say.

Achieving Nanto's GDP target, however, won't be easy with a tourism-reliant economy crippled by the coronavirus pandemic.

There is also no guarantee more tourists would bring in more revenue. Nanto's investment in the rehabilitation fund is a drop in the ocean compared with total loans to corporate borrowers exceeding 5 trillion yen.

Although Nanto holds a 50% market share in Nara, it has failed to generate enough profits from core lending and fee businesses to offset costs for more than a decade.

That means Nanto must accompany investment with cost cuts, including locally unpopular branch closures.

"The prime minister is prodding regional banks to become stronger," Nanto's Hashimoto said. "We've been trying to do that for some time. We can't help the local economy unless we stay lean and mean."

($1 = 104.0200 yen)

(Reporting by Leika Kihara and Takahiko Wada. Editing by Gerry Doyle)

By Leika Kihara and Takahiko Wada