Financial Services Minister Heizo Takenaka said Wednesday his agency plans to impose heavy penalties on banks that manipulate earnings reports for the year through next March.

In its efforts to strengthen corporate governance in the financial sector, the Financial Services Agency will "thoroughly inspect and supervise" financial institutions, especially 15 banks that have presented the FSA with fresh plans to improve earnings for fiscal 2003, Takenaka said.

The FSA will check whether the 15 have conducted any shady transactions using derivatives or other complex financial instruments in a bid to artificially inflate profits ahead of their book-closings, he said.

Takenaka made the comments in an interview with Kyodo News ahead of the one-year anniversary Sept. 30 of when he took on the Cabinet's financial policy portfolio.

He is a major proponent of economic reforms in the administration of Prime Minister Junichiro Koizumi but is unpopular with many old-guard politicians in the ruling Liberal Democratic Party, who want him removed from the Cabinet.

Observers believe Takenaka, who is also state minister in charge of economic and fiscal policy, will stay in the Cabinet if Koizumi is re-elected LDP president Saturday.

Although they have received public funds in the past to shore up their capital, the 15 lenders -- five major banking groups and 10 regional banks -- saw a wide gap between their initial profit targets and the actual figures for the business year ended March 31.

The banks, including Mizuho Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and UFJ Holdings Inc., have pledged measures such as stepped-up restructuring and better services for small firms and individuals.

The FSA has the authority to order banks to improve earnings.