New bank lobby chief Takeshi Kunibe urged Prime Minister Shinzo Abe to follow through on his pledge to spark private investment through deregulation, a stimulus element the group says is key to boosting anemic loan demand.

"Domestic lending is turning around, but it isn't strong just yet," said Kunibe, who on Monday replaced Yasuhiro Sato as chairman of the Japanese Bankers Association. "We hope Abe's policies will bolster business confidence and encourage companies to increase capital spending."

Abe has spurred a stock market rally and reversed the yen's strength since his Liberal Democratic Party won the December election on the promise of bold monetary easing, flexible fiscal policy and the "third arrow" of deregulation. The quarterly "tankan" survey Monday showed the steepest gain in large-manufacturer confidence since September 2011 on expectations of more central bank stimulus.

"Japan's recovery for the medium to long term requires structural and regulatory reforms," said Kunibe, 59, who is also president of Sumitomo Mitsui Financial Group Inc.'s banking unit. "We strongly expect Abe to shoot his third arrow."

To offset muted corporate borrowing and loan profitability caused by 15 years of deflation and sluggish growth at home, Japan's banks are looking for demand in overseas markets.

Domestic loans by the country's city banks, including Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui and Mizuho Financial Group Inc., rose 1.1 percent in February from a year earlier to ¥198 trillion, according to central bank data.

Lending overseas is likely to increase during the fiscal year that started Monday, Kunibe said.

Mitsubishi UFJ, Japan's largest lender by market value, had ¥21.9 trillion in loans outstanding overseas as of Dec. 31, a 20 percent jump from a year earlier, company data show.