A major credit rating agency issued a harsh assessment of Japan's banking industry Monday, ranking the financial health of many of the country's banks as no better than adequate.

Moody's Investors Service Inc. for the first time assigned "financial strength" ratings to 50 leading Japanese banks, which were hit hard by the collapse of Japan's "bubble" economy of inflated land and asset prices in the early 1990s.Most of the banks were rated between the lowest possible grade "E," meaning very weak intrinsic financial strength, and "D," or adequate strength. Only one bank, Shizuoka Bank, was rated "B" or in strong financial health.

"The 'E' ratings on the banks were due to a lack of profit and their bad loans, based on a comparison with the financial system worldwide," said Masaru Kakutani, a director at Moody's office in Tokyo.

Separately, the International Monetary Fund voiced concern about Japan's troubled banking sector and raised questions about the effectiveness of Tokyo's approach to the crisis.

"The failure to deal early on with problems at the smaller institutions may have increased significantly the number of cases where intervention is needed," the global lending agency said in an annual report on international capital markets.

Tokyo has so far shied away from using direct government subsidies to resolve Japan's festering financial problems because of public opposition to what taxpayers would see as a bailout of banks.

Japanese authorities estimate bad loans in Japan's financial system total some 40 trillion yen ($412 billion), and private analysts say the real figure could be much larger.

The ratings issued by Moody's were considerably worse than its previously issued ratings of the banks' bonds. Unlike the bond ratings, the financial strength measure does not include the possibility of aid to the banks from Japanese authorities.

Mitsubishi Bank Ltd. and Bank of Tokyo, which will merge next April to become the world's biggest bank with assets of some 72 trillion yen ($742 billion), both received "C+" ratings. A "C" rating means good financial strength.

Securities traders and analysts said the announcement was unlikely to prompt foreign banks to change their trading relationships with Japanese institutions or to cut credit lines in the near term.

Most international banks have their own set of standards and ways to assess other banks, which have already been applied, the analysts said.

But the Moody's assessment could have a negative impact in the long term by making it harder for the weak banks to trade derivative instruments with foreign banks or by creating liquidity problems at overseas branches, economists said.

A Bank of Japan (BOJ) official said Monday that the central bank would keep careful watch on the liquidity of Japanese banks' overseas branches - although he stressed that he was not referring directly to the Moody's report.

The official told Reuters that the central bank was prepared to provide help if necessary to ensure that the overseas branches did not face financial problems from worsening credit rankings.

Several analysts in Tokyo said the Moody's ratings could push Japanese authorities to take stronger action to solve the problems of bad debt plaguing the financial system.