Shinsei Bank and Aozora Bank may have their planned merger delayed, due to difficulty integrating systems and depending on the outcome of an inspection by Japan's financial regulator, the Nikkei newspaper said.

The two mid-size lenders have said they aim to merge by October 2010, but that plan has so far made little progress due to indecision over which system the new bank will use, the Nikkei said on Friday, without citing sources.

The banks are also undergoing inspections by the Financial Services Agency to gauge the state of their lending and assets, the Nikkei said.

Based on the outcome of the inspections in February, the banks could potentially need to rejig their one-for-one merger ratio, the paper said.

Shinsei is about one-third by buyout firm JC Flowers and Co, while Aozora is majority owned by Cerberus Capital Management . The banks announced their plans to merge in July, just months after booking a combined loss of 385.6 billion yen ($4.2 billion) for the year to March 2009.

Earnings at both banks have since rebounded, with the two reporting net profits in the first two quarters of this financial year.

Their earnings and stock prices have stopped worsening, so that has lessened their sense of urgency and been the main factor why talks have not accelerated, the Nikkei quoted an FSA official as saying.

No one was available to comment at Aozora or Shinsei. Offices in Japan were closed for the New Year holiday.

(Reporting by David Dolan; Editing by Nick Macfie)