Japan bank lobby head: more vigilance in trades with Europe banks - Reuters

* Says Japan banks more vigilant in trades with European banks

* Says does not think Japan banks will need to waive Tepco debt

* Says interbank liquidity situation far from 2008 crisis (Rewrites, adds details)

By Taiga Uranaka

TOKYO, Sept 15 (Reuters) - Japanese banks have become increasingly vigilant about trades with European banks, the chairman of the Japanese Bankers Association said on Thursday, as concerns mount about credit risks at the region's financial institutions.

Katsunori Nagayasu, also president of Mitsubishi UFJ Financial Group , added that he did not believe Tokyo Electric Power's (Tepco) creditor banks would have to waive debt to the operator of the crippled Fukushima nuclear plant, since a scheme to compensate victims of the radiation crisis would help it to remain solvent.

Nagayasu said Japanese banks had been very careful even in normal circumstances in dealings with individual European banks as necessary, but had been taking a cautious stance toward European banks overall since July.

"We have become more vigilant in our operations lately," he told a regular news conference of the bankers' association.

Moody's Investors Service cut the credit ratings of two French banks on Wednesday because of their exposure to Greek debt, highlighting growing risks to Europe's financial sector from the deepening euro zone sovereign debt crisis.

Banks would find it increasingly difficult, or costly, to borrow money from peers in the interbank market when there is doubt about their creditworthiness.

Increased nervousness about credit risks in the interbank market has had an impact on Japanese banks' funding activities but the situation is not nearly as dire as the liquidity crunch that followed Lehman Brothers' collapse in 2008.

"It's true that, compared with normal times, we're leaning slightly toward the crisis zone, but it's not really a crisis," Nagayasu said.

The possibility that Tepco's lenders may be asked to waive some of its debt re-emerged this week when Japan's new trade minister, Yukio Edano, said the utility's shareholders and creditors should shoulder their share of the burden for a taxpayer-funded bailout.

"I don't anticipate the need to waive debt for Tepco at all," Nagayasu said.

"Our understanding is that (the bailout scheme) was formulated on the premise of not letting Tepco become insolvent and no need for debt waivers," he said.

Japan's top banks, including Nagayasu's MUFG, Japan's biggest bank by assets, were among lenders that provided about 2 trillion yen ($26 billion) in emergency loans to Tepco in the immediate aftermath of the March 11 earthquake and tsunami, which triggered the world's worst nuclear crisis in a quarter century. ($1 = 76.720 Japanese Yen) (Editing by Edmund Klamann)

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