UPDATE 1-SMFG Q1 profit falls 20 pct as Abenomics stock boom fades

Wed Jul 30, 2014 4:48am EDT

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(Adds profit breakdown, context, shares)

* Q1 net profit Y230.8 bln vs Y288.3 bln year earlier

* Keeps FY forecast at Y680 bln vs Y695.5 bln analyst view

* Stock-related profit drop also expected at MUFG, Mizuho

By Taiga Uranaka

TOKYO, July 30 (Reuters) - Sumitomo Mitsui Financial Group Inc (SMFG) reported a 20 percent decline in quarterly profit as gains in the value of stock holdings paled in comparison with the year prior, when prices rose after government promises of economic growth.

Japan's No.3 bank by assets profited, like its rivals, from a stock market surge after Prime Minister Shinzo Abe took office at the end of 2012 pledging aggressive growth measures. But price moves have become less pronounced as sentiment toward "Abenomics" cooled.

SMFG and peers Mitsubishi UFJ Financial Group Inc (MUFG) and Mizuho Financial Group Inc own substantial stakes in an array of major Japanese companies, so swings in the value of shares have significant impact on the banks' earnings.

In a statement on Wednesday, SMFG said net profit was 230.8 billion yen ($2.3 billion) for the three months to June 30 from 288.3 billion yen in the same period a year earlier.

Stock-related profit fell 42 percent on year to 32.7 billion yen. MUFG and Mizuho are likewise expected to report a decline in stock-related and overall profit when they report earnings on Thursday.

In a presentation to investors, SMFG said a decline in trading profit and lower sales of investment fund products also pulled down quarterly earnings. Still, the result was the bank's second-biggest first-quarter profit after that of last year.

Loan volumes have increased recently at all three banks. But interest rates remain low as too much money is chasing too few borrowers, as a result of central bank monetary easing designed to end over a decade of deflation, analysts say.

Domestic loans at SMFG's core banking unit rose to 47.7 trillion yen at the end of June from 47.5 trillion yen a year earlier.

The unit's domestic interest spreads - or the difference between interest rates charged on loans and paid on deposits - fell to 1.32 percent from 1.4 percent.

One bright spot was overseas lending growth. Outstanding overseas loans stood at $175 billion at the end of June, from $146 billion a year earlier.

For the year ending March, SMFG kept its forecast at 680 billion yen, 18.6 percent less than a year earlier and below a 695.5 billion yen mean estimate of 18 analysts polled by Thomson Reuters.

Shares of SMFG closed 0.7 percent higher ahead of the earnings, compared with a 0.2 percent rise in the benchmark index. The stock has lost 23 percent in 2014, versus the benchmark's fall of 4 percent.

($1 = 102.1700 Japanese Yen) (Editing by Christopher Cushing)

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