PREVIEW-Profits down for Japan banks but Mizuho back to black

* Big Japan banks' report July-September results

* When: Mizuho and SMFG on Nov 13, MUFG on Nov 18

* What: Profit down 15 pct at MUFG, SMFG; Mizuho back to black

By David Dolan

TOKYO, Nov 12 (Reuters) - Mitsubishi UFJ Financial Group (8306.T) and Sumitomo Mitsui Financial Group (8316.T), two of Japan's biggest banks, are likely to report 15 percent profit declines for the July-September quarter, as weakness in the world's second-largest economy continues to sap lending.

Bucking the trend will be rival Mizuho Financial Group (8411.T), the country's second-largest bank by assets, which is expected to book its first profit in five quarters, aided by lower bad loan costs and an improvement in its massive equity portfolio.

The likelihood of further capital raising will continue to be a concern. Japanese banks have already raised $15 billion this year through issuing common equity, according to Thomson Reuters data, and analysts believe more will be needed to eventually meet stricter global requirements. [ID:nT306019]

Analysts are also concerned about the potential collapse of struggling carrier Japan Airlines Corp (9205.T), which could cause a spike in bad-loan costs.

Mitsubishi UFJ, Mizuho and Sumitomo Mitsui Financial Group (8316.T) -- known as Japan's "megabanks" -- continue to be hurt by the weak economy at home, where they do the bulk of their business.

"The core business is going to be lacklustre. We are seeing margin pressure, we are seeing slower loan growth," said Ismael Pili, Japan bank analyst at Macquarie Securities in Tokyo.

Domestic lending grew just 2 percent or less for the quarter compared with last year, Bank of Japan data showed. [JPBNK=ECI]

Economists expect deflation to persist until at least the second quarter of 2011, a Reuters poll recently showed, meaning that interest rates and revenues from lending will have little chance of growth. [ECILT/JP]

BRIGHT SPOTS

Analysts expect that bad-loan costs and stock prices will be among the few bright spots for lenders.

Bad loans are expected to be significantly lower than last year, when banks were stung by the collapse of Lehman Brothers.

The total debt of companies that went bankrupt during the July-September quarter was down 86 percent from a year earlier at 964 billion yen ($10.7 billion), according to data from research firm Tokyo Shoko Research. But bad loans could rise in the event of a collapse at JAL. The three megabanks, which already had a combined 147 billion yen in loans to JAL, have agreed to provide an additional 25 billion to the airline, sources said this week. [ID:nTKX006528]