UPDATE 1-Krung Thai Bank Q3 profit growth beats forecasts

* Q3 net profit up 9.5 percent, beats forecasts

* Loan demand seen improving in Q4 on economic recovery

* Shares edge lower in line with broader market (Adds details, analyst comment)

By Arada Kultawanich

BANGKOK, Oct 20 (Reuters) - Krung Thai Bank, Thailand's No.2 lender by assets, posted a surprise 9.5 percent rise in quarterly profit and should see improving loan demand this quarter as the economy picks up and government stimulus spending boosts business activity.

Krung Thai (KTB) KTB.BK, about 60 percent-owned by the Thai government, bucked the local trend by reporting a slight rise in lending, taking loan growth for the nine month period from January-September to 0.50 percent, or 1.05 trillion baht. Other Thai banks have seen loans growth contract.

The bank had said high loan repayments from the Finance Ministry and some big companies would shrink lending in the third quarter, but it still expects a 6-7 percent growth for this year, helped by the government's huge spending which would start in its fiscal year from Oct. 1 [ID:nBKK23256]

Top rival Bangkok Bank BBL.BK saw lending slow 6.9 percent in January-September, while third-ranked Siam Commercial Bank SCB.BK said its lending shrank 1.8 percent.

Third-quarter net profit rose to 4.25 billion baht ($128 million) from 3.88 billion baht, helped by strong growth in non-interest income and lower-than-expected operating expenses.

The profit beat a forecast for 3.59 billion baht from 13 analysts polled by Reuters.

"That's because it booked lower-than-expected operating costs and tax expenses," Kim Eng Securities analyst Sukanya Udomvoranun said, adding the bank's performance would likely improve in the fourth quarter although it may add more provisioning expenses.

Full-year net profit is forecast to drop 23 percent to 9.98 billion baht, according to Thomson Reuters I/B/E/S.

KTB shares were 0.5 percent lower by 0834 GMT, in line with the main SET index .SETI.

Krung Thai, which has $43.5 billion in assets, reported a 172 percent jump in non-interest income to 3.73 billion baht in July-September, while fees and services rose by a third.

Gross non-performing loans rose to 7.3 percent of lending at end-September, up from 7.18 percent at end-June. KTB booked flat loan-loss provisions of 1.57 billion baht in the third quarter.

Market leader Bangkok Bank posted a surprisingly strong 17 percent rise in quarterly net profit on Monday despite the drop in lending, due mainly to the absence of an investment loss. [ID:nBKK478992]

Shares in KTB, valued at about $3.2 billion, have surged 154 percent this year, outperforming the SET's 63.5 percent gain, and a doubling of the banking sector sub-index .SETB. ($1=33.31 Baht) (Editing by Jason Szep and Valerie Lee)