UPDATE 1-Reuters Summit-SMFG could mull raising Barclays stake

(For other news from the Reuters Japan Investment Summit, click here)

(Adds comment and background)

By David Dolan and Taro Fuse

TOKYO, July 2 (Reuters) - Sumitomo Mitsui Financial Group (8316.T) will consider raising its stake in British bank Barclays (BARC.L) in the future but has no such plans for now, the president of Japan's third-largest bank said on Wednesday.

Teisuke Kitayama told the Reuters Investment Summit in Tokyo that Sumitomo Mitsui would work with Barclays on private and overseas commercial banking, as it looks to boost business outside the faltering domestic market.

Sumitomo Mitsui said last week it would invest 500 million pounds ($997 million) to take a 2 percent stake in subprime-hit Barclays, becoming the second Japanese bank to invest in a weakened Western financial firm.

"So far, our tentative conclusion is to stay with the current, present investment," Kitayama said when asked if the bank would consider raising its stake.

"Then, sometime in the future we will decide whether we will make more investment or not," he said.

Mizuho Financial Group (8411.T), Japan's no.2 bank, earlier this year invested about $1.2 billion in U.S. bank Merrill Lynch MER.N.

Barclays has lost more than $5 billion on assets hurt by the U.S. subprime crisis and credit crunch. It raised 4.5 billion pounds from investors including Qatar and Sumitomo Mitsui to rebuild capital and pursue growth, but some analysts have said it will need to raise more capital.

Sumitomo Mitsui and Barclays will tie up on private banking, for example by offering Barclays' products to the Japanese bank's clients, and in commercial banking in countries where the British bank has a stronger presence, such as South Africa and India.

Barclays will also gain access to the Japanese lender's wider Asian network, Kitayama said.

SLOW GROWTH AT HOME

Like its rivals, Sumitomo Mitsui is looking to boost overseas lending to compensate for slow growth at home. Healthier Japanese companies need less funding since recovering from the collapse of Japan's asset bubble in the 1990s.

Sumitomo Mitsui's lending outside Japan rose 44 percent in the year to March 2008 from the previous year, with much of the growth in Europe and North Asia.

But overseas lending has been a rare bright spot for the bank. While competition is stiff to loan to healthy companies, the sputtering domestic economy has also prompted an upswing in bankruptcies, particularly among small and mid-size firms.

In one high-profile case last month real estate firm Suruga Corp 1880.T filed for court protection from creditors, prompting it default on its bonds, the first such case in Japan in seven years.

"It is not only the property sector but as a whole we are little more cautious in domestic lending because the macro economy is in an adjusting stage," Kitayama said.

"We are now taking a bit of a cautious approach in the domestic banking business."

The spike in bankruptcies has forced the bank to lift its provisions for bad loans by a quarter to 180 billion yen for the year to March 2009.

(Editing by Sophie Hardach)

((david.dolan@thomsonreuters.com; +81-3-6441-1805; Reuters Messaging: david.dolan.reuters.com@reuters.net))

($1=106.04 Yen) Keywords: JAPAN SUMMIT/SMFG

(C) Reuters 2008. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nT274892