Sumitomo Mitsui net profit down 36 pct; sees recovery

TOKYO, May 21 (Reuters) - Sumitomo Mitsui Financial Group (SMFG) (8316.T: Quote, Profile, Research) reported a 36 percent fall in annual profit on Monday due to a deteriorating bond portfolio and problems at a consumer loan affiliate, but said earnings would likely rebound this year.

Japan's third-biggest bank said group net profit totalled 441.35 billion yen ($3.64 billion) in the 12 months through March, below the 458 billion yen average projection of eight analysts polled by Reuters Estimates.

SMFG had estimated a net profit of 440 billion yen. For the 12 months to next March it forecast a profit of 540 billion yen, compared with analysts' average projection of 640.9 billion yen.

Rising interest rates have not given Japanese banks the revenue surge many investors had expected, and sector share prices have slumped by a quarter since hitting a seven-year peak in April last year. SMFG cut its initial profit estimate by 23 percent last month due to heavy losses at its main consumer affiliate, Promise Co. (8574.T: Quote, Profile, Research). Promise reported a $3.2 billion net loss for the year to March, though it expects a turnaround this year.

Compounding the damage was a fall in the value of SMFG's large portfolio of Japanese government bonds due to rising market interest rates as the Bank of Japan gradually tightens credit.

Shares in SMFG fell 17.7 percent in the 12 months through March, compared with a 20.7 percent decline in the sector as a whole . The benchmark Nikkei stock average .N225 rose 1.3 percent in the same period.