Maybank Q1 net falls 22 pct; warns on bad debt

* Net profit falls 22 pct

* Sees risks of higher bad debts, slower loan growth

* Says 2008/09 net profit to be lower than last year (Adds details, quotes)

By Faisal Aziz

KUALA LUMPUR (Reuters) - Malaysia's top lender, Malayan Banking Bhd (Maybank), said on Tuesday its first-quarter profit fell by 22.2 percent, as net interest income fell and recovery of non-performing loans slowed down.

The state-controlled Maybank (MBBM.KL), which has been on a controversial overseas acquisition spree this year amid rising competition at home, warned of greater non-performing loans (NPLs) and a moderate loan growth amid a global economic downturn.

"The operating environment for the domestic banking sector is expected to become more challenging with moderate prospects for increasing loans growth and heightened risk of greater non-performing loans," Maybank said in its quarterly report.

It added that net profit for the current financial year, ending June 30, 2009, would be lower than the previous year.

Maybank reported net profit of 572.17 million ringgit ($159.8 million) for the three months to Sept. 30, compared with 735.43 million ringgit in the year-ago period. [See Table: nKLR347830]

Analysts in Malaysia do not provide quarterly forecasts, but predict earnings at Malaysian banks, like those of their global peers, will fall in coming months as the world economic slowdown curbs demand for new loans and slashes the value of assets such as property, leading to more bad debts.

Maybank's profitability may also be affected by the higher cost of borrowing inflicted by the global credit crunch, as the lender needs to raise funds to maintain capital adequacy ratios, analysts said.

Analysts expect Maybank will need to raise up to 11 billion ringgit ($3.1 billion) to fund three acquisitions announced this year: Vietnam's An Binh Bank, Pakistan's MCB Bank (MCB.KA), and Bank Internasional Indonesia (BNII.JK).

Maybank said its net interest income for the quarter fell by 3.6 percent to 1.27 billion ringgit.

This was due mainly to lower income from deposits placed with financial institutions and securities portfolio, and recoveries from NPLs, which fell by 18 percent and 31.3 percent respectively.

Non-interest income for the quarter fell by 21.5 percent, largely due to foreign exchange losses of 125.2 million ringgit, arising from the reversal of foreign exchange gains in relation to the purchase of BII.

($1=3.550 Malaysian Ringgit)

(Additional reporting by Soo Ai Peng; Editing by Kim Coghill and Jon Loades-Carter)