* Q1 net profit Y161 bln vs Y118.3 bln a year earlier
* Mizuho suffered sharp profit fall last year
* Recovery in fee-generating businesses leads profit growth (Recasts, adds information)
By Taiga Uranaka
TOKYO, July 31 (Reuters) - Japan’s Mizuho Financial Group said on Tuesday net profit rose 36 percent for its first quarter ended in June, boosted by a sharp recovery in banking business at home and overseas after a particularly weak year.
Japan’s second-largest lender by assets and its domestic rivals have suffered from an ultra-low interest rate environment as part of the Bank of Japan’s aggressive easing of monetary policy, launched five years ago.
The least profitable of Japan’s three biggest banks, Mizuho booked a sharp fall in profit in the last financial year, hurt by decline in bond trading gains. This sets the bar lower for year-on-year profit comparisons than its rivals.
Mizuho said net profit came in at 161 billion yen ($1.45 billion) for the April-June period, up from 118.3 billion a year earlier.
A sharp recovery in the first quarter was propelled by growth in fee-generating businesses such as trade finance, the bank said, adding that non-interest income rose 15 percent to 219 billion.
Its domestic lending business remains tepid, however. Its loan-and-deposit rate margin, or the difference between the interest it earns on loans and what it pays for deposits, fell to 0.83 percent from 0.87 a year earlier.
Mizuho’s bottomline was also helped by gains from clawing back past provisions made for potential bad loans after borrowers’ credit quality improved.
It also booked profit from selling stocks of corporate clients held to cement business ties, a practice that faces growing criticism for hindering Japan’s corporate governance.
For the full year through March, Mizuho kept its own forecast of 570 billion yen in net profit, down 1.1 percent from the previous year, but above an average estimate of 537.3 billion in a poll of 13 analysts by Thomson Reuters I/B/E/S.
On Monday, No. 3 Sumitomo Mitsui Financial Group (SMFG) reported a 6 percent drop in quarterly net profit, as bigger tax bills offset benefits from cost-cutting measures and smaller bad loan losses.
No. 1 Mitsubishi UFJ Financial Group is due to announce first quarter results later this week.
Mizuho’s results reflect Japanese banks’ efforts to reduce the impact of diminishing returns from domestic loans by ramping up overseas operations and fee-based businesses.
But in a clear sign that investors still see the lenders’ fortunes as closely tied to the central bank’s monetary policy, bank shares gyrated on the day of the BOJ announcement.
Mizuho shares ended down 2.5 percent, outstripping a fall of 0.8 percent in the benchmark TOPIX index, despite having recovered early losses to enter positive territory immediately after the BOJ tweaked monetary policy. ($1=111.1900 yen) (Reporting by Taiga Uranaka; Editing by Clarence Fernandez)