PREVIEW-Big Japan banks set for profit rebound but growth tepid

* What: Major banks' 2008/09 earnings forecasts

* When: Mizuho Financial Group and Sumitomo Trust & Banking on May 15, Sumitomo Mitsui Financial and Resona Holdings on May 16 and Mitsubishi UFJ Financial Group on May 20.

*Annual net profit to rebound 22-92 percent after a bleak 2007/08 but real growth remains scant

By David Dolan

TOKYO, May 14 (Reuters) - Japan's big banks are set for double-digit profit rises this year as they recover from a subprime credit battering, but weak loan demand and a sputtering domestic economy will continue to hamper real growth.

Top "megabank" Mitsubishi UFJ Financial Group and No.2 Mizuho Financial Group have said they expect hefty declines for the year to March 2008, after the U.S. subprime mortgage crisis and ensuing global credit crunch shredded earnings and soured their stock portfolios.

Even Sumitomo Mitsui Financial Group , which managed to dodge much of the damage sparked by risky securitised investments, has said growth will be razor-thin.

With the likely results widely flagged, analysts are now looking to the year to March 2009. While this year's numbers are likely to look much better in the absence of big credit-related writedowns, some market watchers say the outlook is hardly spectacular.

Only one of the top three banks, Sumitomo Mitsui, is expected to deliver higher profits than it did two years ago.

"It's not going to be a stellar year, 2009," said Graeme Knowd, a banking analyst at brokerage CLSA Asia-Pacific Markets in Toyko.

"The (megabanks) don't seem to have any loan growth at home and margins are not going to expand domestically either."

Lending in the world's second-largest economy continues to stagnate. Many Japanese companies now shun loans after recovering from the 1990s asset bubble and cleaning up their balance sheets.

Data released this week by the Bank of Japan showed lending in April grew at its fastest pace in a year, but even that was just a lean 1.2 percent. Japan's economic growth likely slowed to 0.6 percent in the first quarter of the year and could slide further in the second quarter, a recent Reuters poll found.

In addition, stiff competition and rock-bottom interest rates continue to make it difficult for Japanese banks to boost lending margins.

Analysts are also watching a recent spike in bankruptcies, a sign that banks will need to continue raising provisions for bad loans.

Higher credit costs and lower fees from dwindling sales of investment products are a concern, said Akiko Kudo, a credit analyst at Fitch Ratings in Tokyo.

"Net interest margins are being squeezed and fees and commissions are declining, while credit costs are increasing," Kudo said. "I don't presume that earnings are going to be strong for 2009."

20 PERCENT GAINS

After a bleak 2007/2008, the coming year should see gains of at least 20 percent, according to analysts' estimates.

Mitsubishi UFJ is likely to book a group net profit of 774 billion yen ($7.5 billion) in the year to March 2009, according to a survey of 13 analysts by Reuters Estimates.

That would be up 40 percent from the 554.4 billion yen analysts think it will deliver for 2007/08, when it reports next week.

The 2007/08 estimate implies a 25 percent rise in profit for the January-March quarter just ended, although the bank saw profits drop substantially on a full-year basis, due to the subprime meltdown.

Smaller rival Mizuho is expected to post a group net profit of 597.1 billion yen in the year just started, according to a poll of 14 analysts.

That would mark a 92 percent increase from the 310.9 billion yen analysts expect on Thursday, when the bank reports results for the year to March 2008. The 2007/08 estimate implies a fourth-quarter loss of 82 billion yen for the bank, which has been hammered by its subprime exposure.

Sumitomo Mitsui, Japan's third-largest bank, is likely to book a 556.3 billion yen group net profit for the year just started, according to a poll of 10 analysts.

That is 22 percent above the 456.5 billion yen analysts reckon it will deliver for 2007/08, when it reports on Friday.

The estimate implies a three-fold jump in profit for the three months to March 2008, although on a full-year basis the lender saw little growth.

Even though banks are likely to see gains in the year to 2009, investors should remember it's more of rebound from the subprime, rather than real growth, according to David Threadgold, bank analyst at Fox, Pitt-Kelton in Tokyo.

"Most of it's happening simply through a bounce bank from securities losses or subprime-related issues," he said. (Editing by Kim Coghill)

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