UPDATE 1-Japan’s SMFG Q1 profit more than doubles as credit costs drop

* First quarter net profit at 203.2 bln yen

* Credit costs at 10.3 bln yen vs 114.8 bln yen year earlier

* Keeps full-year net profit forecast at 600 bln yen (Adds further earnings figures, context)

TOKYO, July 30 (Reuters) – Sumitomo Mitsui Financial Group Inc (SMFG) on Friday reported more than doubled net profit in the first quarter due to a sharp decline of credit-related costs as financial conditions improve at pandemic-hit corporate Japan.

Profit reached 203.2 billion yen ($1.85 billion) for the three months through June, versus 86.1 billion yen in the same period a year earlier, Japan’s second-largest lender by assets said in a filing to the stock exchange.

For the full year through March, SMFG reiterated its forecast for profit of 600 billion yen. That compared with the 646.4 billion yen average of 10 analyst estimates compiled by Refinitiv.

Japanese banks have been struggling with years of ultra-low interest rates and a shrinking population, and in the last financial year, major banks including SMFG saw a surge in credit-related costs because of the pandemic.

SMFG’s credit-related costs dropped to 10.3 billion yen in the first quarter of the financial year started April, compared with 114.8 billion yen a year earlier.

The lender has estimated such costs will reach 300 billion yen in the current financial year.

While credit-related costs have pressured the bank’s profit, its interest income has increased as corporate clients rushed to borrow to survive the pandemic slowdown. Japanese bank lending rose 1.4% in June from a year prior, Bank (Finance & Banking Trends) of Japan data showed.

SMFG’s net interest income at its banking arm was 235.9 billion yen for the first quarter, a 12.5% on-year rise.

Bigger peer Mitsubishi UFJ Financial Group Inc is scheduled to announce first-quarter earnings on Monday. ($1 = 109.6000 yen) (Reporting by Takashi Umekawa; Editing by Christopher Cushing)

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