* MUFG forecast 2.5 pct rise in net profit for this financial year
* Mizuho forecast 8.8 pct fall, SMFG 10.8 pct decline
* Unutilised deposit money grow sharply amid weak loan demand (Recasts with top three banks' results)
By Taiga Uranaka
TOKYO, May 15 (Reuters) - Japan's top banks flagged a cautious outlook and reported a jump in unutilised deposits, as they are hobbled by negative interest rates and tepid demand for cash from businesses amid weak economic growth.
The results on Monday from Mitsubishi UFJ Financial Group (MUFG), Mizuho Financial Group and Sumitomo Mitsui Financial Group, the nation's top three banks by assets, underscore challenges the Bank of Japan (BOJ) faces in its attempt to spur borrowing and spending when companies are sitting on record levels of cash.
MUFG, Japan's biggest lender, reported a 2.6 percent fall in profit for the year ended in March, due to weak loan business and gave a cautious outlook for the current financial year.
"A declining trend in domestic lending income continues and we have to brace for tough business conditions ahead," MUFG CEO Nobuyuki Hirano told a news conference.
The country's No 2. lender Mizuho and SMFG, the No. 3, said they expected net profits to fall for the current financial year.
Japanese banks have yet to see the strong growth in loan demand expected after the BOJ launched massive stimulus measures in April 2013, hoping to lift the country out of years of deflation by flooding the economy with cheap money.
Instead, lenders have seen a surge in deposits from businesses and households. The trend has not changed even since the BOJ introduced a negative interest rate policy last year to further drive down borrowing costs.
"From the viewpoint of corporate customers, a fall in interest rates would not necessarily lead to capital investments," SMFG's CEO Takeshi Kunibe told a news conference.
The three banks' combined "cash and due from banks", which represents unutilised money on their balance sheets and is mostly made up of customer deposits, grew 23 percent to 158 trillion yen ($1.4 trillion) in the year that ended on March 31.
They have now surged 4.6 times since March 2013, immediately before the BOJ launched its bond-buying programme.
"More money is flowing in than we can put to use," Mizuho CEO Yasuhiro Sato told a news conference when asked about the sharp growth in deposits.
Outstanding loans at the three banks grew 19 percent between March 2013 and March 2017, but deposits jumped 34 percent during that period.
Analysts said banks' unutilised deposits are unlikely to disappear as loan demand from businesses and households is expected to remain tepid. "Private sector, especially businesses, has ample surplus funds," said S&P Global Ratings Japan analyst Ryoji Yoshizawa. ($1 = 113.4600 yen) (Reporting by Taiga Uranaka; Editing by Muralikumar Anantharaman and Susan Fenton)