November 13, 2018 / 10:51 AM / in a month

UPDATE 2-Japan's MUFG CEO says trade war, market volatility concerns for H2

* H1 profit beats own estimate by 200 bln yen; Q2 profit slips

* But MUFG hikes annual profit view by only 100 bln yen

* U.S.-China trade war, market volatility among concerns -CEO (Recasts with CEO comments)

By Taiga Uranaka

TOKYO, Nov 13 (Reuters) - Mitsubishi UFJ Financial Group Inc (MUFG), Japan's largest lender by assets, posted a lower quarterly profit and warned that the U.S.-China trade war as well as growing market volatility would pressure its performance in the second half.

While MUFG raked in profits that were 200 billion yen ($1.75 billion) above its projections for April-September, it hiked its full-year view by only 100 billion yen - indicating it expects the first-half gains to be eroded in the coming months.

Its new annual net profit forecast of 950 billion yen is also slightly below an average estimate of 959.5 billion yen from 14 analysts surveyed by Refinitiv.

U.S.-China trade war and growing market volatility are among concerns for the months ahead, MUFG CEO Nobuyuki Hirano said at a briefing. "We have to factor in these for the second half."

For the first half, MUFG's net profit rose 3.8 percent to 650.8 billion yen, helped by a hefty income from the release of bad loan provisions and gains from its equity holdings. But its earnings for the three months to September eased 0.6 percent to 335.8 billion yen, hurt by a weak domestic lending business.

CEO Hirano said loan spreads continued to shrink, especially in lending for small- and medium-sized businesses as banks vie for borrowers amid weak demand.

The bank's quarterly results were partly dragged down by its markets division, which booked large gains a year ago from selling its Japanese government bond holdings.

The division was also hit by a rise in U.S. interest rates, which pushed down the value of its Treasury holdings.

Hirano noted that dollar-funding costs were rising as Japanese financial institutions flush with yen try to seek growth overseas. He said MUFG cannot expand its balance sheet as it used to and needs to shuffle its overseas loan portfolio.

The bank also announced it would buy back shares worth up to 100 billion yen, or 1.5 percent of its outstanding shares.

MUFG owns 24 percent of U.S. bank Morgan Stanley and 77 percent of Thailand's Bank of Ayudhya PCL.

MUFG is the first among Japanese lenders to report the April-September results. Rival Mizuho Financial Group and Sumitomo Mitsui Financial Group are scheduled to announce their results on Wednesday. ($1 = 114.1100 yen) (Reporting by Taiga Uranaka; Editing by Christopher Cushing, Muralikumar Anantharaman and Himani Sarkar)

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