Mitsubishi UFJ Financial Group Inc. said on Monday it expects a 12% drop in annual net profit due to market volatility and an uncertain economic outlook, after scoring a record profit for the previous year.

MUFG, Japan's largest lender, joins Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc., Japan's Nos. 2 and 3 lenders respectively, in offering cautious outlooks.

"The (business) environment will remain uncertain and tough," CEO Hironori Kamezawa told an earnings briefing, citing political risks and volatility in foreign exchange and interest rates.

"But we'll strive to become a company that can stably earn a profit of ¥1 trillion ($7.74 billion) or more in line with our midterm strategy," he said.

MUFG, which owns about 20% of Wall Street bank Morgan Stanley, said it expects ¥1 trillion in net income for the current business year, below analysts' average forecast of ¥1.06 trillion.

The banking group expects credit-related costs in Japan to dip, as corporate bankruptcies in Japan have remained low thanks to government subsidies.

"But we will closely watch how the situation in Russia and a weaker yen impact on companies," Kamezawa said.

For the previous fiscal year that ended in March, MUFG posted a profit of ¥1.13 trillion, exceeding a previous record set seven years ago, thanks to the release of pandemic-related loan-loss provisions, gains in stock holdings and profits through its stake in Morgan Stanley.

However, the final quarter saw a 64.4% plunge in profit as MUFG set aside ¥140 billion to cover potential losses from its exposure to Russia.

That brought total Russian provisions by Japan's top three banking groups to ¥312 billion.

MUFG also said it would buy back up to ¥300 billion, or 4.7%, of its own shares.