Japan's top three banks said on Monday that they expect solid lending income at home and aboard to boost net profits this business year, with biggest lender Mitsubishi UFJ Financial Group (MUFG) forecasting a record annual profit.

MUFG forecast a 16% increase in net profit to ¥1.3 trillion ($9.63 billion) for the year ending in March 2024, exceeding a previous record set two years ago and beating the ¥1.18 trillion average of 14 analysts' estimates compiled by Refinitiv.

Sumitomo Mitsui Financial Group (SMFG) and Mizuho Financial Group, Japan's second- and third-largest lenders by assets, also expect their highest net profits since the mid 2010s.

In the United States, higher rates are driving the Japanese banks' net interest margins, or interest earned on loans versus interest paid to depositors, while a mild recovery in Japan is boosting demand for loans, the banks said.

"Our main scenario for Japan is that solid consumer consumption and inbound tourism will continue to support a mild economic recovery," said MUFG Chief Executive Officer Hironori Kamezawa.

But the banks' chief executives, in separate press briefings, all voiced caution about higher credit risks ahead from global banking turmoil, initially sparked by the collapse of Silicon Valley Bank, even though Japanese banks have been little affected.

"We have booked higher loan loss provisions for rate-sensitive businesses such as leveraged lending and commercial real estate (in the United States)," said Jun Ohta, chief executive of SMFG.

SMFG expects to set aside ¥230 billion to cover potential loan losses this business year, compared with ¥210 billion a year earlier.

Mizuho is also bracing for higher credit costs.

"As the shift to bank lending away from bond issuance has run its course, we plan to be more selective about loan clients globally," Mizuho CEO Masahiro Kihara said at an earnings briefing.