Nov. 24 (Bloomberg) -- Mitsubishi UFJ Financial Group Inc. said it will earn 930 billion yen ($7.8 billion) this year, making it Japan's second-most-profitable company ever, as economic recovery reduces bad loans and boosts fees from asset management.

Mitsubishi UFJ is competing for business in an economy where lending hasn't risen in a decade. Central bank predictions that consumer prices will end a seven-year slump in 2006 may help Mitsubishi Tokyo boost fee income and generate a higher return on assets that are 10 percent larger than Citigroup Inc.'s.

The group, created Oct. 1, put off combining its commercial banking units until Jan. 1 to conduct additional testing of computer networks, seeking to avoid disruptions that plagued systems mergers at Mizuho Financial Group Inc., the second- largest Japanese bank.

Mizuho and Sumitomo Mitsui Financial Group Inc., the third- biggest lender, both forecast record full-year profit earlier this week as bad-loan costs fell and benchmark stocks rallied, boosting sales of mutual funds. Mizuho said it expects 630 billion yen net income after second-quarter earnings doubled and income at its investment-banking unit rose.

Sumitomo Mitsui raised its profit target 20 percent to 550 billion yen as costs to dispose of bad loans fell almost 30 percent in the first six months and fees for arranging syndicated loans and trading stocks for brokerages swelled during the period.

Nakagawa, who holds shares in the bank, says Mitsubishi UFJ may struggle to match growth at Mizuho and Sumitomo Mitsui until it completes integrating its main banking units.

Net interest income at the group's four banking units, a measure of its core lending business, fell to 857.9 billion yen, from 917.9 billion yen.

Still, its financial strength rating was raised today by Moody's Investors Service, which said it expects the group's financial fundamentals to improve ``at a pace much faster than previously projected.'' Moody's raised the rating, which doesn't affect the credit profile of Mitsubishi UFJ, to D+ from D with a positive outlook.

Consolidated second-quarter net income totaled 451.3 billion yen for the three months ended Sept. 30. That compares with a combined loss by the merger partners of 493.1 billion a year earlier, according to results the bank announced today for the former UFJ Holdings Inc. and Mitsubishi Tokyo Financial Group Inc. The figures were obtained by subtracting first- quarter results from the half-year numbers.

Mitsubishi Tokyo's outstanding bad loans fell to 1.09 trillion yen, or 2.21 percent of total lending, as of Sept. 30, from 1.25 trillion yen or 2.55 percent three months earlier. UFJ's bad-loan ratio fell to 3.32 percent, from 3.62 percent as total non-performing loans dropped to 1.40 trillion yen from 1.48 trillion yen as of June 30.

Mitsubishi Tokyo's capital adequacy ratio -- a measure of capital reserves against assets at risk -- rose to 12.01 percent from 11.51 percent. The ratio at UFJ rose to 11.67 percent from 11.18 percent.

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