* Q1 net profit 132.6 bln yen vs 158 bln yen year-ago
* Net interest income also falls 16 pct
* Keeps full-year net profit forecast at 600 bln yen (Adds stock-related gains, share price rises)
By Taiga Uranaka
TOKYO, July 29 (Reuters) - Mizuho Financial Group, Japan’s second-largest lender, said its first-quarter profit dropped 16 percent, as the country’s negative interest rates hit income from loans and investments while failing to stoke broader borrowing.
Mizuho said on Friday said April-June net profit fell to 132.6 billion yen ($1.28 billion) from 158 billion yen a year earlier. That was above the 108 billion yen average estimate of two analysts polled by Thomson Reuters.
The Bank of Japan’s (BOJ) negative interest rate policy, launched in February, drove down the country’s already razor-thin loan rates and bond yields.
But the move has yet to produce the desired economic boost while leaving banks with weak earnings: this week, No. 3 lender Sumitomo Mitsui Financial Group (SMFG) said first-quarter profit fell nearly a third.
Mizuho’s net interest income - a core measure of banks’ profitability - fell 16 percent to 215.6 billion yen. Net interest income is what banks earn from loans and bond and stock investment.
Earnings were also dragged down by smaller gains from selling equity holdings in a weaker stock market. Mizuho and rivals have said they are trimming the portfolio of stocks they hold in client companies, originally acquired to help promote business relations.
Japan’s banks typically provide only minimal disclosure on their earnings after the first quarter of each fiscal year, and don’t conduct media briefings on their numbers.
For the full year through March, Mizuho kept its net profit forecast unchanged at 600 billion yen, down 11 percent from the previous year, and broadly in line with an average estimate of 596.4 billion yen by 16 analysts.
Japan’s biggest bank, Mitsubishi UFJ Financial Group Inc (MUFG), is scheduled to report earnings for the first quarter on Monday.
Shares of Japanese banks closed higher on Friday - before Mizuho released its earnings - on relief that the BOJ decided, as expected, to leave its negative interest policy unchanged, rather than impose even more negative rates.
Analysts have said lenders’ profits would be further hurt if the BOJ deepened the 0.1 percent interest it charges to a portion of excess reserves that financial institutions park with the central bank.
Shares of Mizuho ended up 5.7 percent, while MUFG and SMFG stocks were up 7.7 percent and 7.8 percent respectively, outperforming the benchmark Nikkei average’s 0.6 pecent rise.
$1 = 103.2900 yen Reporting by Taiga Uranaka; Editing By Kenneth Maxwell