* Net profit Y989.7 bln vs Y926.4 bln year prior

* Profit forecast to fall to Y850 bln in current year (Adds further earnings details, context)

TOKYO, May 15 (Reuters) – Mitsubishi UFJ Financial Group Inc (MUFG) on Tuesday reported a 6.8 percent rise in net profit for the year ended March, albeit missing analyst estimates, as lower bad loan costs and gains from equity holdings offset tepid domestic lending.

Japan’s largest bank by market valuation said profit totalled 989.7 billion yen ($9.01 billion), versus 926.4 billion yen a year earlier. The result compared with the 1 trillion yen average of 13 analyst estimates compiled by Thomson Reuters.

Japanese banks have been suffering diminishing returns from loans to both retail and corporate customers due in part to the Bank of Japan’s five-year-old economic stimulus programme, under which the central bank charges private lenders to deposit money with it. That effectively forces banks to increase lending, raising competition and pushing down loan interest rates.

To offset the impact, top Japanese banks are expanding overseas and into non-lending businesses.

For the year ending March 2019, MUFG forecast profit of 850 billion yen. That compared with an average analyst estimate of 984.3 billion yen. ($1 = 109.8200 yen) (Reporting by Taiga Uranaka Editing by Christopher Cushing)