TOKYO, May 15 (Reuters) - Japan's three largest banking groups logged big jumps in annual profits to record levels and forecast higher profits to come even as geopolitical risks spur market volatility and fears grow about borrower stress in private credit markets.

The end of deflation in Japan has proven lucrative for the banks as companies invest further and embark on mergers and acquisitions, which boost loan demand - trends that have prevailed despite turmoil created by U.S. President Donald Trump's tariff policies.

Three interest rate hikes from the central bank since March 2024 have also widened lending margins, filling the banks' coffers.

Mitsubishi UFJ Financial Group, the country's largest lender, said on Friday it generated a 30% rise in net profit to hit 2.4 trillion yen ($15.3 billion) for the year ended in March.

Third-ranked Mizuho Financial Group, booked 1.25 trillion yen, up 41% on the previous year.

Both handily beat consensus LSEG estimates.

MUFG expects a 12.5% increase in net profit for the current business year while Mizuho is targeting a 4% rise.

Earlier this week, Sumitomo Mitsui Financial Group also posted record annual profit that grew 34% and projected a 7.4% climb for the current year.

MIDDLE EAST CONFLICT CLOUDS OUTLOOK

The upbeat profit forecasts come despite the Iran war upending global energy markets and investors increasingly highlighting risks in global private credit markets.

"If tensions in the Middle East build up and oil prices rise further before the year end that would impact countries' GDP, in which case that would have a negative impact on our bottom line. This isn't reflected in our results this time," Junichi Hanzawa, MUFG's chief executive, said at an earnings briefing.

"This year is less predictable than last year so we have to respond with caution," Hanzawa added.

Mizuho's domestic loan balance grew 1.6% to 57.8 trillion yen at the end of March from a year earlier while its loan and deposit rate margin climbed to 1.1% from 0.92% a year earlier.

CEO Masahiro Kihara said the Mizuho group's exposure to private credit was 0.3 trillion yen.

SMFG said it had an outstanding private credit-related loan balance of 1.2 trillion yen, but CEO Toru Nakashima said he had no great concerns over that exposure as the group dealt primarily with high-quality funds.

Mizuho and MUFG each announced share buybacks of 100 billion yen. SMFG announced a 180 billion yen buyback.

($1 = 158.5500 yen)

(Reporting by Anton Bridge; Editing by Muralikumar Anantharaman and Edwina Gibbs)

By Anton Bridge