Japan's biggest banks reported lackluster quarterly lending activity in the earthquake-ravaged economy, raising pressure on them to take more risks and find revenue sources overseas.

Mitsubishi UFJ Financial Group <8306.T>, Mizuho Financial Group <8411.T> and Sumitomo Mitsui Financial Group <8316.T>, the top three, respectively, are facing anemic loan demand in Japan, where companies are paying down debt.

Bank lending in Japan fell for the 19th straight month in June from a year earlier, with the expected boost to loan demand from the March 11 disaster not materializing yet. Domestic lending makes up the bulk of revenues for the top banks.

On Friday, MUFG reported a 6.1 percent dip in net interest income, mostly due to its consumer finance unit. Mizuho's net interest income dropped 2.9 percent. Sumitomo Mitsui, however, saw a 5 percent rise in net interest income.

MUFG posted a 500.6 billion yen ($6.4 billion) net profit in the quarter after booking a 290.6 billion yen gain from conversion of its preferred shares in Morgan Stanley into common stock which raised its stake in the Wall Street firm to 22 percent.

The profit tripled from 166.4 billion yen a year earlier and was above the 400 billion yen estimated by Citigroup Global Markets Japan.

Mizuho's profit slumped 36 percent to 96.4 billion for the quarter, slightly below the 100 billion yen estimated by Citigroup. Sumitomo Mitsui's profit fell 2.4 percent to 206.6 billion yen, but above the 100 billion yen estimated by Citigroup.

The banks are stepping up their overseas presence not only to combat weak loan take-up at home but also to benefit from a strengthening currency that is driving much of corporate Japan to shop overseas.

The yen hit a four-month low of 77.48 yen on Friday morning,

prompting Japan to escalate its warning to financial markets against testing the yen's upside further.

Mizuho is set to seal a deal soon to buy as much as 20 percent of Vietnam's Vietcombank , sources have said.

MUFG last month began talks with CIMB to expand their investment banking ties and take a bigger stake in the Malaysian lender. And Sumitomo Mitsui teamed up with Brazil's BTG Pactual in April to offer project finance and advisory services in the Latin American nation.

The overseas push may take years to pay off and may weigh on the profits of the banks till then.

(Editing by Muralikumar Anantharaman)

Japan Citigroup