CORRECTED-UPDATE 2-CIBC first-quarter profit beats estimates on robust Canada banking

(Corrects paragraph 7 to say provisions were "up by" C$290 mln, not "up from")

Feb 29 (Reuters) - Canadian Imperial Bank of Commerce exceeded estimates for first-quarter profit on Thursday, driven by gains in its domestic personal and business banking unit that offset a blow from higher provisions it set aside for potential bad debts.

Although higher interest rates have slowed demand for bank loans, they have helped to boost income through their lending activities.

The Canadian personal and business banking unit saw earnings jump 10% to C$650 million in the first quarter ended January from a year earlier, helped by higher deposits, loans and improved margins.

Analysts also expect a rebound in revenue from capital markets as deal activity resumes after a long lull.

CIBC's revenue from capital markets rose 5% to C$1.56 billion in the reported quarter, aided by strength in investment banking on strong advisory and debt underwriting activity.

Excluding one-time charges, the country's fifth largest lender reported a profit of C$1.81 a share, above analysts' average estimates of C$1.66, according to LSEG data. Though the lender benefited from higher interest rates, elevated borrowing costs worsened default risks. To safeguard against the risk, CIBC built C$585 million in provisions, up by C$290 million.

Earlier this week, peers Royal Bank of Canada, Bank of Montreal, Bank of Nova Scotia and National Bank of Canada said they built larger provisions to prepare for bad loans and warned that growth would be muted until rates begin to fall.

CIBC also paid a $67 million one-time special assessment fee to replenish the U.S. Federal Deposit Insurance Corporation (FDIC) to fill a $16 billion hole after the collapse of two U.S. regional banks last year. ($1 = 1.3586 Canadian dollars) (Reporting by Mehnaz Yasmin in Bengaluru and Nivedita Balu in Toronto; Editing by Shinjini Ganguli)