PREVIEW-Retail to boost C.Agricole profit, Greece weighs

* Q2 results due Thursday, Aug. 26

* Qroup net profit seen up 39 percent

* Emporiki writedown to drag on earnings growth

* Fears of Basel III impact likely to be in focus

By Lionel Laurent and Matthieu Protard

PARIS, Aug 20 (Reuters) - French bank Credit Agricole (CAGR.PA), bearing the scars of struggling Greek unit Emporiki, was expected to post a 39 percent rise in second-quarter net profit next week, driven by domestic retail operations.

Credit Agricole's relatively high exposure to the debt-ridden Greek economy has hit its shares, and the bank has said it will book a 400 million euro ($512 million) writedown on Emporiki in the quarter as it fights to turn it around.

The bank is, however, seen benefiting from strong retail operations at home and a lighter impact from corporate and investment banking loan provisions as part of a more benign market environment since the financial crisis.

"Obviously Emporiki and Greece is an issue, but I don't think it will get much worse," MF Global analyst Shailesh Raikundlia said. "We have already factored in quite heavy provisions for Greece."

Credit Agricole was expected to post attributable net profit of 280 million euros next Thursday, a Reuters poll found. Second-quarter revenue was seen up 9.6 percent, with loan provisions seen down slightly at 1.1 billion euros.

Its shares are down close to a fifth in value so far this year, compared with a fall of 5 percent on the STOXX Europe 600 banks index .SX7P.

The bank has cut down on risky market activities and sold assets since the crisis, and the recent appointment of Credit Agricole veteran Jean-Paul Chifflet as chief executive and rural mayor Jean-Marie Sander as chairman was seen by some as a symbolic return to roots in agriculture and cooperative lending.

The impact of volatile financial markets in the second quarter was therefore likely to be softer than for larger rivals BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA), which are more focused on investment banking.

Credit Agricole will not, however, be sheltered from the potential future impact of austerity measures in France on retail banking. Low household debt levels have helped drive retail growth in the wake of the 2009 recession, but government spending cuts could put on the brakes.

BASEL FEARS

The impact of looming capital requirements known as "Basel III" will also be in focus next Thursday, as Credit Agricole is seen by some analysts as short of cash under proposed rules.

Although Credit Agricole comfortably passed EU stress tests recently, along with BNP, SocGen and Natixis (CNAT.PA) parent BPCE, the tests did not take into account new Basel rules that will only be fully agreed later this year.

Recently watered-down proposals from the Basel committee in charge of setting the rules would lessen the expected impact on Credit Agricole but not completely erase it, analysts said, especially if the bank was not allowed to count most of its sizeable Insurance division's capital as Tier 1 capital.

Uncertainty has also lingered over how the rules will treat cross-shareholdings between Credit Agricole and regional banks that are its 55 percent owners.

Credit Agricole was not expected to outline its strategy in the face of fragile economic recovery until later this year, but may elaborate on potential solutions to Basel constraints. One could be to release capital from the insurance division by taking on more leverage, analysts said.

As economic fears dominate the minds of politicians and regulators alike, the urge to go easy on the European banking sector is growing.

Unlike in the United States, banks account for more than two thirds of financing in the European economy, a fact unlikely to be forgotten as the Basel committee enters final talks. (Editing by Dan Lalor) ($1 = 0.7806 euro)