UPDATE 3-Erste trims outlook as lending stays flat

* Says to "maintain strong operating performance"

* Q2 net profit 235.7 mln eur vs 266 mln in Reuters poll

* Bad loan provisions expected to come down in H2

(Adds detail from news conference)

By Sylvia Westall

VIENNA, July 29 (Reuters) - Austria's Erste Group Bank AG lowered its full-year outlook on Friday as bad loans remained high in Hungary and Romania and as lending growth stagnated.

Emerging Europe's No. 2 lender by assets said it expected to match last year's second-half performance through the rest of this year, a less positive outlook than it gave in April when it said it was confident it would be able to raise profitability significantly in 2011.

Erste hopes to make some 4 billion euros ($5.7 billion) in operating income this year, similar to what it earned a year before.

Chief Executive Andreas Treichl said the earlier forecast for loan growth in 2011 had been too optimistic. The bank still expected a rise, but not mid-single digit growth.

Loan growth was 1 percent in the first six months of 2011.

"If there is one lending category where we have not seen any growth, it is consumer lending. It remains a hope that it will restart. We have ... the ingredients that usually trigger growth in consumer lending," he told analysts in a call.

"This is a very, very psychological thing, and it very much depends on the people actually believing in the fact that they will maintain their jobs ... that the economy is doing well, that the politicians are doing their job."

Consumer sentiment across the euro zone fell in June as the economy slowed after a strong start to 2011.

Erste said the Swiss franc's rise against the euro was not helping matters as many people in emerging Europe hold loans in the currency, which is at record levels.

GREEK QUESTION MARK

Erste's net profit rose 8.8 percent to 235.7 million euros in the second quarter, less than analysts polled by Reuters had been expecting.

The results came after Deutsche Bank (DBKGn.DE) and Credit Suisse suffered weak trading.

The Vienna-based group said risk provisions would remain elevated in Romania and would rise in Hungary, where its businesses suffered losses in the first six months.

Risk provisions should decline by 10-20 percent in all of Erste's other markets, it said.

The stock was down 1.3 percent at 32.90 euros by 11.41 GMT, in line with the STOXX Europe 600 banking index .

Although Erste had missed estimates, the longer-term outlook is good because of its exposure to fast-growing markets, Pedro Fonseca at Berenberg Bank said.

"The miss was driven by greater losses on the securities portfolio than we forecast, but this is a volatile revenue line," he wrote in a note to clients.

Erste said it was looking over the potential consequences of taking part in the bailout of debt-laden Greece agreed by euro zone leaders last week.

Its net Greek exposure at the end of June was 207 million euros. It had reduced overall exposure to Portugal, Italy, Ireland, Greece and Spain to 4.5 billion euros from 5.3 billion in the first half.

"We will make a decision once we feel really confident that whatever we are presenting is going to be the final package," Treichl said.

"Whether it is 21 percent or what others say -- 34 percent -- we just want to have clarity before we take a decision."

He also said Erste would repay the 1.2 billion euros state aid this year without crimping growth in its core regions. This would leave it with a core tier 1 capital ratio of 8 percent.

Treichl added there was less market pressure to raise capital. Only an acquisition might make this necessary and this was not on the horizon. (Editing by Erica Billingham and Will Waterman) ($1=.6963 Euro)