UPDATE 2-Russian bank VTB sets aside more cash to cover bad loans
* Q2 provisions 28.7 bln roubles vs forecast 23.4 bln
* Net profit 11.9 bln roubles vs forecast 16 bln
* Percentage of non-performing loans edges up
* Analysts sceptical about full-year profit forecast (Adds comments from conference call, analysts)
By Megan Davies and Oksana Kobzeva
MOSCOW, Sept 12 (Reuters) - Russia's second-biggest bank, VTB, set aside more money than expected to cover potential bad debts in the second quarter, joining rivals in feeling the effects of flagging economic growth.
Russian banks have piled into high-margin consumer lending as demand for corporate credit slowed. But a faltering economy has raised fears that people will struggle to repay their debts, prompting lenders to put aside cash to cover potential defaults.
"I don't see any catastrophic issues (with credit quality in Russia) but we are in a phase of increasing provision costs and nothing we see suggests that it will suddenly get better," said Alfa analyst Jason Hurwitz.
Russia's largest bank, Sberbank, in August also reported higher bad loan provisions, while credit rating agency Moody's said on Thursday slower growth and rising personal debt were weakening Russians' ability to repay loans.
State-controlled VTB said bad debt provisions rose to 28.7 billion roubles ($879.6 million) in the second quarter versus 11.9 billion the same period the previous year. Analysts had on average forecast a provision charge of 23.4 billion roubles.
The bank also posted a second-quarter net profit of 11.9 billion roubles, up from 10.3 billion in the same period of 2012, but below analysts' average forecast of 16 billion and fuelling doubts about its full-year profit goal.
"(The profit guidance for the year) of 100 billion roubles looks far-fetched," Hurwitz said. "The last two years in a row they held onto their optimistic net income guidance for too long and it doesn't look like this time will be any different."
VTB said it saw no reason to revise its profit forecast.
For the last two years, it has forecast profits of more than 100 billion roubles. Last year it reported 90.6 billion and in 2011 it made 90.5 billion.
VTB shares fell around 0.7 percent, underperforming a 0.1 percent decline in Russia's MICEX index.
VTB President and Chairman Andrey Kostin said the bank had responded to slower economic growth by tightening lending policies and strengthening debt collection in retail banking.
Russia's gross domestic product rose by 1.2 percent in the second quarter, year-on-year, down from a growth rate of 1.6 percent in the preceding quarter.
The country's central bank, concerned about a consumer lending bubble, is taking steps to limit rapid growth in risky loans such as forcing banks to maintain more capital against such loans.
VTB said the provision charge for impairment of loans and advances to customers was 1.8 percent of its average loan portfolio in the first half of the year, compared with 1.4 percent in the same period a year ago.
But the bank said it expected the pace of growth in these provisions to slow in the second half of the year.
VTB said non-performing loans - with repayments overdue by more than 90 days - amounted to 325 billion roubles as of June 30, or 5.5 percent of the gross loan portfolio, up from 5.4 percent at the end of December. Of that, about three-quarters were corporate NPLs and one-quarter retail NPLs, the bank said.
Sberbank reported NPLs of 3.2 percent as of the end of June.
VTB bolstered its capital strength through a 102.5 billion roubles offering of new shares in May. The bank said its Tier 1 capital adequacy ratio - a key measure of financial strength - stood at 11 percent as of the end of June, up from 10.2 percent at the end of March.
($1 = 32.8552 Russian roubles) (Editing by Mark Potter)