UPDATE 1-Volksbanken posts 57 mln euro Q1 loss, sees big 2014 loss
* Q1 group loss 57 mln euro vs 3.7 mln profit year ago
* Sees "significant" loss for 2014
* Says Sberbank drops lawsuit over VBI purchase (Adds details and background)
VIENNA, May 12 (Reuters) - Part-nationalised Austrian lender Volksbanken AG swung to a first-quarter group loss of 57 million euros ($78.4 million) as it presses ahead with radical restructuring plan ordered by the European Union, it said on Monday.
Volksbanken, one of six Austrian banks to come under direct supervision of the European Central Bank late this year, said it expected a "significant" loss for 2014 but was not more specific. It has earlier projected losses in 2015 as well.
Volksbanken said Russia's Sberbank had withdrawn a lawsuit filed with an arbitration court over its 2012 purchase of Volksbanken's VBI eastern European arm. Sberbank paid 505 million euros for VBI but complained later about the quality of the assets it had bought.
Austria became Volksbanken's second-biggest shareholder with a stake of 43 percent in 2012 and has so far ploughed 1.35 billion euros of state aid into the bank to keep it afloat.
Volksbanken has enough capital to pass a European-wide health check this year without needing more state aid, it said last month.
Getting Volksbanken - which failed a similar test in 2011 - back onto solid ground would be a relief for Austria's government as it grapples with another nationalised bank, Hypo Alpe Adria, whose chronic need for capital will sharply inflate state debt and the budget deficit this year.
Volksbanken has said it may use bonds issued by its regional savings bank owners to help fill any capital gap that emerges.
The group has more than halved its total assets from 41.1 billion euros in 2011 to 20.1 billion at the end of the first quarter. It did not give capital adequacy ratios for the period.
Including its regional bank owners, its overall equity ratio had stood at 14.6 percent at the end of last year. Austria's FMA market watchdog has set a target of a 13.6 percent overall equity ratio for the wider group.
Volksbanken has said its equity ratio would fall in years ahead as it repays 300 million euros in state capital and takes a hit from applying Basel III rules. It also faces "substantial" risks from winding down its remaining portfolio.
The lender said talks for selling units of its VB Leasing International businesses this year hinged on further negotiations and regulatory approvals. It must also sell its 51 percent stake in its Romanian banking business next year.
($1 = 0.7270 Euros) (Reporting by Michael Shields, editing by David Evans)
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