* Q1 net profit 260.6 mln eur vs Reuters poll avg 273 mln
* Risk costs down 13 pct to 460.1 mln vs poll avg 445 mln
* Poised to repay 1.2 bln euros in Austrian state capital
* Core Tier 1 excl hybrid, participation capital 8.0 pct
* Shares fall 2.1 percent, lagging firmer sector
(Adds comments from conference call, updates shares)
By Michael Shields
VIENNA, April 28 Erste Group Bank (ERST.VI) stuck to its forecast of sharply higher 2011 profit, even though first-quarter results missed analysts' forecasts as net interest income and commissions lagged expectations.
Emerging Europe's No.2 lender by assets said stronger economies in the Czech Republic, Slovakia and Austria would offset its performance in Romania and Hungary, which were not expected to show meaningful improvements before the second half.
First-quarter net profit edged up 2.1 percent to 260.2 million euros ($382.3 million). Risk costs fell 13.4 percent as the region's economy picked up in a patchy way but were still a bit higher than the market had expected.
Shares in Erste fell 2.1 percent by 0905 GMT, lagging the STOXX Europe 600 banking index .SX7P which was up 0.3 percent, as some investors doubted its bullish outlook.
"The full-year estimates strike me as rather ambitious," said UBS analyst Daniele Brupacher, noting the bank was struggling in Hungary, where the group lost 31.8 million euros in the first quarter after paying a special bank levy.
UniCredit analysts said they now expected a slight downward revision in consensus earnings estimates.
"We remain buyers of the shares as the key investment story remains unchanged and the recent share price weakness offers a good entry point in our view," they said in a note to clients.
The market expects Erste to post a net profit of 1.269 billion euros this year, according to I/B/E/S estimates.
Erste's results came as Spanish group Santander (SAN.MC) flagged a turning point for its struggling domestic business and Deutsche Bank (DBKGn.DE) beat forecasts with net profit at a near-record level. [ID:nLDE73Q1RH] [ID:nLDE73R04T]
DOWNBEAT ON HUNGARY
Erste took a more pessimistic tone on Hungary, where Chief Risk Officer Bernhard Spalt said risk costs would rise this year and non-performing loan rates would peak only next year.
Erste said risk costs would remain elevated in Romania as well this year but fall by 10 to 20 percent elsewhere.
Chief Executive Andreas Treichl said Erste would not quit Hungary despite the tough conditions there, adding: "if we had a chance to increase our deposit base in Hungary we would go for it. It is an interesting market (and) it will remain an interesting market."
Despite a "temporarily weaker operating result", Erste remained placed to repay state capital it got during the financial crisis without having to raise equity, Treichl added, expecting "significant earnings growth in 2011".
Austria's central bank said this month the country's top lenders were undercapitalised versus peers operating in the region, but Treichl insisted that Erste was as well placed as any rivals given its levels of capital and liquidity.
Excluding hybrid and participation capital, the group's core tier 1 capital ratio stood at 8 percent, it said
Treichl said Erste could repay 1.2 billion euros in non-voting state capital at any time, having filed an application for this with the Austrian government.
"Our view on (repaying) the participation capital hasn't changed at all. When we get the go-ahead and we see things are clear we are going to redeem it," he said.
It intended to pay back the state capital in one chunk but hold on to an additional 540 million euros of participation capital it had placed with private investors, he said.
Erste trades at 10 times 12-month forward earnings, compared with 7.6 times for Austrian peer Raiffeisen Bank International (RBIV.VI) and emerging Europe market leader UniCredit (CRDI.MI) on 9.4 times, according to Thomson Reuters StarMine, which weights analysts' estimates by their previous accuracy. (Editing by Sophie Walker and Jon Loades-Carter)