* Q2 net profit rises 4.5 pct, analysts expected decline
* Reduction in provisioning boosted results
* Still sees slower loan growth, dip in FY profit, revenue
* Shares outperform wider market (Adds CFO on outlook, details, shares)
By Jan Strouhal
PRAGUE, Aug 1 Komercni Banka, the Czech Republic's third-biggest bank by assets, posted a surprise 4.5 percent year-on-year rise in second-quarter net profit thanks to a sharp drop in loan-loss provisions.
The bank's attributable net profit was 3.31 billion crowns ($160.31 million), defying expectations for a profit fall in the quarter thanks to a decrease in provisions for corporate clients following the release of "a few large exposures".
The average estimate in a Reuters poll was 3.01 billion.
The better result lifted the bank's shares by 1 percent in Prague before they gave back gains to trade flat at 0935 GMT. The wider market was down 1 percent.
The bank, 60.4 percent owned by France's Societe Generale , continued to sound a cautious note on the rest of the year as it faces record low interest rates and a slower than expected pick-up in loan growth despite a strengthening recovery from a record-long recession that ended last year.
Chief Financial Officer Libor Lofler said the loan portfolio would expand by around 3 percent this year, at the weaker end of its previous forecast range for 3-5 percent growth.
Revenue is seen falling by 2 percent in 2014 while net profit should dip around 1.5 percent this year, he said, in line with a forecast of up to a 2 percent profit decline the bank made in March.
"We are seeing some signals that demand driven by the economy recovering is coming," he said. "I expect this year (loan growth of) roughly 3 percent, maybe 3 percent plus."
Komercni Banka said the volume of loans increased by 3.5 percent in the first half. Net banking income was down 4 percent year-on-year to 7.59 billion crowns, in line with expectations.
A steep reduction in the cost of risk, reflecting provisions against losses from loans and investments, boosted second-quarter results. Provisioning fell to 262 million crowns, from 494 million a year ago and was about half of what analysts expected.
The Czech central bank left its policy rates on hold near zero on Thursday and said it would keep the crown weak into 2016, delaying a planned end to foreign exchange interventions that help keep monetary policy loose amid a lack of inflationary pressures.
"The financial environment in the first half of the year was more difficult than we had expected," Komercni Banka Chief Executive Officer Albert Le Dirac'h said.
"This was due most of all to a further decline in interest rates and delayed recovery in corporates' demand for loans."
($1 = 20.6470 Czech Crowns) (Additional reporting by Jason Hovet; Editing by Jane Merriman and Mark Potter)