UPDATE 1-Bank of Cyprus reports Q1 profit of 31 mln euros

* Cypriot bank makes first profit in seven quarters

* Bank of Cyprus recapitalised on deposits last year

* Bank says less skipping on loan payments (Adds detail)

NICOSIA, May 30 (Reuters) - Bank of Cyprus, which recapitalised by seizing some depositors’ funds last year, reported its first profit in seven quarters on Friday, saying it was on track on deleveraging and improving the quality of its loan portfolio.

First-quarter profit after tax was 31 million euros ($42 million) after a 103 million loss in the last quarter of 2013.

Profit after tax and before restructuring costs and discontinued operations came in at 72 million euros compared with a 38 million euro loss in the last quarter of last year.

“These figures demonstrate we are beginning to make evident and tangible progress,” John Hourican, a former RBS senior executive appointed Chief Executive Officer at the bank after its near-meltdown last year, said at a results presentation.

Bank of Cyprus recapitalised by converting large deposits into equity, affecting many wealthy individuals, particularly Russians.

It was also forced to assume assets of now-defunct Laiki Bank and launched extensive deleveraging from non-core markets, bringing its core tier 1 capital ratio - an indicator of financial strength - to 10.6 percent.

In the second quarter of this year it disposed of its Ukrainian operations, an investment in Romania and loans in Serbia, reducing its risk profile and improving its core equity by a further 0.3 percentage points, the bank said.

For the first time in 16 quarters there was a quarterly decline in loans in arrears for more than 90 days, but Hourican said more needed to be done by Cypriot authorities to cut the problem loan book, calling for legislative changes.

The bank said it was also too early to say whether a slowdown on people failing to repay loans was a sustainable trend.

Bank of Cyprus has appointed HSBC to act as advisors to review and advise on its restructuring process. Hourican said the process was ongoing, and declined to be specific on any possible recommendations.

Asked to comment on local reports the bank was considering a capital increase ahead of European stress tests, and to a report on Britain’s Sky News that a listing on the London Stock Exchange was also among potential options, he said:

“It is no secret the bank has appointed HSBC to review the options and structure,” Hourican said. “As part of that exercise they are reviewing all options including funding and capital base.”

At the “appropriate time” the bank would inform the broader public, he said. (Reporting by Michele Kambas; Editing by Ruth Pitchford and Susan Thomas)