UPDATE 2-Erste Group resumes M&A hunt as markets recover

* First-quarter net income 10% above consensus

* Resumes M&A search as pandemic effects ease

* Confirms 2021 outlook (Adds details, CEO comments from call)

April 30 (Reuters) - Austria’s largest bank Erste Group said it was actively looking again for acquisition targets as a recovery in central and eastern Europe economies allowed it to reduce risk provisions and free up cash.

Erste, which operates in eastern Europe and its home market of Austria, had started looking for smaller companies to snap up in its existing regions and in Poland just before the coronavirus crisis forced it to multiply provisions for loan losses.

Most countries in which it operates in have recorded declines in infection rates throughout April.

“We firmly believe 2021 will be a year of recovery in which corona will still play a role, but hopefully not dominate economies,” Chief Executive Bernd Spalt told a conference call after reporting better-than-expected first-quarter profit on Friday.

The bank reported net profit up 50% to 335 million euros ($405.85 million), above a consensus analyst forecast of 305 million euros, thanks to the release of provisions for loans in Austria and Romania and the recovery of loans already written off in Hungary and Austria.

It also recorded higher deposit inflows, growth in housing loans and demand for long-term security savings plans across all markets.

Those positive developments should continue throughout the year as flagged in Erste’s guidance from Feb. 26, the bank said.

At the same time, the group’s strong capital allows it to continue distributing dividends and resume plans for possible acquisitions, Spalt said.

“This is not a theoretical exercise. We are having very close looks at acquisition opportunities in our markets that fit our strategy,” the CEO said.

He gave Sberbank Europe and Commerzbank’s divestitures in central and eastern Europe as examples of targets that meet its criteria - even if they are not possibilities that will necessarily materialise.

$1 = 0.8254 euros Reporting by Zuzanna Szymanska in Gdansk; Editing by Tomasz Janowski and Elaine Hardcastle