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UPDATE 1-Monte Paschi looks to leave "emergency room" and return to profit

* Monte dei Paschi sets profit target for 2021

* Jobs and branches to go as part of restructure

* EU approves state bail-out as Italy tackles banking crisis (Adds details, quotes from conference call, Constancio in paper)

MILAN, July 5 (Reuters) - Italian bank Monte dei Paschi di Siena set out plans to get out of the "emergency room" and return to profit, clearing the way for a state bailout that should remove the biggest threat to the country's financial stability.

The world's oldest bank said on Wednesday it expected to post a net profit of more than 1.2 billion euros ($1.4 billion) in 2021 as part of a restructuring plan approved by European authorities.

Last year it reported a net loss of 3.24 billion euros.

"It's a conservative plan. We're not shooting at unrealistic targets," Chief Executive Marco Morelli told analysts on a conference call to present the new plan.

Morelli said no mergers were planned at the moment. "There is no Plan B on the table," he said.

Burdened by bad loans and a mismanagement scandal, Monte dei Paschi has been for years at the forefront of Italy's slow-brewing banking crisis.

It was forced to request state aid in December after its attempt to raise capital from private investors failed.

On Tuesday the European Union approved a 5.4 billion euro state bailout of Italy's fourth-largest lender after the bank agreed to a drastic overhaul in a move that will leave Rome holding around 70 percent of the bank.

"What we experienced in the last nine months is pretty much unheard of: It's like an ER department with an emergency every five minutes," Morelli said.

Italy has pledged more than 20 billion euros of taxpayer money in the space of a week to rescue three of its banks, but the country's wider financial sector is still weighed down by around 300 billion euros of non-performing loans (NPLs).

PATH TO PROFIT

In its 2017-2021 plan, Monte dei Paschi sees a return on equity of more than 10 percent in 2021, a headcount reduction of around 5,500 and a fall in the number of branches to around 1,400 from some 2,000 in 2016 as it seeks to ensure the lender is profitable in the long term.

The bank will sell 28.6 billion euros of gross bad loans, of which 26.1 billion euros will be securitised through a transfer to a privately funded special vehicle on market terms, with the operation partially funded by bank rescue fund Atlante II.

Its CET1 ratio, a measure of financial strength, is expected to be at 14.7 percent in 2021, it added.

Morelli said 5.5 billion euros in deposits were recovered in the first quarter, adding "liquidity is not an issue any more."

Policymakers now want Italy to come up with a solution for tackling NPLs without requiring any more government money to prop up its beleaguered banking sector.

European Central Bank vice president Vitor Constancio said on Wednesday there needed to be swift action to establish a stronger secondary market in Europe for non-performing loans and policy changes to incentivise banks, investors and the authorities to tackle the issue more effectively.

"Partial solutions and further delays are not options if we want to tackle the problem of NPLs" he wrote in Italy's main business newspaper Il Sole 24 Ore. ($1 = 0.8807 euros) (Reporting by Stephen Jewkes and Agnieszka Flak; Editing by Susan Fenton/Keith Weir)