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UPDATE 1-Russia's VTB posts 16% fall in first quarter profit

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MOSCOW, May 30 (Reuters) - Russia's second-largest lender VTB's net profit fell 16% in the first quarter, hit by a drop in net interest and operating incomes, the bank said on Thursday.

State-owned VTB reported profit of 46.5 billion roubles ($714.83 million) over the January-March period compared with 55.5 billion roubles in the same period a year ago.

The bank's net interest income declined 10% to 104.2 billion roubles, while operating income before provisions slid 10% to 137 billion roubles.

VTB's shares underperformed the broader market after the earnings report by falling 0.2% on the day at 0902 GMT, when the benchmark MOEX index was up 0.6%.

Despite the annual decline in net profit for the second quarter in a row, VTB president and chairman Andrey Kostin said he was confident the bank would hit full-year forecasts.

VTB, which has been under Western sanctions since 2014 because of Moscow's role in the Ukrainian crisis, approved a new strategy for 2019-2022 in April, aiming for a sharp rise in profit and to increase assets by at least 7% each year.

"VTB's core business remains strong: we brought staff costs and administrative expenses down by 3.8% year-on-year, and our retail business continues to outperform the market both in loans and deposits, with VTB further strengthening its market shares during the quarter," Kostin said in the report.

VTB also said its provision charges against impairment of debt and other credit-related commitments declined in the first quarter to 15.2 billion roubles from 20.7 billion a year ago.

Looking forward, VTB has no need for additional provisioning against bad loans after it set aside 50 billion roubles last year at the central bank's request, a senior bank executive told Reuters this month.

($1 = 65.0505 roubles) (Reporting by Andrey Ostroukh and Tatiana Voronova Additional reporting by Maxim Rodionov and Tom Balmforth; editing by Deepa Babington)