Retail focus helps to shield Lloyds from banking chill

* Lloyds avoids pain of banking sector

* Retail focus helps to provide protection

* Sale of government shares seen resuming this year (Adds shares, analyst comment)

By Andrew MacAskill and Lawrence White

LONDON, April 28 (Reuters) - Lloyds Banking Group (Other OTC: LLOBF - news) bucked the downward trend among major British lenders on Thursday, maintaining flat first quarter revenue and cutting bad debts despite a tough economic environment.

Lloyds, Britain's largest mortgage lender, reported underlying pre-tax profit of 2.1 billion pounds ($3.05 billion) in the first quarter of this year, compared with a profit of 2.19 billion pounds a year earlier.

That was in line with the 1.99 billion pound average estimate of three analysts surveyed by Reuters.

Chief Executive Officer Antonio Horta-Osório is eliminating thousands of jobs to streamline the business and support a progressive dividend policy, in the final phase of a recovery plan following a 20.5 billion pound taxpayer-funded bailout during the 2007-09 financial crisis.

Lloyds' performance was better than Standard Chartered (HKSE: 2888.HK - news) and Barclays (LSE: BARC.L - news) , where quarterly revenue fell in their large investment banking operations because of a weak global market environment. Lloyds is relatively insulated because of its greater reliance on retail customers.

"Overall, these represent a solid if unexciting set of results, which is not necessarily a bad thing for a bank," said Gary Greenwood, an analyst at Shore Capital.

Lloyds shares fell 2.9 percent to 67.2 pence by 1130 GMT, as some analysts questioned whether the bank would be able to boost revenue against the backdrop of a slowing British economy.

"The bank insurance contribution and retail fee income was notably soft," said Ian Gordon, an analyst at Investec (LSE: INVP.L - news) .

Finance Minister George Osborne is looking to sell the last remaining government-held shares in Lloyds over the next year after a discounted sale to the general public was postponed earlier this year due to turmoil in global financial markets.

Banking and political sources expect the sale of Lloyds' shares to resume after the British referendum on membership of the European Union in June, concluding with a larger offer to retail investors.

The state has reduced its holding from 43 percent to less than 10 percent, raising over 16 billion pounds.

PROVISIONS

Britain's largest retail bank said total income fell 1 percent to 4.4 billion pounds, as higher revenue from its retail bank were offset by lower income in its insurance division.

Impairments dropped 6 percent to 149 million pounds.

"These results demonstrate the strength of our differentiated, simple, low risk business model and reflect our ability to actively respond to the challenging operating environment," Horta-Osório said in the statement.

Lloyds did not provision any money to repay customers mis-sold loan insurance this quarter, an indication that a scandal that has plagued the bank and sharply reduced profits over recent years is starting to recede.

The bank has been forced to set aside about 16 billion pounds since the financial crisis to repay customers who took out policies to protect borrowers against sickness or redundancy, but were often ineligible to claim. ($1 = 0.6874 pounds)

(Editing by Keith Weir)