Piraeus, which is 26.2 percent owned by Greece's bank rescue fund HFSF after its recapitalisation late last year, reported a loss of 37 million euros (27.86 million pounds) after a net loss of 1.24 billion euros in the last quarter of 2015.

Greek banks still carry large problem loan portfolios after a deep, protracted recession pushed unemployment to record highs, making it hard for borrowers to service their debts.

More than 40 percent of the sector's loans are non-performing, making the reduction of bad loan stock the biggest swing factor for Greek lenders as they continue to provision for impaired credit.

Banks are also grappling with funding gaps after deposit flight last year that led to capital controls in June. They still depend on central bank funding to plug the hole.

"The group's target to be profitable in 2016 remains on track and we believe it is achievable," Chief Executive Stavros Lekkakos said in a statement.

Piraeus, with a current market value of 2.6 billion euros, said loan-loss provisions fell 79 percent quarter-on-quarter to 289 million euros in January-to-March from 1.38 billion in the fourth quarter.

The group's non-performing credit -- loans in arrears more than 90 days -- edged up to 39.8 percent of its loan book at the end of March from 39.5 percent in the fourth quarter.

Provisioning increased the coverage ratio of loans in arrears for more than 90 days to 66 percent from 65 percent in December.

Piraeus said group deposits fell by 3.0 percent to 37.9 billion euros in the first quarter, mainly in Greece. Net interest income grew 3 percent from the previous quarter, helped by the downward trend in the cost of deposits and reduced borrowing from the Greek central bank.

The bank reduced its borrowing from the ECB and the Bank of Greece to 30.4 billion euros from 32.7 billion in December. Of this, 16.1 billion euros was funding from the Greek central bank's emergency window.

(Reporting by George Georgiopoulos; Editing by Ruth Pitchford)

By George Georgiopoulos