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* 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 bucked the downward trend among major British lenders onThursday, maintaining flat first quarter revenue and cutting baddebts despite a tough economic environment.
Lloyds, Britain's largest mortgage lender, reportedunderlying pre-tax profit of 2.1 billion pounds ($3.05 billion)in the first quarter of this year, compared with a profit of2.19 billion pounds a year earlier.
That was in line with the 1.99 billion pound averageestimate of three analysts surveyed by Reuters.
Chief Executive Officer Antonio Horta-Osório is eliminatingthousands of jobs to streamline the business and support aprogressive dividend policy, in the final phase of a recoveryplan following a 20.5 billion pound taxpayer-funded bailoutduring the 2007-09 financial crisis.
Lloyds' performance was better than Standard Chartered and Barclays, where quarterly revenue fell intheir large investment banking operations because of a weakglobal market environment. Lloyds is relatively insulatedbecause of its greater reliance on retail customers.
"Overall, these represent a solid if unexciting set ofresults, which is not necessarily a bad thing for a bank," saidGary Greenwood, an analyst at Shore Capital.
Lloyds shares fell 2.9 percent to 67.2 pence by 1130 GMT, assome analysts questioned whether the bank would be able to boostrevenue against the backdrop of a slowing British economy.
"The bank insurance contribution and retail fee income wasnotably soft," said Ian Gordon, an analyst at Investec.
Finance Minister George Osborne is looking to sell the lastremaining government-held shares in Lloyds over the next yearafter a discounted sale to the general public was postponedearlier 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 ofthe European Union in June, concluding with a larger offer toretail investors.
The state has reduced its holding from 43 percent to lessthan 10 percent, raising over 16 billion pounds.
PROVISIONS
Britain's largest retail bank said total income fell 1percent to 4.4 billion pounds, as higher revenue from its retailbank were offset by lower income in its insurance division.
Impairments dropped 6 percent to 149 million pounds.
"These results demonstrate the strength of ourdifferentiated, simple, low risk business model and reflect ourability to actively respond to the challenging operatingenvironment," Horta-Osório said in the statement.
Lloyds did not provision any money to repay customersmis-sold loan insurance this quarter, an indication that ascandal that has plagued the bank and sharply reduced profitsover recent years is starting to recede.
The bank has been forced to set aside about 16 billionpounds since the financial crisis to repay customers who tookout policies to protect borrowers against sickness orredundancy, but were often ineligible to claim. ($1 = 0.6874 pounds)
(Editing by Keith Weir)
