UPDATE 1-Komercni Banka quarterly profit misses estimates as provisions rise

* Q3 net below average estimate, provisions up

* Bank sees risk costs up this year before falling in 2021

* Czech economy recovery sidetracked by 2nd pandemic wave

* Management unveils 2025 strategy to boost growth post-crisis (Adds cost of risk, revenue outlook, 2025 strategy aims, dividend)

PRAGUE, Nov 5 (Reuters) - Czech lender Komercni Banka reported a larger-than-expected 57% drop in third-quarter net profit on Thursday as bad loan provisions grew amid the coronavirus pandemic.

With the Czech Republic facing a second wave of the pandemic that is sidetracking the economy’s recovery, the bank largely maintained its earnings outlook for 2020.

Komercni Banka, the country’s third biggest lender and majority owned by France’s Societe Generale, also laid out a new strategy to increase revenue and digital banking services after the crisis passes, including through potential acquisitions.

Shares underperformed a volatile market, erasing earlier losses to trade up 0.6% in Prague by late afternoon.

Third-quarter net attributable profit fell to 1.65 billion crowns ($72.18 million), below the average estimate of 1.96 billion in a Reuters poll.

Banking income fell in line to 7.26 billion crowns, with net interest income rising quarter-on-quarter but down 11.2% year-on-year after central bank rate cuts this year.

Cost of risk, reflecting provisioning against losses from loans and investments, reached 1.68 billion crowns in the third quarter, versus 26 million crowns a year earlier. It saw cost of risk easing in 2021 after a 2020 rise.

The bank said it expected lending to grow at a mid-single digit pace in 2020 while banking income should see a “high single-digit” drop this year.

Under a new 2025 strategy to increase business volumes and digital sales, it aimed for “dynamic” revenue growth by 2025 after bottoming out in 2021 and to boost client numbers by a fifth. It is targeting 15% return on equity.

On dividends, which the central bank has recommended against for now, Komercni Banka said discussions were continuing and added in a stress scenario it would be able to pay at least part of 2019 and also 2020 profit. ($1 = 22.8610 Czech crowns) (Reporting by Jason Hovet; Editing by Edmund Blair and Steve Orlofsky)