BNP Paribas , France's biggest listed bank, posted higher-than-expected second-quarter net profit thanks to lower loan provisions and strong retail banking, despite volatile financial market conditions.

The group, which comfortably passed Europe-wide stress tests last month along with rivals Societe Generale and Credit Agricole , said quarterly provisions halved to 1.1 billion euros ($1.4 billion), the lowest level in two years.

The more benign risk environment since the depths of the financial crisis has gradually led to provision write-backs exceeding new provisions at BNP's corporate and investment banking division.

Still, the unit suffered a 30 percent fall in second-quarter revenue because of a slump in capital markets activity that has also weighed on results at Goldman Sachs and Deutsche Bank .

Retail banking had a strong quarter thanks to rising loan demand and deposit growth, BNP said. Lower-than-average household debt levels in France have kept up growth in retail banking across the sector, analysts say, though there are concerns government austerity could brake activity.

Group net profit rose 31 percent year-on-year to 2.1 billion euros, the bank said on Monday, compared with the average forecast in a Reuters poll of 12 analysts of 1.7 billion. Analysts on average expected provisions of 1.5 billion.

BNP's acquisition of assets from crippled Benelux bank Fortis at the peak of the crisis has delivered 402 million euros of synergies so far out of an expected total of 900 million through 2012, faster than expected, the bank added.

Commenting on recent choppy conditions for bank funding, BNP said there had been obvious tension in May but that short-term financing was now very abundant.

Credit market jitters had been part of the motivation behind stress testing Europe's banks, amid concerns they may be undercapitalized following the crisis.

BNP Chief Financial Officer Philippe Bordenave, a black belt in judo, has helped the bank defy market fears and secure nearly three-quarters of 2010 funding by mid-year. BNP issued 1 billion euros in unsecured debt during the quarter.

(Reporting by Lionel Laurent; Editing by James Regan)

BNP Paribas Retail