Vienna  - As the first large Austrian bank to apply for government aid, Erste Group Bank AG said Thursday it will receive 2.7 billion euros (3.5 billion dollars) of public funds to strengthen its capital base.

The percentage of the bank's debts covered by equity through the cash injection will rise to 10 per cent by the end of the year, compared with the previous estimate of 7.5 per cent.

In return for the government help, Erste agreed to provide credit worth 6 billion euros to Austrian commercial and retail customers over the next three years.

At a press conference, chief executive Andreas Treichl denied that his bank was facing any financial troubles, but he said Erste had taken this step to be able to continue lending in a difficult market environment.

"Because of the financial crisis, the market demands higher equity, and banks are expected to have more capital," Treichl said.

Without the 2.7 billion euros, Erste would have to be "extremely restrictive in its credit policy," he said.

The group's banks in Central and Eastern Europe would not need to increase their equity, the manager said, as they were adequately capitalised.

Earlier this month, the bank lowered its profit forecast for 2008 to last year's result of 1.17 billion euros, down from an earlier prediction of a 20-per-cent increase.

After Erste shares lost 62 per cent of their value since the start of 2008, they gained more than 16 percent Thursday.

The bank also announced that its net profit rose to 826.4 million euros in the third quarter, increasing from 271.9 million euros in the same period last year, due to the sale of its insurance business.

Not taking into account this sale, net profit decreased by 29.9 per cent to 225.1 million euros, as risk provisions more than doubled, and results from trading and financial assets were in the red.

Supported by credit growth in Central and Eastern Europe, Erste's net interest income rose to 1.27 billion euros, 28.5 per cent higher than in the third quarter of 2007. (dpa)