(Adds quotes, background)
ATHENS, May 26 (Reuters) - Piraeus Bank, Greece's biggest bank by assets, expects to return to profit this year, as well as a big drop in its non-performing loans, Chairman Michael Sallas told reporters.
"(We anticipate) several hundreds of millions in profitability this year, based on current data, and there will be a considerable decline in NPLs," Sallas said on the sidelines of the bank's annual general meeting in Athens.
The bank on Wednesday reported a loss of 37 million euros($41.37 million) for the first quarter of 2016, significantly smaller than the 1.24 billion loss it reported for the last quarter of 2015.
Greek banks still have lots of problem loans on their books following the country's deep recession. More than 40 percent of the sector's loans are non-performing. The banks also still depend heavily on central bank funding.
Piraeus aims to reduce its stock of non-performing loans, which stood at 39.8 percent of its loan book at the end of the first quarter. "The peak of non-performing loans is definitively behind us," Sallas said.
Piraeus Bank expects the Greek economy to recover in 2017, when growth is forecast to exceed 2 percent. Sallas said this year, the country's economic performance is likely to be flat or contract by 0.5 percent.
Sallas told the bank's shareholders that the European Central Bank was expected to resume accepting Greek government bonds as collateral for lending money to banks after the completion of the country's first bailout review earlier this week.
The ECB stopped accepting Greek government bonds in early 2015, cutting a cheap lending lifeline for Greek banks and forcing them to borrow billions of euros from the domestic central bank's emergency liquidity assistance window to cover their funding gaps.
"The reinstatement of the waiver, will help reduce banks' dependence on emergency liquidity assistance and support profitability. The banking sector's path towards profit will be strengthened," he said.
$1 = 0.8943 euros Reporting By George Georgiopoulos. Editing by Jane Merriman