(Updates with CEO comments, details)
By Maya Nikolaeva
PARIS, Feb 15 (Reuters) - Credit Agricole CAGR.PA , France's biggest retail bank, beat forecasts with a smaller than expected earnings drop in the fourth quarter after it booked a writedown on the value of its French retail unit, blaming a low interest rate environment.
Credit Agricole is the last in a row of France's biggest banks to report about a challenging year for the retail business, which has struggled with massive renegotiations of mortgage loans and declining product fee income.
Credit Agricole's retail unit LCL had a 6 percent decrease in 2016 underlying revenue, while French retail revenue was down 3 percent at domestic rivals BNP Paribas BNPP.PA and 3.5 percent lower at Societe Generale SOGN.PA .
Nevertheless, Credit Agricole's chief executive Philippe Brassac sought to defend the business line.
"Contrary to the image that has spread, there is nothing specific to LCL when compared to retail (banking) in France," Brassac told journalists.
Brassac added that efforts made by the bank to maintain and develop its customer base in a highly competitive environment would pay off in coming quarters, especially given the very slow but gradual rise in interest rates.
LCL's revenue fell 1.1 percent over the fourth quarter, performing slightly better than its peers over the same period, while cost cuts helped drive net income up 35 percent to 160 million euros for the unit.
A wide range of business lines in which the French bank operates, such as asset management, specialised financing and trading, helped it soften the blow from those pressures on its traditional retail banking arm that are set to linger in 2017.
Overall, Credit Agricole's fourth-quarter net income fell to 291 million euros versus 882 million a year ago. This beat the average of analyst estimates of 254 million in a Reuters poll.
Credit Agricole completed a major overhaul of its multi-layer ownership structure last year that put more capital in the listed arm of the business, allowing it to reassure investors over all-cash dividends.
It has been focusing on its two key markets, France and Italy, and has been limiting its foreign expansion to its asset management arm Amundi AMUN.PA , which is buying rival Pioneer Investments from UniCredit CRDI.MI . Agricole Group, the parent of the listed entity, said that as part of the rights issue made by Amundi to finance the Pioneer acquisition, it had decided to reduce its holding in the asset manager to 70 percent from 75.7 percent.
Credit Agricole's asset gathering unit, that includes asset management, insurance and wealth management, reported a 35 percent rise in net income over the fourth quarter, while net profits more than doubled at its investment banking arm.
Overall, group revenues rose 7 percent to 4.58 billion euros, above the poll average of 4.36 billion.
($1 = 0.9454 euros)