UPDATE 2-Raiffeisen shares drop after raised bad debt estimate
* Sees net provisions at 1.1-1.2 billion euros
* Had earlier seen net provisions flat at just over 1 bln
* Shares fall as much as 7.3 pct (Recasts with market reaction)
By Michael Shields
VIENNA, Sept 16 (Reuters) - Raiffeisen Bank International shares dropped on Monday after emerging Europe's second-biggest lender raised its forecast for bad loan provisions by as much as a fifth, heightening concern about its emerging markets exposure.
"This is a profit warning in our view," Berenberg Bank analyst Eleni Papoula told clients, keeping her "sell" rating and 12 euro share price target - half the current level - on expectations of a dilutive share issue from the lender.
Papoula recalled that Raiffeisen had also revised down its 2012 guidance in late January, adding: "Two profit warnings in 10 months is hurting management's credibility."
The market punishment is a test for new Chief Executive Karl Sevelda, who took over the helm of the Austrian bank in June after Herbert Stepic resigned over his personal investments.
The larger-than-life Stepic, who forged Raiffeisen into an emerging markets powerhouse, said he had stepped down to spare his bank from damaging publicity, but his abrupt departure also exposed a power struggle over group strategy.
The Austrian bank said on Sunday it expected net provisions to rise to between 1.1 billion euros ($1.5 billion) and 1.2 billion this year, rather than to hold steady at just over 1 billion, citing developments at its corporate customer business.
The stock fell as much as 7.3 percent and was down 3.4 percent at 24.745 euros by 0930 GMT, the biggest decliner in the STOXX Europe 600 banking sector index, which was up 0.7 percent.
A bank spokesman said the revision reflected "various cases of customers that are under pressure because of the long recession in the euro zone, including in Albania, Bulgaria and Slovenia".
Papoula said she had heard from the bank that the problems stemmed from an increase in non-performing loans (NPLs) of large corporate customers in Austria, fraud cases in China, prudence ahead of an asset quality review in Slovenia, higher NPLs in Bulgaria and an accounting methodology change in Albania.
Slovenia's central bank said last month that stress tests would be expanded to include 10 lenders including Raiffeisen and the results should be released by year end.
Raiffeisen's first-half provisioning had risen 17 percent to 469 million euros.
Peers including Erste Group Bank and UniCredit Bank Austria have also had to boost bad loan provisions as economies in central and eastern Europe struggle.
Raiffeisen trades at around 8 times 12-month forward earnings, a discount to Erste on nearly 11 times, according to StarMine, which weights analyst estimates by previous accuracy.
The discount reflects analyst expectations that Raiffeisen may have to raise around 2 billion euros in fresh capital to satisfy market expectations that its balance sheet measures up to international peers.
The bank has said for years that a capital increase was an option depending on market conditions. Pressure on it to act grew after Erste last month paid back Austrian state aid with the help of a 660 million euro rights issue.
Raiffeisen also has to pay back by 2017 state aid and so-called private participation capital - the non-voting capital that big Austrian banks raised during the financial crisis, some from the state and some from private investors - worth 2.5 billion euros.
($1 = 0.7542 euros) (Additional reporting by Angelika Gruber; Editing by Mark Potter and David Holmes)
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