RZB will not exit Ukraine, has enough capital

* "Unthinkable" to exit E.Europe countries like Ukraine

* Can afford to fully fund Raiffeisen Intl's capital needs

* East Europe regulators will ask to prop up capital

(Adds detail, background, more quotes, Q1 results)

By Eva Komarek and Boris Groendahl

VIENNA, May 27 (Reuters) - It would be "unthinkable" for No.2 emerging Europe lender Raiffeisen International (RIBH.VI) to exit crisis-ridden countries like Ukraine or Romania, the head of Raiffeisen's owner, RZB, said in an interview on Wednesday.

Raiffeisen's breakneck growth of the past years came to a screeching halt last year when the collapse of Western export demand and the global credit crunch suddenly pushed the former Communist countries of Europe into a deep economic crisis.

"Of course this can be a long, dry spell," said Walter Rothensteiner, chief executive of cooperative bank RZB and chairman of its Raiffeisen International arm.

Ukraine, one of Raiffeisen's key markets where it owns the second-biggest bank, is particularly hit by the crisis, with economists expecting the economy to decline by 8 to 10 percent this year. But Rothensteiner said he would stay put there.

"To take single building bricks out of (our network) would be unthinkable," he said. "It would be unacceptable for our overall strategy."

Raiffeisen's loan book grew 40 percent in 2007 and 20 percent in 2008 as companies invested and retail clients borrowed to buy houses, cars and refridgerators. But the bank will struggle to keep it stable this year.

At the same time, bad debt has started to rise and will eat up a big and rising chunk of income this year. Bad debt provisions at RZB rose to six times the level of last year in the first quarter of 2009 already. [nLR616309]

"You'll have to sit down with clients and say, 'So what are we going to do?' And then you will lengthen clients' repayment schedules, and they will probably not repay in full. And you are going to see this in the risk provisions," Rothensteiner said.

But he added that the long-term growth prospects remained intact. The fact that there were still 50 to 60 million eastern Europeans who did not even have a bank account guaranteed that banking service would resume their growth at some point.

MELTDOWN FEARS OVERBLOWN