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

Rothensteiner criticised what he called alarmist warnings about a financial meltdown in emerging Europe which caused the region's currencies, bonds and stocks to collapse earlier this year.

He said that while the region was clearly in crisis, it was still manageable, and the sums needed to stabilise the region were small compared to those thrown into Western banks.

"With 10 or 20 billion euros of IMF loans, you can relieve the budget and the current account of an entire country," he said, comparing it to the 102 billion euro rescue of Germany's Hypo Real Estate HRXG.DE.

"We sometimes lose sight of those relative dimensions."

RZB, an unlisted bank owned by regional Austrian cooperative banks, is the main funding source for Raiffeisen, of which it owns 70 percent.

Rothensteiner said a recent injection of 1.75 billion euros into RZB by the Austrian government would help it provide both capital and liquidity for Raiffeisen and its subsidiaries in 17 countries across emerging Europe.

"I would expect that central banks in some of the countries will demand to raise the capital," he said. "If Raiffeisen International needs money, they'll knock on our door."

Asked if Raiffeisen would have to tap markets for equity to keep its capital ratios intact, he said: "Of course not."

(Reporting by Boris Groendahl and Eva Komarek; editing by Simon Jessop and David Cowell)

((boris.groendahl@reuters.com; +43 1 53112-258; Reuters Messaging: boris.groendahl.reuters.com@reuters.net)) Keywords: RZB/

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