* Q3 net profit falls 5.6 pct to 134 mln eur, beats estimates
* Keeps outlook and reiterates capital increase an option
* Sees slight rise in loan demand in core markets next year
* Shares edge higher, lag European bank sector (Adds comments from conference call)
By Michael Shields
VIENNA, Nov 27 Raiffeisen Bank International (RBI) played down the potential impact from ECB-led health checks of bank balance sheets next year and kept its options open for beefing up its financial strength ahead of repaying Austrian state aid.
Excluding 1.75 billion euros ($2.38 billion) in state aid that needs to be repaid in just over three years, Vienna-based RBI is undercapitalised versus regional rivals such as UniCredit Bank Austria and Erste Group.
Analysts estimate RBI needs around 2 billion euros in fresh capital, keeping investors braced for a potential share sale.
But central and eastern Europe's second-biggest lender dismissed concerns its exposure to "tense" emerging markets may cause problems when the European Central Bank reviews bank assets before taking on supervision of big euro zone lenders.
"I think we work along the European standards and therefore I do not expect a big impact from what I know today," Chief Risk Officer Johann Strobl said on a third-quarter results call on Wednesday.
RBI reiterated that a share sale was one option to strengthen its balance sheet, but said it could use other measures as well such as reducing assets, selling or securitising portfolios, and boosting profitability.
Unlisted parent Raiffeisen Zentralbank (RBZ) and its two biggest shareholders - provincial landesbanks in Lower Austria and Upper Austria - are among six Austrian banks to be reviewed and stress-tested before the ECB takes charge.
RZB passed the last round of bank stress tests by restructuring equity on its balance sheet. Erste Group, BAWAG PSK and partly nationalised Volksbanken - which reports results on Thursday - also face testing.
Prospects for an RBI share sale - especially after Erste repaid state aid in August with the help of a 660 million euro ($895 million) rights issue - have weighed on Raiffeisen stock.
It trades below 9 times 12-month forward earnings, a discount to Erste Group on over 11 times, according to StarMine, which weights analyst estimates by previous accuracy.
RBI said its priorities were focusing on six attractive markets - Russia, Poland, the Czech Republic, Slovakia, Romania and Austria - while savings 450 million euros in costs over the next three years and strengthening capital.
Chief Executive Karl Sevelda said it was too early to speak of divestments in markets such as Ukraine, Hungary and Slovenia that are under "special review".
The regional powerhouse spanning 16 markets that ousted CEO Herbert Stepic built during four decades at the bank is less efficient than its main competitors.
Raiffeisen had a cost-to-income ratio of 56.9 percent in the first nine months of 2013, compared with 53.8 percent at Bank Austria and 52.4 percent at Erste Group.
Its third-quarter net profit fell 5.6 percent to 134 million euros ($182 million), beating market estimates thanks to higher-than-expected net interest income.
It stuck to its outlook that its 2013 net provisioning requirement would rise to as much as 1.2 billion euros after a 28 percent rise to 800 million euros in the first nine months.
Loans to customers should be steady this year, and Sevelda said loan demand in core markets may increase slightly in 2014.
RBI's non-performing loan (NPL) ratio rose to 10.3 percent at the end of September from 9.8 percent at the end of 2012, but Strobl said it was difficult to say if NPLs had peaked.
"Unfortunately, the non-performing loans are four to six quarters behind the normal development so we still feel some pressure," he told the conference call. "Corporate is volatile; retail seems to be fine now."
Raiffeisen shares, which touched a year-and-a-half low of 19.87 euros in July, closed up 0.2 percent at 27.45 euros. The Stoxx European bank index rose 0.9 percent. ($1 = 0.7374 euros) (Reporting by Michael Shields; Editing by Georgina Prodhan and Elaine Hardcastle)