* To pay dividend of at least 50 pct for 2016
* Expects common equity tier 1 ratio of 10.5 pct
* Says may sell Irish unit (Adds details on Irish unit)
BRUSSELS, June 17 (Reuters) - Belgian financial group KBC said it aimed to repay all of its outstanding state aid by the end of 2017, three years earlier than initially planned.
The group, which still owes 2 billion euros ($2.74 billion)excluding penalties of the 7 billion euros state aid it received at the height of the credit crisis, said it would use one third of its excess capital generated until 2017 to make these payments.
While it would invest another third in its business, the final third would be used to fund a dividend from 2016 at a payout ratio of at least 50 percent, the company said ahead of its investor day on Tuesday.
The group said in February that it would not pay a dividend for 2015. If the bank pays a dividend, it also has to pay 8.5 percent interest on the remaining state aid to meet requirements imposed by the European Commission.
KBC said that it aimed for total capital ratio of 17 percent with a minimum common equity tier 1 ratio of 10.5 percent.
The group said it would not expand beyond its core markets of Belgium, the Czech Republic, Hungary, Slovakia and Bulgaria.
It said it hoped that its loss-making Irish unit would become profitable from 2016 onwards. After that, it kept all options open, including a sale, for the unit which had 15.1 billion euros of loans and mortgages outstanding at the end of the first quarter. (Reporting by Robert-Jan Bartunek; editing by Philip Blenkinsop)