UPDATE 2-Raiffeisen aims to resume dividend payments in a year's time

* Merger with parent company due to be completed on Saturday

* Shareholders expect dividend soon, new CEO says

* Firm targets modest increase in capital buffer (Adds CEO comment, detail on bad loans)

VIENNA, March 15 (Reuters) - Austria’s Raiffeisen Bank International has set its sights on resuming dividend payments in a year’s time after years of retrenchment and restructuring in the wake of the financial crisis.

Raiffeisen Bank International (RBI), which operates across central and eastern Europe, is merging with its parent company Raiffeisen Zentralbank, primarily to bolster RZB’s capital buffer and appease banking supervisors. The banks came third-last in a European stress test of 51 lenders last year.

RBI’s full-year results published on Wednesday confirmed last month’s announcement that its fully loaded common equity tier 1 capital ratio - a measure of financial strength and the main yardstick in the stress test - came in well above expectations at the end of 2016, reaching 13.6 percent.

For the combined bank including RZB, however, the figure was 12.4 percent, and it set itself a target of roughly 13 percent for the next two to three years, which incoming Chief Executive Johann Strobl said left enough leeway for a dividend.

“We have significantly raised our capital buffer and significantly improved our risk profile,” said Strobl, who will take over as head of the combined bank when the merger is completed on Saturday.

“We can now invest all our resources once again in the development of our business model and in the development of our relations with our clients,” he told a news conference.

RBI last paid a dividend for 2013. A net loss of more than 600 million euros ($635 million) the following year prompted it to retrench in various markets to shrink its balance sheet, shed bad loans and bolster its capital buffer.

For the first time since 2012, RBI ended the year with a non-performing loan (NPL) ratio in single digits. The ratio was 9.2 percent at the end of December, 2.7 points lower than a year earlier.

For the combined bank, the NPL ratio was 8.7 percent, and it set itself a target of 8 percent by the end of this year.

“I think the shareholders have understood that it was right not to pay a dividend (for this year) and instead to solve the capital issue but it is also clear that in future there are expectations we can fulfil,” Strobl told reporters.

Asked if the aim was to pay a dividend for 2017 he said: “That is our plan.” He added, however, that it was too early to say how big the payout would be. ($1 = 0.9414 euros) (Editing by David Evans/Ruth Pitchford)