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Financials

UPDATE 2-Raiffeisen net profit falls but capital buffer jumps

* Net profit falls short of consensus forecast

* Fully-loaded CET 1 capital ratio rises to 12.2 pct

* Decision on merger with parent RZB expected end-Sept (Adds detail, analyst comment, share price)

VIENNA, Aug 18 (Reuters) - Second-quarter net profit at central and eastern Europe specialist Raiffeisen Bank International fell short of forecasts on Thursday but a more robust capital position helped ease fears about its weak performance in a European stress test.

The results were the bank’s last before it and its parent Raiffeisen Zentralbank decide whether to merge, a move aimed largely at bolstering RZB’s capital. The decision is due in the second half of September, it said.

The two banks were jointly subjected to a stress test of 51 major European banks this year and came third from last in terms of core capital remaining at the end of the exercise.

“The numbers were even weaker than the consensus (forecast) but there are not any big negative surprises,” Kepler Cheuvreux analyst Thomas Neuhold said, adding that the results had done away with at least one concern.

“There was always the fear in the market among investors that Raiffeisen might need to carry out a capital increase. I believe that really is no longer an issue,” he said.

Net profit fell to 96 million euros ($108.6 million) in the three months to the end of June from 192 million euros in the same period last year, partly due to one-off effects such as booking an extra 38 million euros in income taxes.

That was significantly below an average forecast of 141 million euros in a Reuters poll of analysts. But a fall in Raiffeisen’s proportion of bad loans as well as an improvement in its core capital, a measure of financial strength, provided some reassurance over the bank’s solidity, analysts said.

The bank’s shares see-sawed in morning trading, rising as much as 3 percent before turning negative on the day. By 0920 GMT the stock was down 1.9 percent at 11.54 euros.

“The ongoing low interest rate environment - both in the euro area and in other RBI markets - again weighed on the group’s interest income in the first half of 2016,” Raiffeisen Bank International (RBI) said in a statement.

Net interest income, the difference between interest earned and paid out, fell roughly 14 percent year-on-year to 738 million euros in the second quarter, slightly below an average forecast of 749 million euros in the Reuters poll.

The bank’s closely-watched fully-loaded common equity tier 1 capital ratio jumped to 12.2 percent at the end of the quarter from 11.5 percent three months earlier. Its non-performing loans ratio also improved by a point to 10.4 percent. ($1 = 0.8843 euros)

Reporting by Francois Murphy; editing by David Clarke and Jane Merriman

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