UPDATE 1-Russia's VTB won't rule out capital increase

* VTB says may need more capital if to maintain growth rate

* Deputy CEO sees overall 2011 business growth at over 30 pct

* Says buyback won't affect 2011 dividends

* 2012 net seen slightly above 100 bln roubles - source (Adds details, quotes, background)

By Katya Golubkova

MOSCOW, Feb 10 (Reuters) - VTB, Russia's No.2 bank, refused to rule out a capital increase in the wake of a government order for it to compensate small investors for a decline in its share price, a measure that could cost it at least 8 billion roubles ($236 million).

VTB's First Deputy Chief Executive Yuri Solovyov said the bank was comfortable with its capital levels for the time being, but may need to bolster its capital if it is to grow at the same pace in 2012 as it did the previous year.

"We have enough capital for the buyback and for business development, but if we want to develop at the same pace as last year, to grow very fast, we may need additional capital at some point," Solovyov told a small group of reporters.

VTB's business overall grew more than 30 percent last year organically and over 50 percent non-organically, or once acquisitions were taken into account, he added.

"But it (capital) is enough for the buyback and for the bank to function completely normally. It has all been calculated," Solovyov said.

His comments came as the bank prepares to channel up to 16 billion roubles in a share buyback to compensate small investors for losses on stock bought when the bank floated in 2007, which may reduce its capital by up to 8 billion roubles and hit its capital adequacy ratios.

Russian Prime Minister Vladimir Putin said on Thursday VTB would reimburse around 100,000 small investors who lost money buying shares in what was known at the time as the "people's IPO" -- a measure seen as a sweetener by Putin ahead of a presidential election next month.

Solovyov did not say how big any capital injection might be and how it might be conducted, but any additional share issue could change the current shareholder structure, in which the Russian government owns 75.5 percent and the rest is free-float.

STATE BAILOUT?

VTB's Tier 1 capital adequacy ratio has already been hit by an ill-fated takeover of Bank of Moscow, which triggered a $13 billion state bailout, and stood at 9.2 percent in the third quarter of last year.

Some analysts estimated that VTB's Tier 1 capital may lose another 30 to 50 basis points after it compensates small investors, but VTB board member Ekaterina Petelina said on Thursday the damage will be smaller. She declined to give a specific figure.

VTB could face difficulties in raising capital as any deal may be affected by Europe's debt crisis, which is dragging down the profits of Western banks.

During the crisis of 2008-09, the Russian government pumped 180 billion roubles into VTB's capital.

VTB's dividend payout for 2011 will not be affected by the buy back programme, as the buyback will be conducted this year, Solovyov said. The lender paid around 6 billion roubles in dividends for 2010, or 11 percent of its profit under International Financial Reporting Standards.

VTB sees its net profit at "a little over 100 billion roubles" in 2012, a source close to the bank said.

Solovyov also said VTB is ready to sell its 20 percent stake in the country's largest iron ore miner Metalloinvest at good price, but "there is no good offer at the moment".

VTB shares extended losses on Friday, falling below 7 kopecks, as only a selective group of shareholders will be bought out at the price of 2007 initial share offering of 13.6 kopecks. ($1 = 29.6925 Russian roubles) (Editing by David Holmes)