* Cost cuts set to offset moderate loan demand, low interest rates
* Q4 net loss 114 mln euros vs Reuters poll avg 139 mln
* Repaid 4 bln euros in LTRO funds early
* Sees victory in regulatory battle over capital (Recasts with CEO comment, market reaction)
VIENNA, Feb 28 Erste Group Bank has won a regulatory battle that secures it 1.6 billion euros ($2.1 billion) in core capital, giving it resources to take advantage of the fragile recovery in emerging European markets.
Erste, which vies with Raiffeisen Bank International as central and eastern Europe's second-biggest lender after UniCredit, aimed for flat operating results in 2013 by using cost cuts to compensate for modest loan demand.
Erste officials said on Thursday business should pick up after the first quarter and they forecast loan demand would strengthen later in the year and into 2014.
Chief Executive Andreas Treichl said Erste had prevailed in a row over the regulatory treatment of minority interests in the shareholder alliance it has with Austrian savings banks.
"The biggest question that we had pertaining to the minority interests of the savings banks seems to have been solved fully in our favour," he told a conference call. "Those 1.6 billion (euros in) minority interests will remain fully with us."
Combined with its expectations for central and eastern Europe through 2015, that meant "slowly but surely our retained earnings generating capacity over the next years will improve."
Its stock rose 3 percent to 24.46 euros by 1230 GMT, while the European sector index gained 0.5 percent.
Erste said it aimed for steady 2013 operating results by using cost cuts to offset slightly lower operating income given "moderate" loan demand and low interest rates.
The lender had said in October it expected 2013 results to improve as emerging European economies pick up, provisions for bad loans stay in check and revenues expand.
Q4 LOSS BEATS ESTIMATES
The bank forecast provisions for bad loans would fall by a double-digit rate this year, mainly as the situation in Romania improves. It reiterated it expected its Romanian subsidiary BCR to return to profit in 2013.
Erste last month announced it was writing down goodwill by 300 million euros, mainly on its Romanian unit.
Its 2012 operating profit slipped to 3.47 billion euros from 3.63 billion in 2011 as net interest income declined and net income from fees and commissions also fell.
The bank swung to a fourth-quarter net loss after minorities of 113.8 million euros from a year-earlier profit of 254.1 million. Ten analysts polled by Reuters had on average expected a loss of 139 million euros.
It proposed resuming a dividend of 0.4 euro per share, in line with the poll average. Treichl said Erste aimed for a payout ratio of 25 percent "under normal circumstances".
Citing its "exceptionally strong liquidity", it said it had repaid early 4 billion euros in cheap long-term funding it secured from the European Central Bank's LTRO programme.
Its core tier one capital ratio stood at 11.2 percent of risk-weighted assets at the end of 2012 under Basel 2.5 standards, up from 9.4 percent a year earlier.
Treichl declined to comment on when the bank might start repaying 1.2 billion euros in state aid it got from Austria.
He also said Erste would like to buy nationalised Austrian lender Hypo Alpe Adria's business in Serbia if the price is right.
($1 = 0.7628 euros) (Editing by Elaine Hardcastle)
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