UPDATE 2-Kazakhstan ups pressure on its banks creditors

* Debt restructuring may come at expense of foreign creditors

* C.bank says cutting debt more important than country image

* State-owned BTA given deadline to agree on restructuring

* Defaulted lender Astana Finance may quit business

(Rewrites with regulator, central bank comments)

By Masha Gordeyeva

ALMATY, Aug 12 (Reuters) - Kazakhstan stepped up pressure on Western creditors on Wednesday by imposing a deadline for its top bank's debt restructuring, saying it wanted a deal even at the expense of the country's reputation with Western investors.

The central Asian country's financial regulator said Kazakhstan's largest and state-owned bank BTA BTAS.KZ must agree with creditors on a plan to restructure its $13 billion debt by Sept. 18.

Economists, including the International Monetary Fund, have said sorting out nationalised banks' problems is key to restarting growth in the economy.

A successful restructuring would also significantly reduce the country's overall debt burden but Western lenders have warned that a deal enforcement and neglect of their demands would severely damage the country's investment image.

Kazakh central bank chairman Grigory Marchenko said on Wednesday Kazakhstan did not need to worry about its image while restructuring debt, citing the example of Russia which saw investors return soon after the 1998 default.

"Image is nothing," Marchenko said when asked about investors' concerns.

"I remember 1998 very well," he said, referring to Russia's default on its debt. "Everyone has come back... and not even in 2-3 years but in 18 months."

DIRECT INVESTMENTS MORE IMPORTANT

BTA has warned investors that a failure to restructure debt could lead to its bankruptcy. BTA's creditors face losses of 55 to 97 percent depending on the bank's losses this year and whether trade finance is included in the scheme.

Foreign banks have asked Kazakhstan to exclude trade finance from debt restructuring saying discounting such debts would hurt the country's global profile.

But Yelena Bakhmutova, Chairwoman at Kazakhstan's top financial regulator, Financial Supervision Agency, said trade finance liabilities "could not be excluded".

Marchenko also said foreign direct investment, which remains robust in Kazakhstan's oil and gas sector, was more important than debt financing.

The government took over BTA in February and accused its ousted chairman Mukhtar Ablyazov of fraud, a charge he denies. BTA lost $7.9 billion in 2008 and has said it may lose more this year.

The government has said Russia's Sberbank SBER03.MM could take over BTA if the debt deal succeeds.

Two other crisis-hit Kazakh lenders, Alliance bank ALLBq.L and Astana Finance ASFI.KZ, have also gone into default this year. Alliance has already agreed a restructuring plan with its key creditors while Astana Finance is still in talks with them.

Bakhmutova also said Astana Finance, whose brokerage, asset management and lending licenses were suspended in June, was ready to give them up completely. The move would force the company out of the financial services business. (Writing by Olzhas Auyezov; editing by Gilbert Kreijger)