* Bank Rossiya to cease foreign currency operations
* To work only with Russian rouble
* Move a step towards broader use of rouble as settlement currency - VTB
MOSCOW, March 28 St Petersburg-based Bank Rossiya is to cease all foreign currency operations and work only with the Russian rouble in response to U.S. sanctions imposed last week, it said in a statement on Friday.
Bank Rossiya is Russia's 15th-largest bank by assets, and the only Russian company that has so far been included on the list of individuals and entities sanctioned over Russia's annexation of Crimea, because of its close links to businessmen seen as personal allies of Russian President Vladimir Putin.
U.S. officials said that the bank would be "frozen out of the dollar".
On Monday the bank advised its clients to cease payments in foreign currencies.
"With the goal of defending the clients of the bank from the unscrupulous actions of foreign financial institutions Joint-Stock Bank Rossiya has taken a decision about working exclusively on the internal Russian market and only with one currency - the national currency of the Russian Federation - the rouble," Bank Rossiya said in a statement.
The U.S. government said that Bank Rossiya was targeted because it had provided "material support" to Russian government officials and because its largest shareholder, St Petersburg businessman Yuri Kovalchuk, is "a personal banker for senior officials of the Russian Federation including Putin".
The head of state-controlled Russian bank VTB said Bank Rossiya's decision was a step towards broader use of the rouble as a settlement currency.
"Russia should sell Russian products - from armaments to oil and gas - in roubles, and should also buy goods in roubles," VTB CEO Andrei Kostin said in a transcript of an interview he gave to Rossiya 24 distributed by VTB. "Then we will get the full benefits that the rouble gives us as a convertible currency."
Kostin said Russia has been moving for some time towards making broader use of the rouble as a settlement currency - the currency in which goods and securities are paid for.
While the rouble is effectively fully convertible - meaning holders can switch freely into other currencies or gold - the effects have been "more negative", he said.
This has led to capital outflows and inflows of foreign investments of a "highly speculative nature that to a significant degree destabilise our stock markets," he said.
"For Russians... the stability of our currency is very important, and the possibility of having savings in the national currency without having to worry constantly about how the dollar and euro are fluctuating," Kostin said.
In its statement on Friday, Bank Rossiya said that it had informed several American banks that it was closing its correspondent accounts, and that it would send similar notifications to other foreign financial organisations in the near future.
The bank said that the changes did not affect its ability to fulfill its obligations before its clients and partners, all of which it said are being fulfilled on time and in full.
(Reporting by Jason Bush and Megan Davies; Editing by Elaine Hardcastle)