UPDATE 1-VTB asks Russia to relax capital rules for banks

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MOSCOW, Sept 6 (Reuters) - Russia’s VTB bank has asked the government and central bank to relax Basel III capital requirements for Russian lenders, its chief executive said on Thursday, adding that would allow banks to lend more to the domestic economy.

VTB, Russia’s second biggest bank, has already boosted its capital by 300 billion roubles ($4.3 billion) to help meet the international Basel III rules, and needs to amass the remaining 150 billion roubles next year, Andrey Kostin said.

“This (450 billion roubles) equates to 4.5 trillion roubles of unissued loans to the Russian economy,” he said.

State-controlled VTB, like some other Russian banks, has been subject to Western sanctions since 2014 following Russia’s annexation of the Crimea peninsula from Ukraine. Those sanctions limit VTB’s ability to raise funds abroad.

“Today, when out of the ten biggest banks five have no access to the (external) capital markets, which were closed by sanctions, I think this (Russia’s commitments to Basel III) should be adjusted,” Kostin said.

He added he had asked the central bank and the finance ministry to revise the requirements, possibly giving a 2-3 year grace period to set aside all the capital needed for Basel III.

Russia has its own capital requirements and has started to implement the Basel rules in addition to existing banking regulations in an effort to improve the health of the sector.

Russian finance minister Anton Siluanov told reporters on Thursday that his ministry planned to discuss a possible change to the way Russia adapts to Basel III with the central bank, which wants the domestic banks to be stronger.

“I believe that VTB’s proposal is considerably fair: it makes sense to consider softening existing Basel requirements for the banks which are under restrictions, sanctions, (and) are limited in attracting resources,” Siluanov said.

He did not say what the changes might be or when they might be implemented.

$1 = 69.3689 roubles Writing by Denis Pinchuk and Katya Golubkova; Editing by Toby Chopra and Mark Potter