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UPDATE 4-Bank bailout hits Russia as B&N asks central bank for aid

* B&N is Russia's 12th biggest lender by assets

* Russia rescued another bank three weeks ago

* Sector under pressure from bad debt, regulation

* Analysts do not see risk of sector-wide crisis (Updates throughout with new details, comments)

MOSCOW, Sept 20 (Reuters) - Russia's B&N Bank, the country's 12th biggest lender by assets, has sought a bailout from the central bank, just three weeks after another leading Russian bank had to be rescued.

The central bank confirmed it was in talks with B&N's owners about the request, with a decision due in the near future, and said it had provided the bank with an emergency cash injection.

There was no immediate sign of contagion and banking sector insiders said that while the problems which triggered the crises at B&N, and previously at Otkritie, could hit other lenders, only a few were vulnerable and the risk of a wider crisis small.

B&N Bank is controlled by Russian oligarch Mikhail Gutseriev and is not on the central bank's list of systemically important lenders. It said it had under-estimated problems within the banks it had bought during an expansion drive.

"Our objective is, with the support of the central bank ... to conduct an effective financial rehabilitation of the bank," said Mikail Shishkhanov, chairman of B&N Bank, whose assets account for 2 percent of Russia's banking system, according to ratings agency Fitch.

B&N Bank said in a statement it initiated talks with the central bank on ways to resolve its problems a year ago.

Russian banks were already under stress from an economic slowdown made worse by Western sanctions. They have seen bad debts rise over the past three years.

The financial health of some worsened after the central bank forced them to make more rigorous provisions for non-performing loans, while margins have tightened due to lower interest rates.

The central bank took over Otkritie, Russia's largest private lender, last month and said it may need up to $6.9 billion, the biggest ever bailout in the country.

A London-based fund manager, and a senior Russian banker both said it was now clear Otkritie was not a one-off and more banks were liable to fail.

A source familiar with the discussions between B&N Bank and the central bank, who did not want to be identified, said negotiations were focussing on how much cash Gutseriev and his family contribute to the rescue.

At B&N Bank's head office, three kilometres (1.9 miles) from the Kremlin, a truck belonging to a firm called Shredder Express, which offers mobile document shredding, was parked on a private road in front. It was not immediately clear what it was doing at the bank's HQ.

LIMITED FALLOUT

Russia's composite financial sector stock index was down 0.9 percent at 0945 GMT, underperforming the broader index of Russian stocks, after B&N Bank's bailout news.

This muted response was because the market sees the banking sector's problems as contained to a few mid-sized private banks which are parts of struggling wider business groups, pursued rapid expansion, and lent to high-risk businesses such as real estate.

"There is no panic selling, no move on the rouble, no problems in interbank lending, everyone knows where the problems are," a trader at a Russian brokerage said.

Most of the Russian banking sector's assets, meanwhile, are in the hands of state-run banks which are much more solid and not at immediate risk, analysts said.

The bailout under discussion would involve the central bank providing B&N with extra capital from a newly-created Banking Sector Consolidation Fund, which is being used to rescue Otkritie. The central bank has not disclosed its size.

Dmitry Polevoy, chief economist at ING Bank in Moscow said that, based on how the Otkritie rescue has been handled, the central bank will offset money it injects to lenders by selling bonds and by borrowing from the market via deposit auctions.

That gives the central bank a large rescue fund, but if the sums required turn out to be massive, it could fuel inflation.

TAKEOVER TROUBLES

B&N Bank, founded in 1993, is part of a sprawling conglomerate controlled by Gutseriev and his family that includes oil firms, a property development portfolio and an electronics retailer.

State-owned lender Sberbank, Russia's biggest bank, has been a major creditor for the group.

B&N Bank embarked on an expansion drive after 2010, buying smaller lenders including Moskomprivatbank, Rost Bank, SKA-Bank before completing its biggest deal in 2016, a merger with MDM Bank, one of Russia's largest lenders.

Shishkhanov stepped down as B&N Bank chairman in May this year, handing over the role to Gutseriev, who is also his uncle.

On Wednesday, Shishkhanov said he had decided to take over the role again to work with the central bank, saying in a statement that problems at Rost Bank and MDM Bank "turned out to be much more serious than we had believed" in tough markets. (Additional reporting by Denis Pinchuk, Oksana Kobzeva, Kira Zavyalova, Elena Fabrichnaya, Jack Stubbs and Denis Pinchuk in MOSCOW, and Claire Milhench, Sujata Rao and Alexander Winning in LONDON; Writing by Christian Lowe; Editing by Alexander Smith)