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UPDATE 1-Russia's Sberbank to pay 50 pct of earnings in dividends by 2020 -CEO

-CEO@ (Adds details, context, quote)

LONDON, Dec 14 (Reuters) - Sberbank plans to meet a government demand to pay 50 percent or more of its earnings in dividends by 2020, if conditions are favorable, German Gref, the chief executive of Russia's largest lender, said on Thursday.

Moscow is trying to extract more cash from state companies to close a budget deficit brought about by weak oil prices and a two-year economic downturn and has ordered them to pay out half of their earnings in dividends.

However, the government has so far met resistance from some of the country's biggest oil and gas producers and banks.

Russia's central bank owns 50 percent plus one share in Sberbank and on Tuesday Gref said its board had agreed a new dividend policy but declined to provide details.

Gref told an investor presentation in London that Sberbanks cost-to-income ratio is expected to drop to 30 percent in 2020. In the third quarter of 2017 it improved to 32 percent from 37.3 percent a year earlier.

Russia's biggest bank by assets was targeting 12.5 percent growth in capital by 2020, Gref said.

Sporting a black Sberbank polo shirt and talking on a dark podium, Gref said Sberbank was morphing into a technology company to address changing consumer demands.

"We are not underestimating client behavior: they are less loyal to brands. They will run where the terms are better and for us that is a threat," he said.

Sberbank shares were up 0.86 percent by 1057 GMT to 223.7 roubles. (Reporting by Dasha Afanasieva; Editing by Mark Potter and Alexander Smith)