UPDATE 2-Russia's Sberbank to pay 50 pct of earnings in dividends by 2020 -CEO

-CEO@ (Adds detail)

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 favourable, German Gref, the chief executive of Russia's largest lender, said on Thursday.

Gref said the bank plans to pay out 1 trillion roubles ($17 billion) in dividends between 2018 and 2020. Executives said the bank may start paying out half of its earnings in dividends before 2020, depending on other financials.

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. In a presentation the bank said it sees its return on equity at 20 percent by 2020.

Sporting a black Sberbank polo shirt and talking on a dark podium, Gref said Sberbank needed to compete with technology companies to address changing consumer demands.

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

Gref acknowledged there were macroeconomic and geopolitical risks facing the bank, but refused to be drawn on the potential impact of further U.S. sanctions.

Sberbank shares were up 2.94 percent by 1535 GMT to 228.31 roubles. ($1 = 58.6450 roubles) (Reporting by Dasha Afanasieva; Editing by Mark Potter and Alexander Smith)