UPDATE 3-Russia moves to save Promsvyazbank in third bailout of 2017

* Central Bank announces bailout

* Rescue is third since late August

* Trio of failures biggest upset in 20 years (Adds details, quotes, background)

MOSCOW, Dec 15 (Reuters) - Russia stepped in to rescue Promsvyazbank, the country's 10th largest private lender, on Friday in the third costly financial bailout by the country's central bank this year.

Promsvyazbank's (PSB) rescue follows the central bank bailout in August of Otkritie, once the country's largest private bank, and later B&N.

The bailouts mark the biggest challenge to Russia's financial sector since a banking crisis 20 years ago and show how the country and its banks are grappling with the economic impact of lower oil prices and Western sanctions.

The central bank has recently increased the estimate for THE Otkritie and B&N bailouts to a combined 820 billion roubles ($14 billion). The central bank has yet disclosed the expected cost of rescuing PSB.

There are just over 500 banks in Russia, half the number it had some years ago, as the central bank continues a clean-up supported by President Vladimir Putin.

One senior lawmaker said there would be no further such rescues this year, while Kremlin spokesman Dmitry Peskov said on Friday there was no target for the number of banks in Russia.

The central bank said it was providing funds to support Promsvyazbank's liquidity and would send in temporary administrators. However, it said there would be no moratorium on paying creditors and that the bank was operating as normal.

"As part of measures aimed at increasing (Promsvyazbank's) financial stability and ensuring its continued work in the banking services market, it is planned that the Bank of Russia act as an investor using the funds of the Banking Sector Consolidation Fund," the regulator said.

The latest rescue followed late-night talks, when the central bank presented the troubled bank with an ultimatum: find 100 billion roubles of extra capital or be bailed out.

People with direct knowledge of the matter said Promsvyazbank's co-owner and chairman, Dmitry Ananyev, and central bank governor Elvira Nabiullina, agreed on a rescue at a late-night meeting.

Dmitry Ananyev and his brother, Alexei, who together control just over 50 percent of the bank, said on Friday the bank's serious difficulties had prompted them to ask for state support.

"Over a prolonged period of time the regulator was examining our assets, which resulted in a request for additional provisions and, as a result, the temporary administration was introduced," the bank said in a statement.

Lawmaker Anatoly Aksakov, a member of the Duma finance committee and head of the Russian Banking Association, said the bailout would not affect the wider sector and was the last such step to be taken this year.


The latest rescue marks a reversal of fortune for three private banks with ties to the Kremlin which had helped out dollar-starved Russian companies when big state banks were hampered by Western sanctions.

Otkritie, Promsvyazbank and B&N Bank had won business lending to state energy firms and others needing to meet big overseas debt repayments as the Ukraine conflict closed financial markets to state lenders such as Sberbank.

Russia's central bank is gradually tightening requirements on the lending to related parties and also demands stronger capital buffers, with the newest requirements coming into force as soon as from Jan 1.

The stricter rules make business of so-called 'pocket banks' - creatures of the early capitalist years of Russia - less profitable.

The combined assets of the three banks taken over by the central bank would amount to 4 trillion roubles, the equivalent of Russia's fourth biggest, according to Reuters calculations.

The assets of Russia's top bank, Sberbank, total 22 trillion roubles.

In an interview with Reuters, the last one Dmitry Ananyev gave before the bailout, he said that the bank would be selling some of its non-performing loans to boost capital and meet the fresh central bank requirements.

The central bank said Otkritie and B&N were too financially weak to continue.

Richard Segal, a corporate debt strategist at investor Manulife Asset Management, said he was not surprised by the banks rescue because its capital had been running low.

One financial executive with knowledge of the rescue said the move cleared banking problems ahead of preparations for presidential elections.

"If not now ... you will have to postpone the decision for at least a month. Plus, better to do it before the campaign is in its height," said the person, who asked not to be named.

Putin announced his intention to run for another term last week and on Friday the upper house of the Russian parliament voted to set March 18 as the date of next year's election.

The European Bank for Reconstruction and Development, Budushchee, one of Russia's largest private pension funds, the Credit Bank of Moscow and non-state pension fund Safmar are among Promsvyazbank shareholders, data from end-November published on the banks website showed.

The Ananyevs will retain another bank, Vozrozhdenie , which is Russia's No.36 by assets and which they decided not to merge with PSB in October. ($1 = 58.8383 roubles) (Reporting by Maria Kiselyova, Tatiana Voronova, Jack Stubbs, Elena Fabrichnaya, Elena Orekhova and Sujata Rao-Coverley, writing by Katya Golubkova; Editing by John O'Donnell, Jane Merriman and Alexander Smith)