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UPDATE 2-Russian central bank head says banking cleanup more than half complete

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* Russia has lost half its banks since mid-2013

* Three major bailouts by central bank under way

* C.bank to change rules on provisions, access to funds (Adds details, quotes, background)

MOSCOW, Feb 2 (Reuters) - Russia's cleanup of its banks is more than half complete, central bank Governor Elvira Nabiullina said on Friday.

Since Nabiullina took the helm in mid-2013, Russia has lost around a half of its banks, with some collapsing and others taken over by the central bank in a bailout. The biggest were Otkritie, B&N and Promsvyazbank (PSB), seized by the central bank last year.

"We have passed through the majority of the clean-up of the banking sector from unqualified players," Nabiullina told an annual gathering of the country's bankers and the central bank on the outskirts of Moscow.

To bail out just Otkritie, B&N and PSB, the central bank plans to spend around a trillion roubles ($18 billion). Then Otkritie and B&N are to be sold and PSB turned over to the defense sector bank.

Nabiullina said Otkritie and B&N could be merged and their toxic loans moved to a separate "bad bank" yet to be established.

She acknowledged that the state's share in the banking sector - which also includes the country's two top banks Sberbank and VTB - was high, reiterating that the central bank aimed to sell Otkritie and B&N when they were ready.

CHANGES IN RULES

Under reforms introduced by Nabiullina, since mid-2017 only banks with strong ratings from the two Russian ratings agencies - ACRA and Expert RA - are eligible to gain access to some state funds and instruments.

Other rules were put in place requiring banks to meet additional capital requirements and have balance sheets of a minimum size to access state funds. Nabiullina said these would be phased out to rely solely on the ratings agencies.

"Our rating agencies went through serious checks at the central bank, their methodology was verified," she said at the meeting on Friday.

"We can now rely on the rating agencies. And other criteria, linked to the scale of a bank or its ownership, will be gradually replaced."

Otkritie, which was seized at the end of August, had seen a large outflow in client funds, partly caused by a low rating by ACRA.

Russia still has more than 500 banks. The Russian central bank has gradually tightened rules, including those governing lending to related parties or the banks' owners, seen as among the causes of bank failures.

On Thursday, Nabiullina said the central bank was discussing with banks a proposal to demand higher provisions for loans used for mergers and acquisitions rather than for regular business operations. ($1 = 56.1105 roubles) (Writing by Katya Golubkova; editing by Andrew Roche)