SBERBANK OF RUSSIA 
MOSCOW (Reuters) - Russian bank VTB (>> Bank VTB PAO) has set aside an additional 50 billion roubles (635.88 million pounds) to cover potential loan losses and agreed with the central bank to monitor a number of higher risk loans, VTB's chief executive told Reuters.
Andrey Kostin's comments show how big Russian banks as well as smaller ones are being scrutinised more closely by the country's central bank, which is on a heightened state of alert following the rescue of three big private banks last year.
His remarks come just days before Washington is scheduled to draw up a list of Russian businesspeople close to the Kremlin, on which Kostin himself said he may figure. Inclusion on the list could make it harder for the bank to finance itself.
Kostin said in an interview the central bank had been conducting checks on VTB's financial health for 10 months.
"We set aside around 50 billion roubles at the end of last year, of which around a half was recommended by our risk department and around the same amount was set aside based on the central bank's recommendation," Kostin told Reuters.
But this did not blow the bank off course in terms of hitting its profit target for the year, Kostin said.
"The central bank has finished checking us, there were a number of issues where we agreed that for half a year we would study how certain loans perform and would afterwards decide whether any other provisions would be needed," he said.
VTB, along with Sberbank (>> Sberbank Rossii PAO), the country's biggest bank, is a cornerstone of the Russian economy, providing finance for some of its biggest companies. Kostin is one of the country's most influential bankers.
"I am an advocate of having a well-covered portfolio and feeling relaxed," he said.
He said despite the provisions the bank would earn a net profit of slightly over 100 billion roubles for 2017. The bank would be ready to pay 50 percent of its net profit in dividends on last year results, Kostin said.
In 2019, the bank should earn at least 200 billion roubles in net profit, he said.
VTB set aside 211 billion roubles in provisions in 2016. The non-performing loan ratio was at 6.4 percent at the end of September, unchanged from the start of 2017, while provisions for that nine-month period were at 118 billion roubles.
TOUGH SUPERVISION
Kostin said that in some cases the central bank acted "a little too harshly" towards the banking sector but said VTB had no problems in its dealings with the regulator.
The central bank's tough approach to banking regulation is "better than the weak-willed and spineless supervision that took place under Elvira Nabiullina's predecessors," Kostin said.
"I am an advocate of the banking sector's consolidation and believe that the bigger and stronger banks are is better," he said. The number of banks in Russia has fallen by a around a half since Nabiullina become central bank governor in mid-2013.
Kostin said that VTB planned to support its capital through its profits, and was not planning to raise capital from outside over the next two years.
He also said that VTB would be interested in merging its pension business with other players in Russia once the central bank draws up new rules for the industry. He said VTB was in talks about a possible merger of its insurance business with Russian insurer Sogaz.
On sanctions against Russia, Kostin said those already in place constrained VTB's privatisation plans and curbed its activities on international markets, but that otherwise they did not affect its operations.
He declined to speculate about the possibility of the United States imposing tougher sanctions.
The U.S. government is preparing to draw up a list of Russian oligarchs with close connections to Russian President Vladimir Putin by the end of this month.
Kostin said the risk of him being on the new list was "quite high". But he said: "What can I do? Apologise for who I am or aren't? I am who I am, and my role is what it is in this country. To be honest, I am not very afraid of this."
While inclusion on the new list would not automatically lead to sanctions, it could make foreign politicians, banks, and officials reluctant to have dealings with individuals named.
Asked whether there was a risk of U.S. funds selling VTB stock because of the new sanctions, Kostin said: "I can not predict, foresee, avert or ... influence decisions by the U.S. government but I can impact the share price from the profitability and (the bank's) financial result point of view."
"Currently, they are not good enough. But we are working towards it."
(Reporting by Katya Golubkova and Dmitry Antonov; Editing by Christian Lowe and Jane Merriman)
By Katya Golubkova and Dmitry Antonov
