* State support to VEB estimated at 1.2 trln rbls
* Decision expected by year-end
* VEB to soften terms on some of Olympic loans (Adds details, quotes, background)
By Darya Korsunskaya
MOSCOW, Dec 22 Measures to support Russia's state development bank VEB should be prepared by the year-end, its chairman said on Tuesday, the latest move by the state to bolster the domestic financing system.
The government is considering support for VEB worth 1.2 trillion roubles ($16.85 billion) to help the bank, hit by Western sanctions over Moscow's role in the Ukraine crisis, to deal with bad loans and repay external debt.
VEB was heavily involved in the financing of the 2014 Winter Olympics in Sochi, among other large state-backed projects.
On Tuesday, VEB's supervisory board chaired by Prime Minister Dmitry Medvedev discussed ways to help the development bank, support that is in addition to around 1 trillion roubles already provided to the banking system since late last year.
Vladimir Dmitriev, VEB's chairman, said the focus of the meeting was on the "willingness and the need" by the state to give a maximum support to VEB from the point of view of liquidity, issues related to its balance sheet as well as the redemption of its external and internal debt next year.
"The state realises that if it is giving certain orders, the state should split with the bank the responsibility for funding such operations and give other forms of support if needed," Dmitriev said. He did not elaborate.
Some of the previously cited options were issuing domestic treasury bonds, so-called OFZs, removing problematic assets from VEB, selling off some of VEB's assets and other ways to support the bank.
Dmitriev said the board has approved decisions to restructure VEB's loans related to some Olympic venues. He did not name the borrowers or venues of the most expensive games in history, which cost some $50 billion.
"The point of these decisions is to improve the financial situation of (Olympic) investors and to extend decisions related to cash sweeps until July 2017, again, not to worsen financial and economic situation of our borrowers," Dmitriev said.
Cash sweeps assume that a borrower is using a surplus of cash to repay debt rather than to distribute the funds in the form of dividends.
A source taking part in discussions on VEB's bailout said that under the scheme announced by Dmitriev, a grace period on some of Olympic loans owed to VEB would be extended.
($1 = 71.2000 roubles) (Reporting by Darya Korsunskaya; writing by Katya Golubkova; editing by Dmitry Solovyov and David Evans)
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