Japan to lend to sanctioned Russian bank to push island talks - Nikkei

TOKYO (Reuters) - State-backed Japan Bank for International Cooperation [JBIC.UL] will lend about 4 billion yen ($39 million) to Russia's Sberbank, which is subject to Western sanctions, in the hope of advancing talks on a territorial dispute, the Nikkei business daily said on Saturday. Sberbank, Russia's biggest bank, will use the yen-denominated loan to help a company operating the port of Vostochny in the Russian Far East to buy coal-handling equipment. JBIC will issue the loan by the end of the year in a bid to encourage progress on a dispute over a string of Russia-controlled Pacific islands, called the Northern Territories in Japan and Southern Kuriles in Russia, at a December summit. "JBIC's move to provide financing to Russia comes because the Japanese government aims to make progress in the negotiations," the Nikkei said. JBIC was not available for comment. Japanese foreign ministry and the prime minister's office were not available for comment. The United States and the European Union have effectively banned lending to certain Russian companies and financial institutions, including Sberbank, under sanctions imposed after Russia's 2014 annexation of Ukraine's Crimea region. Japanese officials have previously said any economic cooperation with Russia would not run afoul of sanctions. Japan also bars underwriting of bonds issued by Sberbank and other institutions. Though yen-denominated loans are not covered by the sanctions, Japanese banks are leery of lending in Russia amid concern over the U.S. reaction, the Nikkei said. The loan is part of an eight-point economic cooperation plan presented to Russian President Vladimir Putin by Japanese Prime Minister Shinzo Abe in May as part of a "new approach" to the decade-long dispute. JBIC has started offering ruble-denominated financing this month. To shore up the lender's capital, the Ministry of Finance earmarked 109 billion yen in investment in JBIC in the recently approved second supplementary budget for fiscal 2016, the Nikkei said. Abe is betting that close ties to Putin, as well as Russia's economic woes and regional concerns about China's rise will help him make progress in a decades-old territorial row when they meet in December. The dispute over the four islands north of Japan's Hokkaido has prevented Tokyo and Moscow signing a peace treaty formally ending the war they fought with each other in World War Two. (Reporting by Yuka Obayashi; Editing by Robert Birsel)