KIEV, Feb 7 (Reuters) - The Ukrainian central bank is stepping up efforts to edge Russian state-owned commercial banks out of the local market, though that process should be gradual to avoid disruptions, one of its deputy chiefs said on Tuesday.
Five Russian state-owned banks are present in Ukraine, including three in the top 20, and they hold a combined market share of 8.6 percent.
The central bank has sought to cut that following a breakdown in bilateral relations in 2014 due to Moscow's annexation of Crimea and support for pro-Russian separatists.
"We want them to leave our market painlessly," deputy chief Kateryna Rozhkova told journalists. "There are two options: either find a new owner or gradually reduce your presence."
Two of the Russian banks - VEB and VTB - are already in talks to sell their Ukrainian subsidiaries, and Rozhkova said the central bank expected progress by the end of the first quarter.
The three others are Sberbank and subsidiaries of Kremlin-owned BM Bank and VS Bank.
In 2014 the central bank introduced restrictions on the five banks, banning them from increasing their assets and deposits. This resulted in their market share falling by half.
A recent deadly escalation in Ukraine's nearly three-year-old separatist conflict prompted a few dozen protesters to gather outside a branch of Sberbank in Kiev, demanding it stop operating in the country.
But Rozhkova said it was not in Ukraine's interests for the banks to close abruptly as they together had 22 billion hryvnias ($815 million) in Ukrainian consumer deposits and 16 billion hryvnias in business deposits.
The central bank is formulating a scheme to transfer loans owed to these banks by Ukrainian companies elsewhere, she said.
She said central bank experts had found no evidence that the banks had financed separatists in eastern Ukraine, as claimed by some Ukrainian politicians.
Reporting by Natalia Zinets; Writing by Alessandra Prentice; editing by John Stonestreet