MOSCOW/PARIS (Reuters) - France's Societe Generale (>> SOCIETE GENERALE) is raising its stake in Russia's Rosbank to above 90 percent, betting it can turn around the troubled Russian banking unit even as rivals have quit a country where they could not compete.

While players such as Citi (>> Citigroup Inc) and Austria's Raiffeisen (>> Raiffeisen Bank International AG) thrive, many have found post-Soviet Russia too hard to crack: rife with credit, legal and corruption risks, and dominated by state giants Sberbank (>> Sberbank Rossii OAO) and VTB (>> Bank VTB OAO).

SocGen, which bought into Rosbank in 2006, spent billions of dollars to fix the underperforming Russian bank. Yet it was shaken by scandal in May, when it fired Rosbank CEO Vladimir Golubkov after he was charged with bribery.

Under Monday's deal, SocGen is buying 10 percent more of Rosbank from Russia's second-largest bank, state-controlled VTB, taking its stake in the unit to 92.4 percent.

The deal gives SocGen strategic scope to either realise its declared goal of achieving sustainable scale and profitability in Russia, or stage a cleaner exit should it fall short.

"(For SocGen), the 10 percent increase may be helpful in selling the whole (of Rosbank) to someone else," said Andrey Klapko, analyst at Gazprombank.

"For now, it (would be) hard to find an appropriate buyer. The trend is to go out of Eastern European markets and cut down on investments in these regions."

SocGen said it had struck the deal "to strengthen its position" in Rosbank.

VTB, which bought into Rosbank in 2010, will in exchange receive shares in Russian companies, loans to Russian companies and Russian real estate assets, the banks said, confirming a Reuters report on Sunday.

"VTB gets rid of an illiquid non-core asset," that it has held since 2010, said Jason Hurwitz, analyst at Alfa Bank.

Hurwitz said VTB probably had stronger negotiating power than SocGen on the deal and was probably getting assets that are more favorable in terms of valuation, liquidity, or both.

Jean-Pierre Lambert, analyst at Keefe, Bruyette & Woods, estimated the value of the stake at around 200 million euros but said he expects a 50 million euros negative pre-tax impact on SocGen from the deal.

Lambert said he is assuming a "20 percent haircut on the assets sold by SocGen."

A source close to Rosbank said that it had already begun to sell its real-estate holdings and shareholdings and selling more of these assets to VTB was a continuation of the strategy of slimming down its balance sheet.

VTB said in May that the stake was not strategic and that it was in talks on a sale.

DOUBLE OR QUITS

Russia and Eastern Europe are key planks of SocGen Chief Executive Frederic Oudea's recovery strategy, which aims to offset stagnating domestic retail revenues and volatile trading profits with exposure to dynamic economies beyond the euro zone.

Although this has yet to fully bear fruit, Oudea pledged in June that its Russia operations would deliver a sustainable return on equity of over 15 percent by 2015 as the cost-cutting efforts of the past few years begin to take effect.

By contrast, SocGen is targeting an overall group return on equity of 10 percent in the same time-frame. SocGen's shares trade at a discount relative to French and European peers, reflecting market scepticism over Oudea's strategic vision.

Golubkov was replaced by his first deputy, Igor Antonov, who remains acting chief executive until a replacement can be found.

The Russia boss has a long way to go to meet profit hopes for the year. SocGen reported 29 million euros profit for the first half for Rosbank and its Russian mortgage and consumer-finance arms, versus a 291 million-euro loss in the year-ago period, hit by goodwill writedowns.

Analysts have said they want to see annual profits of 120 million euros to prove the unit is on track.

"It is not so obvious (why SocGen would) increase their already controlling stake," said Gazprombank's Klapko. "Probably they are providing some assets they do not need in exchange."

While Western banks flocked to Russia after the 1991 Soviet collapse, this no longer fits President Vladimir Putin's vision for a country which was badly exposed to the Wall Street crash almost two decades later.

Large state-controlled banks are increasingly competitive, enjoying a funding advantage thanks to the backing of a sovereign with low debts, and they have reinforced management with foreign talent.

A report by Moody's on Monday said over the coming 12-18 months, operating conditions for Russian banks will be challenging partly due to slower economic growth.

Banking sources familiar with SocGen's strategy have told Reuters that buying out VTB was inevitable given its desire to take full control of what bankers and former employees described as a divided and difficult-to-manage entity. VTB's presence on Rosbank's board was also a hindrance, they said.

Metals tycoon Vladimir Potanin, who with former partner Mikhail Prokhorov used to own Rosbank, holds the remainder of the bank with other shareholders. Potanin is now CEO of mining company Norilsk Nickel (>> GMK Noril'skiy nikel' OAO).

(Editing by Douglas Busvine, Louise Ireland and Philippa Fletcher)

By Megan Davies and Lionel Laurent