* This content was produced in Russia where the law restricts coverage of Russian military operations in Ukraine

MOSCOW, June 20 (Reuters) - Russia's largest lender Sberbank expects to send at least $11.6 billion in tax and dividends to the federal budget this year and may build on 2023's record profits as Western sanctions reduce competition, its finance chief told Reuters.

Sberbank made record annual profits of 1.5 trillion roubles for 2023, about 45% of total banking sector profits of 3.3 trillion roubles, as Russia's banks rebounded from the impact of sweeping financial sanctions over the Ukraine conflict.

The initial sanctions shock sharply squeezed Russian banks' profits in 2022, but rebounding economic growth and lenders jostling for business from the state's burgeoning defence budget have aided a swift recovery.

This year, Sberbank is eyeing profits of 1.5-1.6 trillion roubles, though an upward revision to that forecast may be possible, Senior Vice President and CFO Taras Skvortsov told Reuters in an interview in Sberbank's Moscow offices.

The central bank expects banks to make 3.1-3.6 trillion roubles in profits this year.

"We have certain potential stories that could give additional profit in the second half of the year," Skvortsov said. "If that happens, it would be an upside to our current forecast."

A profitable Sberbank directly benefits the state, which holds a majority stake.

Sberbank paid more than 650 billion roubles in taxes in 2023, as well as 283 billion roubles in dividends to the budget, Skvortsov said. This year, Sberbank's total contributions will likely exceed 1 trillion roubles ($11.63 billion).

Interest rates, currently at 16%, will impact Sberbank's results. Skvortsov said Sberbank was now expecting a rate hike to 17% when the central bank next meets on rates on July 26.

Western sanctions, perhaps inadvertently, have played a positive role in quickening Russia's push to de-dollarise, Skvortsov said, and as Western banks gave up market share while exiting the market, their business drifted to domestic players.

"This meant, in essence, an increase for us in the more marginal rouble business, in which we earn more," Skvortsov said. "In terms of corporate business, foreign funding of Russian companies has been replaced by rouble funding."

($1 = 86.0000 roubles) (Reporting by Elena Fabrichnaya; Writing by Alexander Marrow. Editing by Jane Merriman)