(Updated with details, analysts' comments and background.)

By Darcy Crowe

Of DOW JONES NEWSWIRES

CARACAS -(Dow Jones)- Venezuela plans to close by May 22 the purchase of Banco Santander SA's (STD) local affiliate, bringing one of the country's largest financial institutions into state hands.

The government will sign a "global document" to purchase Banco Santander's Venezuelan subsidiary, President Hugo Chavez said Wednesday in televised remarks. Chavez didn't say how much Venezuela will pay for the bank.

Earlier in the day, Chavez said Finance Minister Ali Rodriguez was meeting with representatives from Banco Santander to finalize a deal for Banco de Venezuela, as the Santander unit is known.

Calls to the Santander offices in Caracas went unanswered.

The government recently closed a deal with steelmaker Ternium SA (TX), agreeing to pay the company $1.97 billion for a nationalized local steel-mill, a price that analysts said was close to market value.

"We think that Venezuela is going to be paying fair-market prices" for Santander's assets, said Maikel Bello, an analyst with local research firm Ecoanalitica. The Caracas-based group says the bank, one of the largest in Venezuela, could cost $890 million. Local press reports have stated that Santander could receive $1.2 billion.

Ternium's agreement, however, was based on only $400 million down payment, with the rest parceled out over the next year. "Other companies dealing with nationalizations can expect similar payment schedules," Bello said.

These arrangements could give the government a chance to miss payments if its finances continue to be squeezed by the decline in the price of oil.

"We've seen cases in the past where Chavez and the companies agree on a price and then the government doesn't make good on its payments," noted Patrick Esteruelas, an analyst with New York-based political risk consultancy Eurasia Group.

The government reached a deal on August 18 with cement makers Lafarge SA ( LFRGY) and Holcim Ltd (HOLN.VX), but the companies are yet to receive their payments.

"Chavez is clearly betting that oil prizes will go back up," Esteruelas said.

A Giant In State Hands

Chavez first announced the nationalization of the Banco Santander unit last July, intervening as the Spanish group started to negotiate the bank's sale to a Venezuelan financial group.

The Santander outfit is a prized target for Chavez because of its nationwide- branch network, which would bolster the presence of state-owned banks in remote regions.

With 285 branches across Venezuela, Banco de Venezuela offers the state considerable reach in distributing funds for social initiatives, paying government salaries and servicing the state's growing number of companies.

Chavez has said that, under state ownership, Banco de Venezuela will be a " socialist bank," but so far has given few details on what this will entail. On Wednesday, Chavez said he had in his hands a "a strategic proposal" for Banco de Venezuela's transformation into a state bank, but didn't reveal details of the proposal.

-By Darcy Crowe, Dow Jones Newswires; 58-414-249-6821; darcy.crowe@ dowjones.com