Russian banks in crisis

Russia's largest private bank acted to stop a run on deposits yesterday as President Vladimir Putin's economic adviser said the country's banking industry was in crisis and blamed the government.

Alfa Bank imposed a 10 per cent commission on depositors who want to withdraw cash early as authorities fought to prevent a run on banks and bring calm to the sector.

Presidential economic adviser Andrei Illarionov made clear he disagreed with Prime Minister Mikhail Fradkov who tried earlier in the day to calm fears that banks were in trouble.

"It is obvious that there is a banking crisis," Interfax news agency quoted Illarionov as saying.

"The July 2004 banking crisis, like any other economic crisis, is a result of authorities' actions."

Alfa Bank said its special 10 percent commission was a temporary measure connected to the "panic on the market and a significant number of those wishing to withdraw their money".

The government and central bank tried to assure depositors with painful memories of a banking collapse six years ago that there was not about to be a repeat.

"It is good that the situation (in the banking system) is favourable and the issues which have arisen... are being solved by the central bank," Prime Minister Fradkov told a cabinet meeting.

The banking sector's problems started in May when a small bank lost its licence for money laundering. The following month, another small bank shut shop and then a medium-sized bank, Dialog-Optim, stopped taking deposits.

The events hit confidence, triggering a liquidity crunch as major banks stopped lending to smaller ones.

Early this week, one of the top 20 banks, Guta bank, had to shut its doors to depositors. It is about to be taken over by state-owned Vneshtorgbank.

Global ratings agencies said the troubles were unlikely to develop into a full-blown crisis or undermine Russia's strong economic fundamentals.

"It's endemic of the weakness in institutions in Russia but it will be worked out. We don't think that there's going to be a full blown banking crisis like in 1998 for example," Scott Bugie, managing director at Standard & Poor's, told Reuters.

"It's one of those sectors where there is a lot of credit risk, weak supervision, ownership issues, inter-group lending. There's a lot of risk. We look at this and we know that if there's a lot of turbulence you can have some overnight funding problems in institutions," he said.

Fitch ratings agency said it was sticking to its rating for Alfa Bank, though it estimated that retail depositors had withdrawn around $70 million from its Moscow branches this week.

But Moody's said it has placed 18 banks under review for possible downgrades, although it later said it affirmed Russia's own Baa3 sovereign rating.