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Russian bank chief fears huge withdrawals

/ Source: Financial Times

The head of Russia's largest privately-owned bank warned on Thursday that up to half of its retail deposits could be withdrawn by nervous customers in coming weeks as a result of turmoil in the country's financial sector. 

Peter Aven, president of Alfa Bank, said his bank was supported by shareholders and could honor all demands. However, he believed that up to $700 million (€565 million) might be withdrawn and that it could take a month before deposits were returned. 

His comments came as Moody's Investors Service warned it may downgrade the long-term foreign currency ratings of 18 Russian banks. The ratings agency's list included large groups such as Alfa, MDM, Nikoil IBG, Petrocommerce and Zenit. 

"The review will focus on the capacity and willingness of Russia's central authorities and of other banking market participants to provide prompt liquidity support to the solvent banks in need of such aid," Moody's said. 

The ratings agency affirmed its stable outlook on the four state-backed groups - Sberbank, which holds 52 per cent of all retail deposits, Gazprombank, Vneshekonombank and Vneshtorgbank. Separately, Standard & Poor's maintained all Russian bank ratings, and Fitch said it was not changing its Alfa rating. 

The Russian benchmark sovereign bond maturing in 2030 fell one point to 90.8 on Thursday and its yield premium over the comparable US Treasury rose 14 basis points to 2.77 percent. 

Bond markets had already been unsettled by the problems of Yukos, the oil group, and the repackaging last week of Russian debt by Germany, but Russia's underlying economy remains strong, analysts said. 

"The banking situation will create short-term volatility," said Tim Ash, emerging markets analyst at Bear Stearns. "But the Russian banking sector is underdeveloped and has not been a major channel of capital to the economy, so the impact will be limited." 

Alfa has been affected by the widespread concern triggered by tough regulatory action by the Central Bank. 

This has resulted in the closure of several banks and severe operational problems for others in recent weeks after a liquidity crisis. 

The Central Bank on Wednesday moved to engineer a rescue by Vneshtorgbank of Guta Bank, the country's 22nd largest bank by assets. It closed its doors to customers earlier this week. Mikhail Fradkov, the prime minister, also spoke out in support of changes permitting voluntary mergers among the country's 1,200 banks.