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Last Updated: Wednesday, 7 July, 2004, 19:45 GMT 20:45 UK
Russian banks 'are not in crisis'
Guta Bank
Guta Bank has shut its branches in Moscow and St Petersburg
The Russian Central Bank is trying to calm public fears about the country's banks after the latest casualty in the sector closed its doors.

Guta, one of Russia's 25 biggest banks by assets, said on Tuesday that it was suspending operations after a run of withdrawals had depleted its coffers.

Queues of nervous customers have formed outside many other Russian banks.

But Central Bank chief Sergei Ignatiev insisted there was "no crisis" as a state-run bank came to Guta's rescue.

Mr Ignatiev said Guta shareholders had already accepted the proposal to sell up to Vneshtorgbank (VTB), Russia's second-largest commercial bank.

"I think the problems [in the Russian banking sector] are mainly psychological," he told the Interfax news agency.

And he said he was lowering the amount of money banks have to keep in reserve to cover their assets from 7% of holdings to 3.5% - a move which would instantly free up capital to cover deals and withdrawals.

Rumour mill

In a echo of the country's financial crisis of 1998, many are trying to withdraw as much of their cash as possible.

The returning lack of confidence in the Russian banking sector started in mid-May, when the Central Bank pulled the licence of medium-sized Sodbiznesbank because it was allegedly laundering money.

That triggered the start of a general crisis of confidence in the banking sector amid rumours that other banks would also be closed, with some institutions refusing to lend money to one another.

Despite the rescue arranged for Guta Bank, the difficulties were spreading to some of the biggest institutions Alfa - one of the top five - admitting on Wednesday that its cash machines were running out of funds because of a rush of withdrawals.

Alfa's biggest shareholders announced they stood ready to supply further funds if necessary.

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