Russian bank's licence withdrawal may signal central bank crackdown

Reuters

* Bank has substantial retail operation

* Central bank says failed to stick to money-laundering andfalse accounting laws

* Administration will cost deposit insurance fund $917million

* Cousin of President Putin was on board

By Jason Bush

MOSCOW, Nov 20 (Reuters) - Russia's central bank haswithdrawn Moscow-based Master Bank's licence because of what itcalled "large-scale dubious operations", raising the possibilityof a wider crackdown on the country's banks.

An announcement by the central bank on Wednesday referred toa failure by Master Bank, a mid-sized lender with significantretail operations, to observe anti-money laundering laws, falseaccounting, and loans to connected parties.

The move may signal that the central bank under new governorElvira Nabiullina aims to clamp down on shady activity by banks.

"That shows that the central bank is getting really seriousabout enforcing the regulations," said Yaroslav Sovgyra,associate managing director of rating agency Moody's in Moscow."Right now there seem to be fewer and fewer banks that areuntouchable."

As Master Bank has sizeable retail deposits, the withdrawalof its licence will be a costly step that authorities might havebeen reluctant to take in the past, he added.

Analysts also expressed surprise that authorities were targeting an institution which appeared to have good politicalconnections. Igor Putin, a cousin of President Vladimir Putin,is on the board and was previously a vice-president of the bank.

Kremlin spokesman Dmitry Peskov told Reuters Igor Putin'sbusiness activities had no implications for Russia's leader.

"His activities have no relationship to the President andcannot have (any relationship)," he said, adding that there wasalmost no personal contact between the two men.

Master Bank's website now carries an official statement fromthe bank saying it is under temporary administration andreferring clients to the relevant bankruptcy law.

The bank - one of the largest Russian lenders to have itslicence revoked in recent years - did not respond to requestsfor further information. Igor Putin told Russian media last yearthat Master Bank was operating strictly according to the law.

Some other Russian banks on Wednesday reported paymentdifficulties because of agreements with Master Bank.

The rouble hit a two-month low, which traders said mightreflect fears bank regulation will be toughened.

ALLEGATIONS

Master Bank has been dogged in recent years by negativerumours and allegations, some of which have linked the bank withhigh-ranking political figures.

In 2011 a parliamentary deputy asked for an investigationinto media claims the bank was involved in financing pro-Kremlinyouth movement Nashi on the direction of Vladislav Surkov, nowan advisor to President Putin. The claims were never confirmed.

In a separate case, Russia's police ministry publicly askedthe central bank to investigate Master Bank last year, followingthe arrest of a former Master Bank manager for suspected moneylaundering.

On Wednesday, police said that searches were underway atMaster Bank's head office as part of a criminal investigationinto laundering of more than 2 billion roubles ($61 million).

"The managers of several commercial banks, including MasterBank, organised a scheme for illegal encashment of the money ofinterested clients through 'one-day firms' and financial creditorganisations," the police said in a statement. "With eachtransaction the wrongdoers took a 7 percent commission."

Central bank chief Nabiullina told the State Duma, the lowerhouse of parliament, that Master Bank had a hole of at least 2billion roubles ($61 million) in its capital.

"We were forced to take this extreme measure", she said.

BIGGEST TEST

The closure of the bank is the biggest test to date ofRussia's system of retail deposit insurance, under which thestate guarantees small savings if a bank fails.

Around 20 dejected depositors, mostly elderly, had gatheredon Wednesday afternoon outside Master Bank's Moscow office,where calls and requests for entry went unanswered.

At one point a woman started screaming through the intercomto be let in. She and others declined to speak to Reuters.

The withdrawal of Master Bank's licence will cost Russiaabout 30 billion roubles ($917 million), the deputy head of theDeposit Insurance Agency, Andrei Melnikov, told Reuters.

That will be the largest payout to depositors since theagency was created in 2004 to boost confidence in the banks.

Master Bank is Russia's 41st largest bank in terms of retailaccounts and deposits, according to data from Interfax.

Despite efforts to improve regulation, Russia still has 936mostly small banks. Nabiullina's predecessor, Sergei Ignatyev,said in February the central bank was concerned by evidence ofmassive money laundering operations.

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