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It's Payback Time for Russian Banks--or Else


MOSCOW — It's open season on Russian banks.

A government-imposed moratorium intended to protect Russian banks from their foreign creditors ended Monday. From now on, they must either pay their debts or be forced into bankruptcy.

The expiration of the deadline is a turning point in Russia's financial crisis. In the coming weeks and months, Central Bank officials say, about half of the country's 1,500 banks may collapse.

"There is no doubt that there will be trials, arrests, investigations," Alexei Mareichev, head of the securities department at Gazprombank, told the Kommersant Daily newspaper. "The only question is how aggressive the Westerners will be."

On Aug. 17, when the Russian government announced it could no longer afford to prop up the national currency, it also imposed a 90-day moratorium on payments of billions of dollars in private bank debt owed to foreigners.

As a result, Western creditors have had to bide their time for the last three months, talking to the banks about how and when they might pay up. As of Monday, if the banks aren't making good on their debts, the creditors can file suit and perhaps seize assets held outside Russia.

Economist Otto R. Latsis, editor of the Noviye Izvestia newspaper, said the fate of many commercial banks is in the hands of their creditors.

However, few Russians outside the banking sector are likely to shed a tear. The reason is that the vast majority of the institutions threatened by bankruptcy are not banks in the Western sense. Instead of holding money for depositors, most of them are little more than currency speculators. The pain is likely to be limited to the banks' owners and employees.

"A lot of these banks shouldn't have been in business to begin with," said Charles Ryan, president of the United Financial Group investment firm.

Much of the money owed to Westerners is from forward currency contracts--agreements to provide a certain amount of dollars for a certain number of rubles at a specific date in the future. Westerners who bought ruble-denominated government treasury bonds simultaneously bought such contracts so they could be assured of converting their earnings back into dollars at a favorable rate on the day the treasuries matured.

But the sharp devaluation of the ruble since August--from about 6 to more than 16 to the dollar--means that few of the banks have adequate dollars to fulfill the contracts. And they may call in debts from other banks, causing a ripple effect throughout the banking sector.

Not all those bankrupted will be allowed to collapse. The Central Bank is preparing to rescue banks considered too valuable to fail--those with a large number of customer deposits, or those deemed too critical to regional economies. The Central Bank has said 18 banks are on the list.


Sergei L. Loiko of The Times' Moscow Bureau contributed to this report.

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