Thu, Nov 21, 2013

http://www.reuters.com/article/2013/11/20/russia-cbank-master-bank-idUSL5N0J519V20131120

* Bank has substantial retail operation

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

* Administration will cost deposit insurance fund $917 million

* Cousin of President Putin was on board

MOSCOW, Nov 20 (Reuters) - Russia's central bank has withdrawn the licence of Master Bank, a mid-sized Moscow bank with significant retail operations, because of what it called "large-scale dubious operations".

An announcement by the central bank on Wednesday referred to a failure by Master Bank to observe anti-money laundering laws, false accounting and loans to connected parties.

Master Bank's website has been replaced with an official statement from the bank saying it had been placed under temporary administration and referring clients to the relevant law on bank bankruptcy. It did not respond to requests for further information.

The bank is one of the largest Russian lenders to have its licence revoked in recent years. Igor Putin, a cousin of President Vladimir Putin, is still on the board having previously worked as a Vice-President.

The central bank's move could be intended by new governor Elvira Nabiullina to send a strong message about toughening regulation of the banking sector.

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

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

The bank's closure is also the biggest test to date of Russia's system of retail deposit insurance, designed to reassure small savers that their bank deposits are guaranteed by the state even in the event of bank failures.

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

This represents the largest such depositor pay-out since the agency was created in 2004 to try to bolster confidence in Russia's banking sector.

Master Bank is Russia's 41st largest bank in terms of retail accounts and deposits, with some 47.4 billion roubles in private individuals' funds in the third quarter, according to rankings compiled by Interfax news agency.

It has some 75.2 billion roubles in assets, according the Interfax rankings.

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