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(Bloomberg) -- The news broke in a terse announcement on the web: another Russian bank was in trouble.

The Jan. 26 statement from SB Bank, a midsize Russian lender, underscored the pressures building inside the nation’s financial system. SB froze cash withdrawals, initially for three days and then through at least Feb. 5.

Staggered by the collapse in oil and plunge in the ruble, Russia is now confronting a potential banking crisis.

So far, the damage has been mostly limited to smaller banks like SB, but across the industry more clients are taking out cash and struggling to repay their loans. U.S. and European sanctions are choking off financing abroad, while high interest rates are throttling growth at home.

Russian authorities are already helping lenders with accounting fixes and providing funds to some of the biggest state-owned banks. Analysts predict more rescues this year as losses balloon. Alfa Bank estimates the red ink could reach 2 trillion rubles ($30 billion), or a quarter of banks’ equity.

“It’s a kind of cancer and we know the symptoms are caused by Ukraine, sanctions, sinking oil prices and the economic slowdown” said Oleg Kouzmin, the chief economist at Renaissance Capital in Moscow and an adviser to the central bank from 2009 to 2013. “What we don’t yet know is if it’s a treatable form.”

Bailout List

Russia is no stranger to crises. In 1998, it defaulted on $40 billion of domestic debt and devalued the ruble after oil prices dropped below $10 a barrel. The state spent more than 4 trillion rubles to bail out lenders during the global credit squeeze that began in 2008. So far, President Vladimir Putin’s government has committed 1 trillion rubles to prop up the banks this time around, and can spend more to avoid defaults.

The banks are coming off a bad year and heading into a worse one. National Bank Trust, the nation’s 28th largest by assets, was bailed out in December after what amounted to a run. Three major state-owned banks, VTB Group, OAO Gazprombank and Russian Agricultural Bank, applied for government funding to replenish their depleted capital.

The pain isn’t letting up. Last month, Russia’s Agency for Deposit Insurance approved a list of 27 banks that would be eligible for state rescues. As a matter of policy, the agency doesn’t identify such banks to avoid panicking depositors. OAO Sberbank, Russia’s biggest bank, has said it will tighten restrictions on withdrawals by debit card starting in March.

With so much at stake, the government is also leaning on private investors to provide capital to banks. Two midsize banks, UralSib Bank and Credit Bank of Moscow, said last month they had boosted capital through loans from their main shareholders.

Russian banks are in “capital-preservation mode” this year, with no profits and no growth for many, according to a report e-mailed by Renaissance Capital.

Saving Banks

“If top banks from Russia’s top 30 fall into trouble in this window, the government will save them,” analyst David Nangle wrote. “It would be very painful for such a bank to go under, as it could spark a crisis of confidence in the wider banking system, leading the population to withdraw deposits and interbank lending rates to spike.”

The central bank is trying to ease the pressure on banks, but some new policies may only mask the risks. Over the past six weeks, the central bank has relaxed accounting rules and said it would use credit ratings of lenders pre-dating Russia’s incursion into Crimea for the purposes of regulation -- a decision that effectively means banks will be judged as if the economy and industry were in better shape than they really are.

Reversing Course

“All banks suffered from the much weaker ruble and had to revalue fixed assets at the new rates,” said Natalia Berezina, a banking analyst at UralSib. “These measures were meant to be for the first half of the year but could be prolonged if the situation remains bad.”

Policy makers have struggled to bolster the ruble and curb inflation without crushing the economy. The central bank unexpectedly reversed course and reduced its key interest rate to 15 percent from 17 percent on Jan. 30, a move VTB, for one, called “a step in the right direction.”

Yet the central bank is powerless to address economic problems rooted in the international outcry over the conflict in Ukraine, said Arturo Bris, a professor of finance at the IMD business school in Lausanne, Switzerland. Policy makers can either raise rates to help the currency and preserve Russians’ purchasing power, or lower them to help the banks. Neither seems to be working, he said.

“The solution to this financial crisis is political,” Bris said. “There is no monetary policy that can resolve the situation. The only solution is to restore the geopolitical equilibrium.”

--With assistance from Elena Logutenkova in Zurich.

To contact the reporter on this story: Jason Corcoran in Moscow at jcorcoran13@bloomberg.net To contact the editors responsible for this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net Frank Connelly

Bloomberg