July 9 (Bloomberg) -- Alfa Bank, Russia's largest privately owned lender, said its owners have provided an extra $800 million in capital as a run on private banks poses the biggest test to the country's financial system since the meltdown of 1998.

Customer withdrawals will reach $200 million by the end of today after a three-day run, the bank said earlier. That amounts to 14 percent of the lender's deposits, according to Bloomberg calculations based on bank data. The bank's managers are meeting daily with the country's central bank and government officials, Alfa Bank President Pyotr Aven said.

``Alfa Bank has the full support of the Kremlin and the central bank,'' Aven said on a conference call. ``The current crisis has been caused by a lack of confidence in the state, in the country, in its banks.''

Russians may be starting to shift funds from privately owned banks to state-run lenders. State-owned Vneshtorbank and OAO Sberbank, Russia's two biggest banks, may benefit from the crisis of confidence in the country's private banks, Morgan Stanley said in a note to investors today.

Vneshtorgbank, Russia's second-biggest bank by assets, has seen retail deposits rise this month, Interfax reported. The bank plans to raise as much as $500 million from a sale of dollar bonds next week, according to an e-mailed statement from its banker ING Groep NV.

Alfa can withstand customers taking out about $600 million in a week if demand mounts, Deputy Chief Executive Oleg Tumanov said earlier today.

`Situation Stabilizing'

``We are ready to meet all our obligations,'' Tumanov said in a telephone interview. ``Should people demand it, we could pay $500 million to $700 million.''

Private banks are struggling to stop a run on funds after the central bank in May shut down OOO Sodbusinessbank amid money- laundering accusations, sparking a cash crunch as banks stopped lending to each other. Consumer lender Gutabank shut down this week while seven others failed to meet payments or lost their licenses.

The crisis may be easing after the Central Bank agreed to cut reserve requirements for banks, Standard & Poor's said in an e-mailed statement.

``The situation appears to be stabilizing owing in part to the reduction in cash reserves requirements, which will infuse more cash liquidity into the banking market,'' S&P said in a statement e-mailed to news agencies.

Alfa is one of the few banks to repay its bonds after surviving the 1998 crisis when the government's $40-billion debt default wiped out many of Russia's largest non-state lenders. The bank is now boosting cash holdings at branches and automated teller machines to calm depositors concerned by market speculation that the lender is under strain.

Customers Burned

``People have gotten burned so many times that they don't need to know what the problem is, it's enough to know that there are reports of problems,'' said Natasha Fadeyeva, 32, an advertising firm manager who closed her Alfa account on Tuesday by withdrawing $2,500. ``It's better to be quick and on the safe side.''

If more people like Fadeyeva shut down their accounts, Alfa has money ``available from shareholders,'' and ``an additional reserve'' to meet its obligations, Deputy Chief Executive Andrey Kosogov said. ``There is an agreement that will allow us to use this if necessary.''

Mikhail Fridman, 41, is Alfa's controlling shareholder with over half the bank's stock. Alfa holds $1.2 billion in retail deposits as of today, said bank board member Alexander Gafin.

State-Owned Banks

Fridman's Alfa Group was among investors that last year formed the TNK-BP oil company with BP Plc, Europe's largest oil company, and Russia's OAO Tyumen Oil Co. in a $6.15 billion transaction.

Russia has 1,300 private banks, about a third of which have less capital than the legal minimum of $1.2 million, banking analyst have said. If smaller banks fold the biggest state-owned banks may benefit, Morgan Stanley said.

``The prevailing view in the market has long been that this crisis will ultimately favor the largest state-owned banks, notably Sberbank and Vneshtorgbank,'' the brokerage said.

The volume of retail bank deposits at Vneshtorgbank rose by 4.3 percent, or 1.6 billion rubles ($55 million), to 38.6 billion rubles in the first week of July, Interfax reported, citing the bank's press service.

Vneshtorgbank plans to sell $300 million to $500 million in floating-rate notes, according to an e-mail sent to investors by ING Groep NV and seen by Bloomberg. ING is managing the issue with Barclays Plc and HSBC Holdings Plc., the e-mail said.

Yukos Speculation

``The Russian government's finances are in extremely good shape and that directly reflects on state banks,'' said Kieran Donnelly, managing director of international fixed income sales at MDM Bank in Moscow. This will help Vneshtorgbank sell its bonds, even amid concern about Russian banks Donnelly added.

Alfa may also be affected by speculation that authorities could target banks tied to Russia's richest men, known as the oligarchs. These concerns may have been fueled by investigations at OAO Yukos Oil Co., the second-largest oil producer, and the arrest of Mikhail Khodorkovsky, Russia's richest man.

``Market participants and commentators took the view that banks related to oligarchic interest and conglomerates could be potentially the target of the monetary and tax authorities,'' Morgan Stanley said in the report.

Alfa may have its long-term foreign currency rating cut by Moody's Investors Services, the ratings company said yesterday in a statement.

To contact the reporter for this story: Todd Prince in Moscow at tprince2@bloomberg.net.

Last Updated: July 9, 2004 10:29 EDT