Russia's central bank resisting calls to take over running of Western banks' local arms -sources
* Russian businesses complain foreign banks won't lend
* Officials have looked at running foreign units locally -sources
* Central bank wary of depositors pulling money -source
* Central bank already closely monitoring foreign units -source
* This content includes content produced in Russia where the law restricts coverage of Russian military operations in Ukraine
MILAN/MOSCOW, July 14 (Reuters) - Russia's central bank is resisting domestic calls to take over the running of foreign lenders' local businesses, two sources with direct knowledge of the matter told Reuters, concerned in part that this could prompt depositors to pull out funds.
The central bank is under mounting pressure to act from some Russian officials and businesses after Western-owned branches stopped lending as their governments imposed sanctions on Moscow over the Ukraine conflict. That has angered Russian customers struggling with economic recession and galloping inflation.
According to two separate sources, Russian authorities have looked into a scheme that would transfer day-to-day management of some foreign-owned local banks into Russian hands, while leaving ownership with the parent company.
For now, however, the central bank is resisting such a move, the two sources with direct knowledge of the matter said, with one adding it was worried about the possibility of depositors rushing to pull out funds.
"The Bank of Russia supervises all credit institutions registered in Russia, ensuring the stability of the banking sector," the central bank told Reuters in emailed comments.
"Foreign banks' subsidiaries are Russian legal entities licensed by the Russian central bank and are subject to the same requirements in regard to the mandatory ratios, provisions etc as for banks with Russian shareholders," it added.
The pressure on the central bank is building.
"A number of foreign banks have suspended their operations and sit full of liquidity - are there prospects for introducing external management for such banks? They are just sitting (on the cash) and not lending," an investor, who did not give her name, asked a central bank official at the St Petersburg International Legal Forum late last month.
Calls to introduce external management, while preserving foreign ownership, were supported last month by Andrei Kostin, the chief executive of Russia's state-controlled VTB bank.
"I personally believe that it should be a quid pro quo: our banks were seized and their banks should be taken away," he added.
Foreign banks accounted for 11% of total Russian banking capital at the end of 2021, the latest data shows.
Raiffeisen RBIV.VI , UniCredit CRDI.MI and Citi C.N , the biggest three units of Western banks, held 3.5 trillion roubles ($60 billion) in assets versus 38 trillion roubles at top Russian player Sberbank SBER.MM .
Together, Raiffeisen, UniCredit and Citi held 264 billion roubles in retail deposits versus Sberbank's almost 10 trillion, according to Interfax data.
Making use of a law passed in 2002, the central bank has already installed its representatives at over 100 financial institutions, including the Russian units of Raiffeisen, UniCredit, Intesa Sanpaolo ISP.MI , ING INGA.AS and Citi.
The central bank vets any decision that goes beyond day-by-day management and closely monitors capital and liquidity levels at the Russian businesses of foreign banks, a Western source with knowledge of the matter told Reuters.
Since the outbreak of the conflict, Western banks that have kept a presence in Russia have also removed foreign nationals from boards and senior management teams, the source added.
Local staff who have remained in charge are under pressure from authorities to make sure Western sanctions are not applied given a proposed Russian law that make it a criminal offence to harm businesses by enforcing them.
A VTB spokesperson confirmed that Kostin's stance on the foreign banks operations had not changed, while declining further comments. The Russian arms of Raiffeisen, UniCredit, Intesa Sanpaolo and ING did not reply to requests for a comment.
Citibank Russia declined to comment.
The Ukraine conflict has prompted Western banks to study quitting Russia, but escalating sanctions have restricted the number of buyers.
Russia says it is conducting a special military operation in Ukraine.
Experts say that stripping Western banks of day-to-day management, while preserving them as owners, could leave them on the hook for any moves that broke international sanctions.
"Even if you don't directly run your bank's Russian operations, you may still be exposed to it through counterparty risk," said John Sedunov of the Villanova School of Business.
($1 = 58.2500 roubles)
Top bank exposures to Russia ahead of Ukraine conflict Link
Reporting by Valentina Za in Milan, Giuseppe Fonte in Rome and
Editing by Elisa Martinuzzi and Mark Potter
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