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11 Lenders Upgraded by Standard & Poor's

Bloomberg Alfa Bank and MDM Bank, the nation's largest and third-largest closely held banks, were among 11 Russian lenders upgraded by Standard & Poor's as the economy expands, reducing the risk of default.

Alfa, MDM and Petrocommerce Bank, controlled by oil giant LUKoil, had their long-term credit ratings raised to `B' from `B-,' the agency said in a statement.

Russia's economy is expected to grow 5.9 percent this year, the fifth year of growth, enabling the country to meet its foreign debt. Russia defaulted on $40 billion in debt in August 1998, leading to the collapse of the country's banking industry.

"A direct consequence of these trends is that the loan and security portfolios of Russian banks are in better shape than a few years ago," S&P said in the statement.

Ural-Siberian Bank, one of Russia's two publicly traded banks, had its outlook raised to"positive" from"stable," while Menatep St. Petersburg had its outlook upgraded to"developing" from"stable." Menatep bank is part of Menatep Group, which controls Yukos, Russia's largest oil company.

Russia's banking sector has been expanding 20 percent to 40 percent per year since 1999 as banks develop their retail departments and people become more confident in the country's financial institutions, the agency said.

Russia has failed to restructure its banking industry, making it susceptible to crisis, S&P said.

Parliament has been debating for several years the creation of a depositary insurance program. Such a program would increase retail deposits, which could then be used to loan to companies at higher rates, as bank clients would feel protected in case of a bankruptcy.

"While the Russian government and industrial economy have benefited from several key reforms, the absence of real change in the banking sector during the past few years is disappointing in comparison," S&P said.