Details are emerging about the Central Bank's plan to sell off Vneshtorgbank, the second largest Russian bank, but what the sale would mean for its smaller sister bank Vneshekonombank remains unclear.

Kommersant, citing a draft Central Bank and EBRD letter of intent, reported last week that Vneshtorgbank, or VTB, will be privatized in three stages, with the EBRD first acquiring 20 percent through a new issue of shares. A second stage lasting two to four years would see the Central Bank slash its current 99.9 percent stake in Vneshtorgbank to less than 50 percent by attracting new strategic investors. Finally, between 2005 and 2007, the last of the Central Bank's shares will be put for sale through an open subscription on the Moscow, Frankfurt, London and New York exchanges. Vneshtorgbank officials said Friday that they could not confirm the report, although a spokesman called it probable. "Concrete plans have still not been approved and no decision has been made either on the size of the stake or the price that should be paid by EBRD," said Boris Sergeyev, head of Vneshtorgbank's press service. "There is a large possibility that this document really exists," he said. "At least no one told me to decline it." The EBRD declined to comment on the report. A source at Kommersant, which first broke the news last month that the EBRD was in negotiations for a stake, said the information both times was supplied by the Central Bank itself. "The Central Bank is using every opportunity to push this plan through as a final decision on the future of the two largest state-owned banks, Vneshtorgbank and Vneshekonombank, is approaching," the source said. The Cabinet tentatively approved a proposal last month to revamp Vneshtorgbank and Vneshekonombank. Vneshtorgbank has long been the Central Bank's favorite, while Vneshekonombank has always been closer to the government. In its decision, the Cabinet gave the go-ahead to split Vneshekonombank into two entities -- a commercial bank and an agency to service Soviet-era debts. As such, Vneshekonombank's commercial entity could become a main rival to Vneshtorgbank in servicing foreign trade. Vneshtorgbank is unquestionably a prime asset in the Russian banking sector. Established in 1990 to service the country's trade operations, the bank now has 33 branches and four affiliated banks in Russia and is a major shareholder in five former Soviet trade banks located in London, Paris, Vienna, Luxembourg and Frankfurt. The bank has also managed to develop into a fully operational commercial bank, with foreign trade operations accounting for only 8 percent of its balance. Vneshekonombank, in comparison, is still in the early stages of becoming a commercial bank and has no regional network. Speculation has swirled in banking circles in recent weeks about the possibility of a merger between the two banks. However, Vneshtorgbank and banking analysts discounted such talk. "You can merge anything or anybody, but you can't compare Vneshtorgbank with Vneshekonombank at this stage, and we are certainly against plans [to merge]," Sergeyev said. "I think that both the government and the Central Bank have an understanding that it is economically unjustifiable to merge Vneshtorgbank and Vneshekonombank as they have little in common and there is no direct competition between them," said Andrei Ivanov, a banking analyst at Troika Dialog. Other analysts pointed out that there is enough room for both banks on the market. "I think that the best thing Vneshekonombank can do is become an analog of U.S. Eximbank and concentrate on big export-financing projects that can't be carried out by Russian commercial banks," said Mikhail Matovnikov, deputy head of the Interfax Rating Agency. Prime Minister Mikhail Kasyanov is expected to give a final say on the fate of the banks by the end of the year.