The EBRD is in negotiations to buy a 20 percent stake in state-owned Vneshtorgbank, the second largest bank in Russia after Sberbank.

The government has for months been discussing privatizing Vneshtorgbank, which deals mostly with foreign trade, as part of a much-awaited overhaul of the rickety banking sector.

The European Bank for Reconstruction and Development said Tuesday that it has made an offer for the 20 percent stake and is now waiting for Russian authorities to give the green light.

"We are working on various options regarding Vneshtorgbank and are ready to move forward if we get the agreement of the Central Bank and the Russian government," said Jeff Hiday, head of media relations at the EBRD.

"We don't have anything to comment on yet as we need to wait for the government and Central Bank to decide," said Boris Sergeyev, head of Vneshtorgbank's external relations department.

The EBRD and Vneshtorgbank declined to put a price tag on the stake. Reuters quoted an unnamed EBRD source as saying the bank was offering $300 million, part of which would pay for the costs of privatizing Vneshtorgbank.

The Central Bank, which owns 99.9 percent of Vneshtorgbank, would guarantee a share buyback from the EBRD if the privatization of the bank is delayed, the source said.

The privatization of Vneshtorgbank and another Central Bank-controlled bank, Vneshekonombank, is scheduled to be discussed at a Cabinet meeting Thursday.

A key question that is expected to be brought up is whether the government and Central Bank are ready to allow foreigners to take a big chunk of what until now has been considered national property.

The Cabinet earlier said the Central Bank would be stripped of the shares by 2003, and now a final decision must be made on whether to privatize the banks or transfer the Central Bank's shares to another governmental body.

Vneshtorgbank is unquestionably a prime asset. Established in 1990 to service the country's trade operations, the bank currently has 33 branches, four affiliated banks in Russia and is a major shareholder in five former Soviet trade banks, located in London, Paris, Vienna, Luxembourg and Frankfurt.

Ratings agencies Fitch and Moody's have given the bank the highest payability ratings of any Russian bank. The Banker magazine last year ranked Vneshtorgbank in the 222nd spot of the world's 1,000 largest banks by capital.

As of Aug. 1, the bank had 47.57 billion rubles in capital and assets worth 145 billion rubles, according to the Rating Information Center, a Russian agency.

The World Bank has given its blessing to the sell-off of Vneshtorgbank. Among its recommendations on banking reforms, the World Bank suggested that the state sell a stake in Vneshtorgbank to a strategic foreign investor.

If it should be privatized, the billion-dollar question would be who besides the EBRD would be interested in owning stakes. A $300 million price for the 20 percent stake would value the remaining 80 percent of the bank at about $1.2 billion, a hefty sum for any single investor.

"Even if we talk about $750 million, which would be needed to take a controlling stake in Vneshtorgbank, the amount is too high for Russian banks, and I don't think that anyone would pay so much," said Mikhail Matovnikov, deputy director of Interfax Rating Agency, which tracks banks.

"Vneshtorgbank still has a lot of homework to do until it is ready for a strategic investor," he said.

Sergeyev said he hoped EBRD's interest in Vneshtorgbank will help convince other Western investors to come onboard.

"I hope that the position of the West will change when the EBRD finds out what is going on inside the bank," he said.

Matovnikov said oil companies are just about the only Russian companies that could afford to plunk down large wads of cash for acquisitions. However, many oil firms have already dabbled in banking and found the business to be a headache with insufficiently high profits to make it worthwhile, he said.

To date, the EBRD's investments into the Russian banking sector have met with lackluster results. Before the 1998 crisis, the EBRD was a shareholder in Tokobank, Inkombank and Avtobank. Tokobank and Inkombank lost their licenses shortly after the crisis. Avtobank was recently taken over Siberian Aluminum.

The EBRD also had lending programs with Uneximbank and SBS-Agro. The Uneximbank debt, worth some $100 million, has been restructured, but the EBRD is still fighting to get some $30 million from SBS-Agro.

Nevertheless, the EBRD embarked this year on a new banking project in Russia, buying a 10 percent stake in International Moscow Bank for $5.4 million. The EBRD also organized a $25 million loan for IMB, $10 million of which it provided itself.