Germany's Deutsche Bank on Wednesday granted Vneshekonombank a one-year, $100 million loan -- the largest to a Russian bank since the 1998 crisis.

But while the loan to Vneshekonombank, or VEB, is good for the sector as a whole, it highlights one of the chronic problems in the industry -- the unfair advantage state-owned banks have over private banks, analysts said.

VEB intends to lend the money to unspecified clients in the metals, oil, gas and chemical industries, according to the bank's press release. However, VEB, Russia's foreign debt agent, doesn't have a banking license from the Central Bank. It operates under a government decree that gives it special privileges. And by using that status for commercial gain it is technically breaking the law, according to Mikhail Matovnikov, deputy head of Interfax Rating Agency, which monitors the banking system.

"I see a conflict of interests here, as the bank is now attracting loans for its commercial activities under de facto state guarantees," Matovnikov said.

"It would be more fair to take such loans after VEB starts to operate as a normal bank," he said, referring to the restructuring the bank is currently undergoing that will see it split into a private bank and a state agent.

"VEB is taking advantage of its status and is an example of unfair competition --not only toward private banks, but also in respect to other state-owned banks," Matovnikov said.

Andrei Ivanov, banking analyst with investment house Troika Dialog, said that until the bank is split into a commercial entity and a government agency for servicing debts, it will be considered a state bank and "all risks will be taken by the government."

Even so, Matovnikov said, "The amount is impressive and the rate is very attractive for the post-crisis era."

Deutsche issued the loan at a rate of LIBOR plus 2.5 percent. Currently one-year LIBOR (London interbank offered rate, or what most creditworthy international banks charge each other) is around 3 percent. The average annual lending rate charged by Russian banks is about 16 percent in dollar terms.

Only a couple of banks have managed to attract money from abroad since August 1998, when the banking sector defaulted on billions of dollars' worth of loans.

Alfa Bank secured a $20 million syndicated loan last year that was organized by Standard Bank of London. The one-year loan, provided by several European banks, had a rate of LIBOR plus 3.75 percent. Later in 2001, MDM Bank received a $10 million, 6-month loan, syndicated by Austrian Raiffeisenbank under LIBOR plus 4.125 percent.

Deutsche Bank's head office in Frankfrurt declined to comment Wednesday.

And VEB spokeswoman Tatyana Golodets refused to elaborate on how the loan will be used, but stressed that it was not guaranteed by the state. She did say that the bank's restructuring was underway, although no timetable for its completion was available.

Following the revamp, VEB's commercial operations will have assets worth some $2 billion, which would make it Russia's third-largest bank, behind Sberbank and Vneshtorgbank.

VEB posted a net profit under international accounting standards of $106 million in January-September 2001. Its assets rose 30.9 percent to $3.043 billion, while its debt to the government and the Central Bank for the same period rose 19.3 percent to $1.794 billion.