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. Last Updated: 07/27/2016

Lithuania Protests Allegations of Bank Crisis

RIGA, Latvia -- The government of the Baltic state of Lithuania, rocked by the closure of its two top banks and political scandal, insisted Wednesday that the country is not suffering from a full-blown banking crisis.

In his traditional Wednesday radio broadcast, embattled Prime Minister Adolfas Slezevicius reiterated his conviction that the problems were only with Innovation Bank, the country's leading bank, and Litimpeks, its second-largest.

The central bank swooped in at the end of December to shut the two banks and later arrested top officials on fraud charges.

"We do not have a crisis of the banking system, we have problems with these two banks," his spokesman quoted Slezevicius as saying on the radio. Lithuania has been on the brink of political chaos since it emerged that Slezevicius withdrew his savings from Innovation days before it was closed, although the premier refused to quit.

Two senior ministers also offered to step down but their resignations were rejected by President Algirdas Brazauskas.

Slezevicius' comments on the banking system were echoed by the International Monetary Fund.

IMF resident representative in Lithuania, Domenico Fannizza, said that the closure of Innovation Bank and Litimpeks by the central bank was the start of a long-needed restructuring of the country's banking system. "There are weaknesses in the banking sector but there has been no run on deposits and no liquidity problems," he said.

The president of the central Bank of Lithuania, Kazys Ratkevicius, is the latest to offer to step down in the wake of the bank problems after the ruling LDDP party backed a motion for his dismissal.

Lithuania has been desperate to avoid a banking crisis of the scale that hit neighbor Latvia, when the collapse of its largest bank caused a shock wave throughout the whole economy.

But the banking sector in Latvia was much larger and plays a bigger role in the economy than in Lithuania, experts say.

A spokeswoman for the president said he was still considering Ratkevicius' resignation but a quick response was unlikely. Any decision may be delayed until after a special IMF and World Bank mission visits Lithuania.

An IMF/World Bank team is due to arrive in Lithuania on Thursday but may be delayed by the bad weather which has hit Washington, the World Bank's Vilnius office said. A World Bank banking expert, who declined to be named, said the situation in Lithuania had calmed after initial anxieties.

"The banks are operating relatively normally and depositors are coming back," he said. "It's a serious situation, but it does not threaten the collapse of the whole system."