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The Central Bank of Russia (CBR) announced on November 27 the forced closure of yet another small lender, Naftabank. Heightening worries of a government campaign to shut down the country's smaller banks, the action hit the markets as other banks, investors and depositors wonder who's next.

The CBR's withdrawal of its licence made Dagestan-based Naftabank the 24th Russian bank to be closed this year. The regulator said the licence was revoked due to Naftabank's failure to respect federal laws regulating banking activities, according to Prime. The bank failed to submit its financial reports to the CBR or meet other requirements, and "was also involved in dubious cash withdrawal operations involving large sums of money," the central bank said in a statement. "Managers and owners... withdrew high-liquid assets from the lending organization."

The action against Naftabank follows the shuttering of the medium-sized Master Bank on November 20. The 41st largest bank in Russia by deposits, according to a RIA Novosti rating, was guilty of conducting "large scale suspicious operations" and had violated laws against money laundering and the financing of terrorism, the central bank said in a statement, adding that it owed almost $1bn to its depositors.

The newly appointed governor of the CBR, Elvira Nabiullina, has made a crackdown on shadowy banking activity a key part of her leadership of the regulator. She told Duma deputies recently that more banks are likely to be closed.

With 24 banks now closed so far in 2013, the CBR has started the long, slow process of consolidating Russia's banking sector. While there are over 900 banks in the country, the top 50 hold well over 80% of all the banking sector assets. There are too many banks, while many of the smaller ones are little more than glorified treasury operations for corporate owners, taking advantage of banks' special privileges.

While the move to weed out such operations is positive, the campaign is indiscriminately hitting the sector and the wider financial markets. The Russian equity market slipped despite a moderately favourable environment on November 27. That drop was mainly due to outflows from Russia-dedicated funds on the back of the banking consolidation, according to analysts.

Apart from fading macroeconomic growth, Raiffeisen Capital analyst Mikhail Kuzin toldPrime that "rumors that there is a list of banks, which may follow Master-Bank," is a major element depressing stock prices.

Meanwhile, banking lobbyists warn that the campaign is hitting the availability of credit by freezing the interbank market. The Moscow International Currency Association said in a statement on Novemebr 26 that "uncertainty over who is next" is affecting the access of genuine smaller lenders to capital, risking destabilization of the sector. The closure of yet another bank will only make the bigger groups more loath to lend to their smaller brethren.

Compounding the problems towards the bottom of the scale, depositors are also understandably wary, and are reported to have started shifting their assets out of smaller banks since the closure of Pushkino Bank in October. Izvestia reported on November 27 that banks outside the top ten biggest saw private deposits reduced at the rate of 25-46% last month. The cash turned up in accounts at Sberbank, VTB, Gazprombank, Alfa-Bank, Bank of Moscow and Promsvyazbank, the bulk of which are state controlled.