MOSCOW The underdeveloped Russian banking sector, which suffered a collapse in 1998, could act as a brake to getting the country's economy back on track, AFP quoted Prime Minister Mikhail Kasyanov as saying Wednesday.

Meanwhile, Russia reached on Wednesday an agreement with the Ukraine on a customs regime on piping for oil and gas pipelines, agency Interfax reported.

Modernization and strengthening of the banking system is "one of the most important directions of government policy," Kasyanov told a congress of the Association of Russian Banks in remarks quoted by Russian news agencies.

The banking system collapsed in August 1998 following a devaluation of the ruble and suspension of state payments on foreign debt.

Since then, restructuring of the sector has fallen behind and economists have accused the Russian Central Bank of failing to thoroughly clean house.

The large number of banks and their often low capitalization have undermined confidence needed to boost investments and halt capital flight.

And Russian legislation has hampered credit development because financial laws lack a framework for mortgages or loan guarantees.

The Russian economy grew in 1999 and 2000, but with little help from the bank sector, the contribution of which will be essential for future growth, Chairman Alain Froissardey of Credit-Lyonnais Rusbank told an economic forum.

Meanwhile, Kasyanov and Ukrainian counterpart Viktor Yushenko reached broad agreement early Wednesday after 10 hours of talks, on import quotas for Ukrainian piping for oil and gas pipelines, Interfax reported.

Details of the accord were not immediately available.

Moscow had sought to limit pipe imports to 480,000 tons per year, from last year's level of 769,000 tons.

Following protests by Russian producers, Deputy Prime Minister Alexei Kudrin had promised to slap customs duties of up to 40 percent on Ukrainian supplies.

But the Ukraine's Yushenko told the media that the accord excluded such levies, while acknowledging that the Russian market was crucial to his country.

"If we lose the Russian market, we lose Ukraine," he said late Tuesday in the southern Ukrainian city of Odessa.

"Russia can do without Ukraine, but Ukraine cannot do without Russia."

Unless economic cooperation with its giant northern neighbor were reinforced, Yushenko said Ukraine would be condemned to a "slow death."

Russia takes in between 30 and 40 percent of Ukraine's exports, and provides up to 70 percent of its energy supplies.