Russia's economy is in a worse state than it is officially acknowledged. In the coming years, the Russian financial system may face a banking crisis, Bloomberg sources report.
Russia's banking sector faces debt crisis
Russian bankers are concerned about the growth of bad debt. Due to high interest rates, more and more corporate and private clients are unable to repay loans on time.
The agency's interlocutors describe the situation in the Russian banking sector as dangerous.
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Current and former banking officials, speaking on condition of anonymity, believe that if the economic situation worsens, Russia will face a debt crisis that will engulf the banking sector within the next year.
The strain on the banking system will increasingly raise questions about President Vladimir Putin’s ability to sustain the war in Ukraine, now in its fourth year. That will be especially true if Kyiv’s allies in the United States and Europe impose tougher sanctions on the Russian financial sector. The European Union is currently discussing new restrictions on a number of Russian banks.
Ukraine supporters have also pressed Donald Trump for tough new sanctions on Russia after Putin rejected calls for a ceasefire to allow peace talks. The US president has so far refrained from such measures.
Official statistics do not yet show any major disruptions, but internal reports suggest that many borrowers are delaying loan payments.
The total amount of bad debts is estimated to have reached trillions of rubles. Some banks are already recording a credit deficit: in the first two months of 2025 alone, the corporate portfolio decreased by 1.5 trillion rubles (about $19 billion), although the situation has partially stabilized since then.
Discussions about the recession in the Russian economy
At the recent St. Petersburg International Economic Forum, economic risks became a subject of public debate. Economy Minister Maxim Reshetnikov said the country was “on the brink of recession,” while Central Bank Governor Elvira Nabiullina called it “necessary cooling.”
Finance Minister Anton Siluanov admitted that the economy was in a slowdown phase. Putin expressed his position the following day.
“Some specialists and experts point to the risks of stagnation and even recession. This, of course, cannot be allowed under any circumstances,” he said.
The Impact of Western Sanctions on the Russian Economy
Years of unprecedented sanctions from the US and the G7 since Putin's invasion of Ukraine in 2022 have yet to bring Russia's economy to its knees.
The government has significantly increased spending on the defense industry and on supporting businesses hit by the restrictions. Russian banks also posted record profits of 3.8 trillion rubles in 2024, exceeding the previous year's result by 20%, according to the Central Bank.
But the army's demand for labor exacerbated labor shortages in the rear and drove up wages. This increased the incomes of many Russians and fueled accelerated inflation to an annual peak of more than 10% in an overheated economy.
In response, the Central Bank of Russia raised its key rate to a record 21% in October. This month, Nabiullina cautiously cut the key rate for the first time in almost three years to 20% after a series of complaints from officials and businesses that high debt costs were holding back growth and threatening to bankrupt companies.
Russian economy slows to 1.4% in first quarter
While the economy grew 4.5% last year, annual growth slowed sharply to 1.4% in the first quarter of 2025, according to the Federal Statistics Service.
Problems are piling up in Russia's so-called two-track economy: The military-industrial complex benefits from heavy government spending on the war, while many private-sector firms face slowing demand, rising costs and falling export prices.
Less documented is the growing strain on the banking sector following the provision of soft loans to finance much of the Kremlin's war effort and the burden of repaying those debts.
According to sources and documents, there has been a particular slowdown in the construction and industrial sectors, and there are even some signs that the defense sector is showing signs of stagnation.
Concerns about the level of bad debt are already being voiced publicly. The Central Bank's May report warned of “financial sector vulnerabilities,” including rising credit risks, high concentrations of corporate loans, and deteriorating consumer lending.
According to the report, 13 of Russia's 78 largest companies were unable to service their debts, double the figure from the previous year.
