Russian banks face a credible risk of systemic crisis within 12 months as bad debt levels surge across corporate and retail lending portfolios, according to Bloomberg News reporting based on banking officials and internal documents.

Current and former banking officials described the situation as dangerous, with growing concerns about clients failing to make loan payments due to record-high interest rates. The officials spoke anonymously as they were not authorized to discuss internal sector anxieties publicly.

“We are on the verge of slipping into a recession,” Economy Minister Maxim Reshetnikov said during a panel discussion at the St. Petersburg International Economic Forum last week. Bank of Russia Governor Elvira Nabiullina countered that the economy was experiencing “a necessary cooling,” while Finance Minister Anton Siluanov acknowledged “we’re going through a cold spell now.”

Russian President Putin responded the following day: “Some specialists, experts, point to the risks of stagnation and even recession. This, of course, should not be allowed under any circumstances.”

Banks estimate their bad debts run to trillions of rubles, according to people familiar with internal assessments. One estimate showed corporate loan portfolios decreased by 1.5 trillion rubles ($19 billion) in the first two months of 2025 before stabilizing.

Official statistics may mask the debt problem’s true scale. While public data on late payments don’t suggest serious issues, an internal note from one major bank indicates many more loans are not being repaid as planned, with borrowers deferring payments.

The banking strain could undermine Putin’s ability to sustain the Ukraine war, now in its fourth year, particularly if Western allies impose harsher financial sector sanctions. The European Union is currently discussing fresh restrictions on Russian banks.

Russia’s two-track economy shows mounting problems. The military-industrial complex benefits from massive state war spending while private-sector businesses face slowing demand, rising costs and lower export prices. Less documented is the banking sector strain after granting favorable loans to fund the Kremlin’s war effort.

The Bank of Russia hiked its key interest rate to a record 21% in October before cutting it to 20% this month following complaints that punitive debt costs were choking growth and threatening company bankruptcies.

Economic growth slowed sharply from 4.5% last year to 1.4% in the first quarter of 2025, according to Federal Statistics Service data.

A May central bank report warned of “vulnerabilities of the financial sector” including “credit risk and concentration risk in corporate lending” and “deteriorating loan performance” in consumer lending. Thirteen of Russia’s largest 78 companies were unable to service their debt, double the previous year’s number.

Russia’s ACRA rating agency warned in May of “deterioration in the quality of loan debt,” noting that 20% of the banking industry’s capital comes from borrowers whose creditworthiness faces significant decline due to high interest rates.

The Center for Macroeconomic Analysis and Short-Term Forecasting, a think tank with Kremlin ties, found a “moderate probability” of systemic banking crisis by April 2026, warning the risk could increase with continued lending decline and rising poorly performing loans.

Despite these concerns, Russian banks posted record profits of 3.8 trillion rubles in 2024, beating the previous year by 20%, according to central bank data.

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