Iceberg Effect: Is Russia Facing Banking Crisis?

The economy, corporate profits, and wages have grown rapidly in Russia over the past several years. Lending has also accelerated. By the end of the first quarter of 2025, the cycle of monetary tightening and a gradual increase in the regulatory capital requirements for banks providing loans to risky borrowers had cooled the credit market. The pace of growth in the economy, output, wages, and corporate profits slowed down. This turnaround in trends raised concerns both about borrowers’ ability to service their debts and about the possibility of a systemic banking crisis in Russia.

On the one hand, it can be seen that risks do exist in the corporate and retail sectors, primarily in mortgage lending. On the other hand, according to participants in the public discussion of the Advisory Council for Financial Stability held by the Bank of Russia’s Financial Congress and dedicated to systemic risks, the indicators that are typically used to assess these risks do not suggest there is any reason to worry.

In the period between early 2022 and May 2025, outstanding amounts of the corporate sector due to banks almost doubled, and they increased by 17.5%, to ₽70.4 trillion, over the past 12 months. In 2025, the proportion of corporate borrowers and individual entrepreneurs who were in default on debt service exceeded 21%. However, according to the Bank of Russia (link in Russian), the volume of new loans was growing, with the portion of problem loans in the total corporate portfolio remaining almost unchanged at 4.1% in annualised terms. As of the end of 2025 Q1, overdue debt on unsecured consumer loans had reached 10.5% (+2.8 pp YoY). Between March 2024 and March 2025, the volume of overdue debt on household mortgages almost doubled. However, problem mortgage loans accounted for only 0.9% of the total mortgage portfolio.

The banking sector is demonstrating high profitability. As of May 2025, profit-making banks accounted for 97% of Russia’s total banking sector. Banks’ liquid assets and equity had increased, and the capital adequacy ratio had recovered to its historical average (13%). As estimated by the Bank of Russia, banks have enough reserves to cover 72% of corporate loans and 87% of retail loans. The indicators of borrowers’ creditworthiness also look good.

‘When we look at the metrics, everything is quite ‘green’. However, there is a feeling of growing problems, which is very alarming. This raises the issue of the ‘iceberg effect’: is there anything we do not see?’ Sofia Donets, Chief Economist of TBank, noted when speaking at the Advisory Council discussion.

At the end of May, the Bank of Russia’s Financial Stability Review outlined five key vulnerabilities facing the banking sector:

• corporate credit risks,
• household debt burden,
• housing market imbalances,
• foreign exchange risks, and
• banks’ interest rate risk.

At the start of the discussion, moderator, Elizaveta Danilova, Director of the Bank of Russia Financial Stability Department, asked the audience to cast their votes to determine the most significant vulnerabilities. The audience believed that the most significant risks were corporate credit risks (34.3%) and banks’ interest rate risk (22.6%). Less significant were housing market imbalances (18.3%) and the household debt burden (17.5%), while foreign exchange risks were almost insignificant (7.3%).

‘The good news is that all these risks seem to be manageable’, said Mikhail Matovnikov, Senior Managing Director and Chief Analyst at Sberbank. Econs presents highlights of the discussion.

Elizaveta Danilova, Director, Bank of Russia Financial Stability Department; moderator of the discussion:

• The increase in problem corporate loans is very small. In 2025, the year-to-date portion of large corporate loans overdue by 90 days or more grew by 2% to 2.2%. The portion of the similarly overdue loans issued to SMEs was up by 4.2% to 4.6%. This is, of course, a picture seen in the rearview mirror. That is why we are monitoring a broad range of indicators, including leading indicators. We look at companies’ reports, analyse restructuring trends, and communicate with the risk management officers at major banks. We can see that the portion of companies in the ‘green’ territory (when assessing borrower creditworthiness, banks assign the ‘green’ rating to the most reliable companies) has edged down. For example, speaking of large companies, the decline has been from 80% in early 2025 to 74% as of 1 June. Of course, this should not suggest that all other companies are problematic: most of them have moved from the ‘green’ to the ‘yellow’ zone, where they are facing difficulties, but not critical difficulties.
• The second risk is the household debt burden. This metric shows a significant deterioration in credit quality. Over the past year, the portion of problem unsecured loans has risen from 7.7% to 11.4%. This was expected, as banks have intensified their lending during the past few years, including to risky borrowers. We prepared for the deterioration of portfolios by setting fairly high macroprudential add-ons well in advance, which allowed banks to accumulate capital buffers for unsecured loans.
• The third vulnerability is housing market imbalances, as developers are now facing a decline in demand. This is a very important segment, because project financing (loans to developers) accounts for around 10% of the corporate loan portfolio. We also monitor mortgage risks, which have slightly increased due to the rapid growth in recent years. The market is seeing the emergence of new risky practices driven by developers’ desire to accelerate sales, including through installment plans. We are planning to introduce measures to mitigate these risks.
• Now, foreign exchange risks: we have long been engaged in the dedollarisation of banks’ balance sheets in order to reduce the vulnerability of banks to foreign exchange risk. Nonetheless, this vulnerability remains, as we are constantly hearing about the possibility of new US and EU sanctions.
• The fifth risk is banks’ interest rate risk, which emerges amid key rate cuts. In the corporate lending segment, many banks predominantly offer loans at variable interest rates. While these banks benefited during the period of monetary tightening, now, by contrast, their interest income may begin to decline faster than their deposit expenses. However, banks will see the positive revaluation of bonds due to declining yield curves.

Sofia Donets, Chief Economist of T-Bank:

• Though we do not see any bad indicators, we all feel that corporate credit risks are getting rather high on the vulnerability scale. We see that overdue debt is at all-time lows. The situation with overdue debt is not just good: it is fantastic. We see that the high interest margin and high profitability, which have been maintained in recent years even compared to the long-term averages, have become even more cyclically stable. This is worrying. If we are all lucky, we will not see the realisation of this risk. We will conclude then that we had enough metrics. In case of a bad scenario, we will understand that we did not have enough metrics.
• The second key risk I would like to highlight is housing market imbalances. As we do not see all the details, there may also be an ‘iceberg effect’ here. This calls for proactive actions before risks materialise. I view the issue of housing market imbalances as unresolved because it is closely linked with mortgage lending. Over two-thirds of housing property is purchased with mortgages. This market is dominated by subsidised programmes, where subsidised loan rates differ not only from current rates but also from rate cycle averages. The Ministry of Finance, the ‘provider’ of the subsidised programme, is outside the scope of the central bank’s regulation. If, all of a sudden, the provider says ‘That is all. I am tired. The funding is over,’ we will find ourselves in a thoroughly unknown market. Therefore, we need an escape plan.
• As for the banks’ interest rate risk, we definitely may face a more negative scenario for the margin in the event of a key rate cut rather than without it. However, this is just the price for avoiding a deterioration in the interest rate margin, which is typical for periods of monetary tightening. Therefore, it seems that we rather have a status quo option in this situation. In the bond market, in all probability, we will have a bad year scenario, but not a crisis. The danger of a rapid deterioration is unlikely.

Natalia Orlova, Chief Economist of Alfa-Bank, Head of Alfa-Bank Macro Insights:

• As we have a well-developed system of stress testing, provisioning, and macroprudential approaches, the overall dynamics of overdue corporate loans are evolving according to a rather good scenario. We can see an increase in overdue loans in the segments of small and medium-sized businesses, but not in the segment of large corporates, whose problems may spread along the chain. Concerns have recently been growing regarding the export sectors due to external risks. These risks have already materialised and will probably persist. The importance of external factors creating credit risks inside the system will increase.
• I have a strong feeling that companies expect rather low long-term rates. This may create an additional credit risk associated with the difference between the real neutral rate and the expectations of the corporate sector. Credit risk and the risk of housing market imbalances are a source of concern for everybody, whereas foreign exchange and interest rate risks are less important.

Alexander Kudrin, Professor at the HSE Banking Institute:

• When the economy’s growth slows, credit risk should increase, which is just what is happening now. In the corporate segment, investment growth is slowing, which may help companies overcome part of credit risks. In addition, shareholders have money, and they are ready to support their companies: 2024 was very profitable.
• The absurd situation in which consumers took out loans and simultaneously deposited them was eliminated at the end of last year. However, the wage growth created a certain pattern. A person whose salary increased by 20% in 2023 and 2024 will expect a 20% increase in 2025. But it will not happen in all probability. Despite the record low unemployment level, the wage race seems to be coming to an end or is already over. It is difficult to predict consumers’ behaviour in this situation. They may behave conservatively and reduce consumption a little, or, on the contrary, they may build up their debt burden and move from the category of reliable borrowers to the category of more risky ones. This risk must be monitored.
• I do not agree with the audience, of whom only 7% of survey participants considered foreign exchange risks being a serious vulnerability. Excessive exchange rate volatility, which may emerge in a short while due to external factors, may pose a very serious risk to the entire system.

Mikhail Matovnikov, Senior Managing Director, Chief Analyst at Sberbank:

• As creditors, we will have to solve the problems of specific over-indebted corporate borrowers. Banks are in general very good at this. As a rule, they support restructuring or provide additional funding. As we have not lived through a situation of an extraordinary boom, we cannot say that a considerable part of the economy is over-indebted.
• As for consumer lending, there are certain macroeconomic conditions under which banks’ risk models will not show an increase in non-performing loans. For example, this may be the case with high growth in nominal wages, which has been observed over several years but which will not last forever. In this situation, the debt burden on old loans will decrease over several years and will simplify the servicing of debt. Trees do not grow to the sky, however, and their growth stops at some point. The 16% growth in nominal wages in Russia is a statistical average. The median of wage growth declined in 2025, and the portion of people whose income dropped year on year (link in Russian) increased sharply. Inflation coupled with the lower growth of nominal wages are enough to translate into risks. Macroprudential measures help prevent the development of this scenario, and they have done a good job this time.
• We do not know what households will do, but we know what banks will do. They are already recalibrating their models. They are returning to where the central bank tried to keep their models with its macroprudential measures. After a certain period of time, these constraints may become unnecessary, as banks will decide not to issue loans to over-indebted borrowers on their own initiative.
• Interest rate risk already materialised in late 2024, and we are now going through the recovery stage. In the case of a credit crunch, the first thing banks need to do is reduce the cost of borrowing. When the key rate decreases, banks with high portions of variable-rate loans, variable-rate OFZs and subsidised mortgages may suffer losses. However, this is a problem for the largest banks, which need to manage interest rate risk, whereas the bigger part of banks do not face this problem.
• We periodically receive questions from the media about whether there will be a crisis on the horizon within 12 months. Each of the risks appears manageable in general both on the banks' side and on the regulator's side: we have capital cushions that we can release, and there are measures, including macroprudential measures, that can be applied.