Key Points and Summary – Despite official Kremlin denials, major Russian banks are reportedly discussing the need for a state-funded bailout as bad loans surge to critical levels.
-A Bloomberg report, citing officials and documents, suggests the internal health of these banks is far worse than public data shows.
-This aligns with analyses predicting a “reckoning is unavoidable” for Russia’s war-strained economy.
-Driven by crippling interest rates and tightening Western sanctions, the stability of Russia’s financial system appears to be an illusion, with experts warning it’s not a matter of if a crisis will hit, but how severe it will be.
Russia On the Verge of a Banking Crisis?
Could Russia be looking at a large bank bailout?
It’s looking that way, according to a Bloomberg News story earlier this month.
Three large banks in the country, Bloomberg said, have “privately discussed seeking a state-funded bailout if the level of bad loans on their books continues to worsen over the next year.”
Bloomberg’s story cited “ current and former officials,” as well as documents, in reporting that important Russian lenders have concluded that they may need to be recapitalized in the next year.
“The banks have discussed internally how they would raise the prospect of a bailout with the central bank should that become necessary. The scenario arises because their assessment of the quality of their loan books is far worse than what official data show, according to the people and documents,” the Bloomberg report said.
Central bank Governor Elvira Nabiullina said earlier this month that Russia’s banking system is “well capitalized.”
“As the body that supervises banks, I say with full responsibility that these concerns are absolutely unfounded,” Nabiullina said at a recent economic forum, per Bloomberg.
“It is already clear that it will not be easy,” Herman Gref, chief executive officer of state-owned Sberbank, said at a recent shareholders meeting, per Bloomberg. “I hope, as always, we will be able to find joint plans to get through these difficult times.”
“Banks Will Fail”
Meanwhile, an analysis published this week in The Moscow Times predicted that “Russian Banks Will Fall. The Question Is How Hard.
Jason Corcoran, in the op-ed, argues that Russia’s economy has “defied gravity,” during more than three years of war and punishing Western sanctions, but that it can’t continue to do so forever.
“But illusions do not last forever. The cracks are already forming and a reckoning is unavoidable,” he writes. “It is not a matter of if there will be a crisis — only how severe it will be. Russia’s banks are increasingly propped up by artificial mechanisms: capital controls, forced lending, government intervention and creative accounting. As sanctions tighten and the war economy deepens, liquidity is thinning, foreign reserves are shrinking and risk is accumulating behind closed doors.”
While Bloomberg did not name which banks are considering seeking bailouts, Corcoran writes that “with giants like VTB, Alfa, Gazprombank, Raiffeisen and Rosbank fitting that description, even one collapse could trigger a financial crisis. Three would be catastrophic.”
It’s also unlikely to help Russia’s banking sector that new EU sanctions have forbidden transactions with 22 Russian banks, while also restricting oil imports.
“To rein in Putin’s overheated war economy, Nabiullina is keeping interest rates very high, trying to rein in consumer and corporate lending amid soaring military spending that keeps inflation stubbornly high. Economic growth is slowing sharply,” Corcoran writes. “While a modest rate cut to 18 or 19% may come on July 25, any premature easing risks fuelling inflation further or destabilizing the already fragile ruble.”
On the Other Hand…
An op-ed in the Daily Telegraph this week argued that supporters of Ukraine should not count on a Russian economic collapse to save Ukraine from the Russian invasion.
“Growth last year was a rip-roaring 4.3pc, unemployment was just 2pc, the current account was in positive territory, debt to GDP was little more than 20pc and the ongoing fiscal deficit was a modest 1.8pc,” Jeremy Warner writes. “In normal circumstances, metrics such as these would be considered evidence of a model economy of the type the International Monetary Fund (IMF) would dearly like everyone to follow. Certainly, it would not be keeping officials awake at night, unlike many others.”
Therefore, he argues, there is little reason to expect imminent economic collapse on the part of Russia.
“Russia has found it relatively easy to circumvent the sanctions or find alternative trading partners to fill the gaps left by one-time Western suppliers and customers,” he writes. “The bottom line is that sanctions haven’t worked as they were supposed to. The latest, 18th such package of measures from the European Union is equally likely to fail.”
About the Author: Stephen Silver
Stephen Silver is an award-winning journalist, essayist, and film critic, and contributor to the Philadelphia Inquirer, the Jewish Telegraphic Agency, Broad Street Review, and Splice Today. The co-founder of the Philadelphia Film Critics Circle, Stephen lives in suburban Philadelphia with his wife and two sons. For over a decade, Stephen has authored thousands of articles that focus on politics, national security, technology, and the economy. Follow him on X (formerly Twitter) at @StephenSilver, and subscribe to his Substack newsletter.
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