Russia says no banking crisis is brewing, but should we believe it?
The Russian central bank is projecting calm amid rising bad debts and skyrocketing interest rates, but investors and economists shouldn’t be too quick to breathe a sigh of relief.
In a statement meant to reassure markets, Governor Elvira Nabiullina claimed there’s “absolutely no risk” of a banking crisis. But that’s exactly the kind of thing central bankers tend to say right before the wheels come off.
Yes, Russia’s banks boast a capital buffer of over $100 billion. That sounds solid, until you realize that non-performing loans (NPLs) are quietly creeping up. VTB, the country’s second-largest bank, reported that 5% of its loans are now in default for over 90 days. It expects that number to rise to 6–7% soon. That’s not a crisis yet, but it is a red flag in bold print.
Restructured loans make up another 3%.
These may not seem like 2008-style numbers, but here’s the kicker: interest rates are above 30%. That’s a tight monetary policy and a financial stranglehold. Many businesses are struggling to refinance, and it’s a matter of time before the debt bomb ticks louder.
The central bank says it has a “substantial capital buffer” but even it admits that the buffer is unevenly distributed across the sector. In plain English: some banks are well-prepared, and others are one default away from disaster.
The capital requirement hike (the so-called countercyclical buffer) from 0.25% to 0.5%, and potentially 1%, is a step in the right direction but it reeks of too little, too late.
One of the Bank of Russia’s main arguments is that profits remain strong, so provisions aren’t going up. That’s dangerously naive. Banks can report stable profits right up until the point when they can’t. Remember Silicon Valley Bank?
Profits are a lagging indicator, not a leading one. Rising bad debts and high interest rates are forward-looking threats that the market should take seriously.
There may not be a full-blown banking crisis in Russia today but to say there’s “no risk” is laughable. Bad loans are rising, interest rates are unsustainable, and the policy fixes feel more cosmetic than structural.
In the world of banking, complacency is the real killer. Investors, especially those with exposure to Russian debt or financials, should keep their eyes wide open. Because in banking, it’s never a crisis until it is.
If Russia wants to avoid a banking blowout, it needs more transparency, stronger provisioning requirements, and realistic communication, not denial. Because whether it’s 5%, 7%, or 10%, rising NPLs in a high-rate environment are not just numbers on a spreadsheet, they’re warning signs flashing red.
