In the past two years, Russian banks have remained profitable primarily due to state funding for the military-industrial sector rather than genuine economic growth. Sectors like trade, consumer markets, and technology have languished, with others mired in debt. Even defense is now struggling to bear the financial load.
This has led to mounting bad loans, with banks increasingly reporting significant credit issues. The Central Bank was forced to lower the key rate from 21% to 18% within two months to stabilize the situation. The seriousness is evident: experts note that banks heavily invested in military and risky projects now have a high likelihood of requiring government support.
Moscow Credit Bank is under particular scrutiny—the bank's profits dropped 65% over the year, and there's a considerable risk of needing external financial help. Some major banks retain a financial safety cushion, but others cannot cover growing losses. While Russian banks remained profitable in 2024, the overall economy has stalled, and demand for loans is drying up due to high interest rates.
The Central Bank has mechanisms to rescue banks if needed, but this risks deepening the budget deficit. Major banks are now setting aside more reserves, facing more overdue loans, and recording early signs of financial losses. Almost half of Russia’s top banks in early 2025 showed worse financial results than in the previous year.
Soaring loan costs discourage businesses and consumers from new borrowing. Small and medium businesses, as well as citizens, are especially hurt, being unable to afford mortgages or car loans. Economists point out growing risks with variable-rate loans, which have become much more expensive.
While not an official crisis yet, if high rates persist and military contracts fall, systemic strain will increase. Additionally, falling oil revenues due to sanctions and growing oil supply will further pressure Russia’s financial system.
