The Russian banking sector is navigating a period of significant leadership transitions, coinciding with growing concerns over liquidity and the increasing prevalence of non-performing loans. A notable trend involves the appointment of directors from Russian companies to executive positions, a shift that has reportedly created leadership deficits in several major financial institutions.
These internal restructuring efforts are occurring against a backdrop of escalating economic pressures. Bankers have indicated a deteriorating economic outlook for Russia, with a palpable risk of a banking sector collapse within the next year. The strain on the system is exacerbated by difficulties faced by both corporate and retail clients in meeting their loan obligations, largely attributed to elevated interest rates. This environment presents considerable challenges for financial institutions.
In response to these economic headwinds, entities such as RZD Capital, established to finance "Russian Railways" (RZD), have engaged in bond issuances totaling $6.7 billion. Similarly, Russia's state investment bank, VEB, through its subsidiary VEB Finance, has secured approximately $30 billion via bond offerings. These financial activities underscore ongoing efforts to maintain operations amidst economic instability.
The broader economic landscape for Russia is further complicated by the impact of international sanctions and the ongoing conflict in Ukraine. These external factors have contributed to the current instability, creating a complex operational environment for the nation's financial infrastructure. The potential for a financial crisis, coupled with leadership vacuums in key corporations, could lead to enduring economic repercussions for the country.
Reports from mid-2025 indicate that at least three of Russia's largest banks are preparing to petition the Central Bank for financial assistance due to a rise in non-performing loans. Official figures for the first quarter of 2025 showed overdue loans at 10.5% for households and 4% for businesses. However, some executives within state-owned banks have expressed concerns that these percentages could increase in the coming months. VTB Bank, for instance, projects that non-performing loans within its retail portfolio may climb from 5% in May to between 6% and 7% by 2026, nearing levels observed during Russia's previous major banking crisis from 2014 to 2016.
Adding to the complexity, the Russian government has classified certain key financial data, potentially obscuring the full extent of the financial system's challenges. There are also reports suggesting that the Central Bank is encouraging lenders to restructure distressed loans rather than formally categorizing them as non-performing, a practice that could mask the true scale of the problem. Despite these underlying pressures, Central Bank Governor Elvira Nabiullina has maintained that the financial system remains robust and adequately capitalized, though the situation suggests a delicate balance maintained through measures like capital controls and government interventions.
The forced liquidation of Irish-domiciled subsidiaries of Russian entities, including RZD Capital and VEB Finance, in September 2025 due to a lack of directors following sanctions-related risks, further illustrates the international ramifications and the difficulties in maintaining corporate governance under the current geopolitical climate. These liquidations, involving entities that had collectively raised tens of billions of dollars, highlight the significant impact of sanctions on Russia's financial operations and its capacity to manage international financial structures.