Towards another Russian banking crisis?

Monday 29 December 2025

Russia’s banking system has not looked like a classic emerging market candidate for a sudden, cascading collapse since the first shock of February to March 2022, when capital controls, emergency liquidity and direct political direction to the largest banks prevented an outward flight of roubles. Yet a banking crisis is not only the cinematic moment of queues outside branches. In Russia’s present conditions it is more likely to arrive as a slow, administratively managed impairment of balance sheets, followed by one or two visible failures, then a wider tightening of credit that feeds back into the real economy. The question is therefore not whether Russia can stop a dramatic bank run, but whether she can prevent the accumulation of bad assets from becoming so large that the state must choose between inflationary monetary finance, deeper financial repression, or a wave of quasi nationalisations.

The stress points that matter in late 2025

The first stress point is the interest rate environment. Russia has lived with very tight monetary conditions for more than a year, and although the Bank of Russia has begun easing, the level remains punishing for borrowers. On 19 December 2025 the Bank of Russia cut the key rate to 16.00 per cent, while simultaneously signalling that tight policy would persist for a prolonged period because inflation expectations have edged up and lending activity remains high. This matters because a banking crisis is often born from a mismatch between high funding costs and the weakening capacity of households and corporates to service debt. High nominal rates do not only reduce new loan demand; they also reprice existing risk by increasing arrears, restructuring and, eventually, defaults.

The second stress point is the quality of corporate credit. Publicly visible signals are emerging that the corporate sector is leaning more heavily on banks for maturity extensions and restructurings. In late December 2025 VTB, Russia’s second largest bank, described corporate lending as slowing and noted that it was in debt restructuring discussions with clients, with the share of restructured corporate loans rising from 10 per cent to 11 per cent of its portfolio by end November. A one percentage point increase sounds modest, but in a system where the largest banks carry enormous corporate books and where “restructuring” may function as a political tool to postpone recognition of loss, the direction of travel is more important than the headline number.

A third stress point is that some banks appear to be reporting sharply rising overdue debt. Credit Bank of Moscow, a systemically important lender, was reported as seeing an eightfold surge in overdue debt since the start of 2025, according to Kommersant’s reading of the bank’s records. Even if one treats individual institutions as idiosyncratic, such reports are a warning sign: in banking, problems rarely remain neatly contained when the macro driver is a broad squeeze on borrowers’ cashflows.

A fourth stress point is depositor behaviour and the public’s preference for liquidity. In November 2025 reporting described a surge in cash circulation, which the Bank of Russia had linked to more frequent cash withdrawals associated with recurring internet outages and tighter bank scrutiny. This is not the same as a run, but it is a shift in behaviour that can become destabilising if confidence is shocked again, because it increases the system’s sensitivity to operational disruptions and rumours. In a cash-heavy environment the speed of withdrawal is higher, and informal networks can transmit panic faster than formal channels can rebut it.

Finally, there is a currency and external constraint dimension. Russia can, in theory, create rubles to rescue banks, but her authorities also worry about exchange rate pass-through to inflation, and about the political optics of a weakening currency. Reuters reported on 26 December 2025 that the central bank will reduce its own foreign exchange sales from January 2026, cutting a source of support for the rouble. If the ruble weakens materially inflation pressures can rise, which pushes the central bank towards tighter policy. That combination, currency stress plus high rates, is historically toxic for bank asset quality.

Why a Russian crisis would look different

Russia’s banking system is highly concentrated and politically supervised. That is a weakness in normal times, because it encourages directed lending, weak underwriting discipline and the rolling over of loans for favoured borrowers. It is also a strength in crisis management, because the state can order outcomes that market systems cannot. When large banks are state-owned or state-directed, authorities can compel mergers, extend liquidity, and force “voluntary” haircuts on minority stakeholders. A Russian crisis is therefore likely to be managed in a manner that spreads losses quietly across time and across constituencies.

Three mechanisms matter.

1. Regulatory forbearance and “evergreening”. If restructurings expand, banks may postpone recognising losses. VTB’s acknowledgement that restructurings have risen, while insisting these are not affecting income or reserves, illustrates the temptation to treat restructurings as neutral events rather than as risk migration. The danger is that this can delay loss recognition until it is too large to absorb without state intervention.

   
   

2. Financial repression. Russia can cap deposit rates, lean on pension funds and state corporations to hold bank paper, and steer household savings into instruments that support bank funding. This keeps liquidity in place, but it reduces confidence over time and can encourage cash hoarding, which reporting already suggests is increasing in some form. 

   
   

3. Inflationary recapitalisation. If the state injects capital funded by rouble creation, banks may survive nominally while the public pays through inflation and currency weakness. The central bank’s own emphasis on pro-inflationary risks tied to fiscal dynamics and fuel prices shows she is alert to this trap. 

Scenarios for 2026: from benign to acute

A useful way to frame probabilities is to separate a banking crisis into three escalating outcomes: a credit crunch, a solvency event, and a confidence event.

The most likely near-term outcome is a credit crunch. Even without bank failures, lenders can become cautious as arrears rise, especially in consumer credit and amongst highly leveraged corporates. With the key rate still at 16 per cent and the central bank signalling prolonged tightness, the incentive is to protect capital rather than expand risky books. That translates into reduced availability of credit for private firms, which slows growth and increases defaults, creating a feedback loop that deepens banking stress.

A more dangerous outcome is a solvency event concentrated in a mid-sized but systemically important bank, or in a cluster of privately controlled lenders. The MKB overdue debt reports illustrate how a single institution can become a bellwether. If one such bank requires a rescue, the authorities can probably execute it, but the rescue itself can reveal information about hidden losses across the sector.

The acute outcome is a confidence event. Russia has deposit insurance and a strong administrative apparatus, but confidence can crack if several shocks coincide: a ruble sell-off in early 2026 as state foreign exchange sales fall, further sanctions tightening that hits export revenues, and a visible bank rescue that contradicts official reassurance. Reuters’ reporting that reduced foreign exchange interventions may weaken the ruble creates a plausible precondition for such a moment. In that scenario cash withdrawals can accelerate, especially if operational resilience is already strained by outages and heightened scrutiny. 

Indicators to watch

If one is looking for early warning signals that move beyond general anxiety, five indicators are particularly telling.

• The share and definition of “restructured” loans at major banks, and any changes in provisioning policies. VTB’s disclosed rise is a starting point, not an end. 

  
  

• Corporate arrears in sectors dependent on state procurement, defence-linked production chains, construction and commercial property, where cashflows can be volatile in a militarised economy.

  
  

• Household delinquency, especially unsecured lending. High rates disproportionately hit households with variable income.

  
  

• Liquidity preference in the population: sustained growth in cash in circulation is a sign that trust in smooth digital payments and frictionless banking is weakening. 

  
  

• Exchange rate management: reduced foreign exchange sales and any abrupt policy reversals. 

How likely is a true systemic crisis?

If “systemic crisis” means a disorderly collapse of multiple large banks accompanied by an inability of the state to pay insured deposits, that remains unlikely. Russia has a proven willingness to socialise losses and impose controls, and she can print rubles.

If however “systemic crisis” means a prolonged period in which the banking system ceases to allocate credit efficiently, hides losses through restructurings, and periodically requires state recapitalisation, then the risk is materially higher. The late-2025 picture is consistent with a system under pressure rather than one in immediate free fall: tight monetary policy, signs of rising restructurings, reports of worsening overdue debt at a major bank, and a public edging towards cash for practical and psychological reasons. 

In other words the plausible Russian banking crisis is not a single week of panic, but a grinding contest between borrower solvency and state capacity to keep banks looking solvent. The outcome will be determined less by balance-sheet mathematics in isolation and more by politics: how long Russia can sustain high fiscal demands, how sharply sanctions bite export earnings, and whether the ruble can be managed without forcing interest rates back to levels that break borrowers.