Banks have demonstrated a dwindling trend in Russia.

Aug 2025 : The Russian banking sector, once buoyed by record profits and wartime stimulus, is now showing growing signs of financial strain, leading to certain apprehension of economic crisis. The level of non-performing loans (NPLs) is rising and banks are coming under increasing pressure as the Central Bank of Russia (CBR) cracks down on their main form of income, voluminous consumer credits, as the regulator tries to artificially manage inflation lower (which is working).

Russian bank customers have continued to pull funds from their accounts, with another RUB17.7bn ($193mn) withdrawn as of August 15^th. according to new figures released by the Russian Central Bank.

The crisis-prone population is becoming increasingly nervous that the bank sector is in trouble. The sector is under increasing pressure and faces a possible banking crisis thanks to sky high interest rates. The partial August data brings the total outflow for the first half of the month to RUB220bn ($2.4bn), already exceeding the full-month totals for June and July. In June, RUB216bn ($2.35bn) was withdrawn, followed by RUB226bn ($2.47bn) in July. The Central Bank said that the pace of withdrawals in August is currently running at double the rate of previous months.

“The withdrawal rate is two times higher in August”, the Bank said in a statement, signalling growing pressure on the country’s financial system amid continued economic uncertainty and tightening monetary conditions. The banking sector has been under stress in recent months, facing a combination of high inflation, rising interest rates, and restricted access to international capital markets. The Central Bank of Russia nevertheless inflation has been falling faster than expected and dropped below 9% in July which has allowed the CBR to cut rates by 300 basis points (bp) in the last two months and expects to cut rates by another 300bp before the end of the year, alleviating the pressure somewhat.

The situation in the Russian banking sector is expectedly worsening due to the high rate, tightening requirements for borrowers, and a slowing economy. Banks have been left with few options to maintain profitability after sanctions affected key revenue streams such as foreign exchange trading, investment banking and cross-border transaction services. By the mid-2023, the sector had effectively narrowed down to basic functions: lending, deposit products, and participation in government programmes.

The shift initially produced momentum. In 2024, Russian banks posted a record RUB3.8 trillion ($41bn) in profits, up 20% year on year. Return on equity was 23%, also a very high figure. And net interest income grew by 11%, to RUB6.7 trillion. Those were happy days as banks rode the wave of the Kremlin’s military Keynesianism boost. Lending was fueled by state-backed mortgage and industrial support programmes, while depositors flooded banks in search of high-yield returns amid elevated interest rates. However, those same high rates are now suppressing economic activity and slowing loan issuance.

The result has been a visible uptick in bad loans, although the NPLs are still at a manageable level. From January to May 2025, the share of problematic consumer loans rose from 4.9% to 5.7%. Defaults are also rising in exposed sectors such as coal, metallurgy and construction. Industry experts have flagged the need to produce so much coal. If an initiative of rebuilding the economy is not envisioned by closing inefficient production facilities, there will be a labour shortage and costs will rise. Major Russian Banks are holding several large coal companies and a coal port in the Far East as collateral.

However, a cloud with a silver lining; The share of total non-performing loans remains modest at 4.2%, and coverage ratios – the capital set aside to absorb losses – remain stable at 72% for corporate lending and 87% for retail, according to the CBR.

Team Maverick