Russian banks reportedly seeking government intervention over bad loans, Bloomberg

Top executives at some of Russia’s largest banks have privately discussed seeking a government-funded bailout if non-performing loans persist. According to individuals with direct knowledge of the discussions and documents seen by Bloomberg News, at least three systemically important banks have reviewed scenarios in which they may need to be recapitalized over the next year.

These internal conversations have reportedly been discussing the real condition of bank loan portfolios, which they say is far worse than official figures portray. 

The sources, cited anonymously in Bloomberg’s Thursday report for discussing non-public information, said that while no formal request has been made, the issue is a matter of concern for Russia’s entire banking industry.

Official data suppresses how bad the situation is, insiders claim

According to the individuals familiar with the matter, internal assessments at Russian banks prove there is a higher volume of distressed assets than what is publicly reported. Senior bank executives are supposedly evaluating how to approach the Bank of Russia for support if conditions do not improve.

Currently, the central bank reports that only 4% of corporate loans and 10.5% of unsecured consumer loans are categorized as bad or overdue by more than 90 days. But insiders propounded that the actual figures may be significantly higher, and that the data is being underreported to mask the real level of loan impairment.

The Bank of Russia has so far encouraged lenders to restructure credit agreements instead of classifying loans as non-performing. Per the central bank, this will help balance sheets on paper and give borrowers more flexibility to pay up under the current harsh economic conditions.

Speaking at the St. Petersburg International Economic Forum on July 2, Central Bank Governor Elvira Nabiullina downplayed the chatter about a systemic banking crisis. She said that Russia’s financial system is “well capitalized,” adding that the sector holds 8 trillion rubles ($102 billion) in capital reserves.

The central bank is ready to release the macroprudential capital buffer for banks to temporarily operate with lower capital adequacy ratios. This could help them absorb losses without experiencing capital shortfalls. Still, some officials are not sure the buffer is sufficient if bad loan volumes exceed expectations.

Sberbank and VTB dwell on credit quality

Senior executives at Russia’s two largest lenders, Sberbank and VTB, are in support of the sentiment that Russia has a “red-dead” credit quality. At a shareholder meeting last month, Sberbank CEO Herman Gref told attendees to “prepare for difficult times ahead,” citing a decline in loan portfolio quality. 

“It is already clear that it will not be easy,” Gref continued, “Companies increasingly need to restructure their debts.”

According to IFRS financial statements reviewed by the RBC news outlet, distressed mortgage loans at Sberbank rose by 90% between January and March, totaling 285 billion rubles (around $3 billion). The share of troubled mortgages doubled to 2.6%, clocking the highest level since 2022.

Unsecured consumer loans at and overdue balances at Sberbank also went up 22.5% to 610 billion rubles, with the share of such loans increasing from 12.4% to 16.1%. Loans overdue by more than 90 days hit a three-year high, rising from 9.3% to 10.4%.

RBC’s findings noted that non-performing retail loans at VTB increased from 3.9% to 4.8% in the first quarter. 

In May, the bank’s First Deputy Chairman Dmitriy Pianov revealed that the volume of bad loans from individuals had reached 5%, or 377 billion rubles. He projected this figure could go up to 6%-7% by 2026, still below the peak of 8%-10% seen during the 2014–2016 financial downturn.

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