European intelligence warns of "explosive" banking crisis in Russia.

Russia risks facing an "explosive" banking crisis as its banking system is forced to bear the burden of financing the war, a European intelligence agency warns.

Authorities are forcing credit institutions to issue subsidized loans to defense enterprises, regional government projects, and mortgage holders under preferential programs, increasing the volume of loans on bank balance sheets that will never be repaid, Reuters quotes the intelligence report as saying.

"This creates the illusion of economic dynamism, which in reality conceals an explosive situation. This could be triggered by an economic shock—such as an ambitious package of sanctions against banks," the report states.

Currently, approximately 10% of corporate loans on bank balance sheets have become questionable—significantly higher than the 2024 target—and for some credit institutions, this share has reached 15%. More than 500,000 Russians declared bankruptcy last year—a third more than the previous year—and 13 million Russian citizens have three or more outstanding loans, according to the report's authors. They believe banks are masking the true scale of their problems with restructurings and government aid.

According to the Central Bank of the Russian Federation, as of April 1, only 3.9% of loans issued by banks were nonperforming, or approximately 3.5 trillion rubles. However, the share of problem loans is three times higher, at 11.6%, and in monetary terms, amounts to 11.2 trillion rubles—the equivalent of two annual budgets. This amount includes loans for which banks were forced to relax terms because borrowers were defaulting on their payments.

Potential debt servicing difficulties are possible for loans worth 36 trillion rubles—three-quarters of the total debt of the largest companies, according to the Central Bank's estimates. The largest companies in critical condition include those in the coal and construction industries, trade, and mechanical engineering, the Central Bank wrote.

The Russian government believes the threat of a banking crisis in Russia is real as loan defaults mount, the economy slows, and Western sanctions intensify, a Russian cabinet official told The Washington Post. A gigantic pool of loans to defense plants issued in 2022-2024 to finance production expansion could become a "ticking time bomb" for the banking system. These loans could reach $202 billion, according to WaPo estimates, citing Central Bank statistics.

source: The Moscow Times https://archive.is/W0DqY