Russia’s two largest banks have seen a surge in defaults on mortgage and consumer loan repayments, as the economic crisis in the country intensifies. Businesses and consumers across the country have been hit by a double whammy of high inflation and interest rates.
Official data shows inflation continuing to hover stubbornly at 10.3%, despite concerted efforts by the Central Bank to bring the rate down. Russia’s Central Bank has been forced to raise the key interest rate to 21% – the highest level recorded in 20 years. The bank’s Board of Directors decided to keep the rate at its current level after a meeting on April 25 – despite pleas from the Kremlin and businesses for a relaxation in monetary policy.
Vladimir Putin had previously urged the Central Bank’s governor, Elvira Nabiullina, not to “cryogenically freeze” the economy.
The punishing interest rate appears to be hitting mortgage borrowers and consumers particularly hard.
In the latest financial reporting, data shows the volume of mortgage loans showing signs of distress at Sberbank surged by a whopping 90% between January and March.
The share of troubled mortgages in the bank’s portfolio also doubled to 2.6%, the highest level since 2022.
During the same quarter, overdue consumer loans rose 22.5% to 610 billion rubles (£5.6 billion).
Loans overdue by more than 90 days also reached a three-year high, rising from 9.3% to 10.4%.
The VTB bank reported a deterioration in credit quality, although officials did not disclose the exact figures for the different categories of overdue loans.
The share of non-performing retail loans rose from 3.9% to 4.8% in the first quarter, according to estimates by the RBC media channel.
VTB First Deputy Chairman Dmitry Pyanov said the increase in missed repayments was due to high interest rates.
“Clients who are willing to borrow at these elevated rates are also more likely to miss payments, including the 90-day threshold,” he told RBC.
Meanwhile, Russian banks are facing a potential credit crisis due to high levels of accumulated debt – much of which has been incurred by preferential loans to the military-industrial complex.
Craig Kennedy, a former investment banker, noted: “The Kremlin’s reliance on preferential loans is now driving liquidity and reserve shortfalls in banks and risks a cascading credit crisis.”
