For more than three years, Russia’s banking system has defied gravity. Crippled by Western sanctions, cut off from global financial markets and deprived of foreign capital, it has operated in a sealed economic vacuum. But it will not last. The ruble wobbled but held and the financial system continues to function. This improbable stability has been largely credited to Elvira Nabiullina, the astute technocratic head of the Central Bank.

But illusions do not last forever. The cracks are already forming and a reckoning is unavoidable. It is not a matter of if there will be a crisis – only how severe it will be. Russia’s banks are increasingly propped up by artificial mechanisms: capital controls, forced lending, government intervention and creative accounting. As sanctions tighten and the war economy deepens, liquidity is thinning, foreign reserves are shrinking and risk is accumulating behind closed doors.

Bloomberg reported on July 17 that at least three of Russia’s largest banks are poised to ask the Central Bank for a bailout as bad loans surge and balance sheets buckle under growing stress. Officially, overdue loans reached 10.5% for households and 4% for businesses in Q1 2025. But insiders say the true picture is far worse. The Bloomberg report did not name specific institutions but said at least three of Russia’s 13 systemically important banks are seeking bailout talks. With giants like VTB, Alfa, Gazprombank, Raiffeisen and Rosbank fitting that description, even one collapse could trigger a financial crisis. Three would be catastrophic.

Even executives at Kremlin-controlled Sberbank and VTB admit the size of the bad debts is much larger and likely to climb. Bloomberg’s sources within the banks reveal that much of........

© The Frontier Post (Editorial)