Russiais facing mounting fears of a full-blownbanking crisisafter its key war lender suffered heavy losses, fuelling warnings that industries may soon demand sweeping state bailouts. Promsvyazbank (PSB), the biggest lender to defence firms backingVladimir Putin’swar effort, has recorded a 19.2 billion ruble (£190million) loss last year after the bank was forced to set aside a staggering 300 billion rubles to cover souring loans.
The sharp reversal marks a dramatic shift for a lender, which had previously thrived by bankrolling theKremlin’s military-industrial expansion. Analysts have now warned that the losses may be an early sign of deeper cracks spreading acrossRussia’s finances. Since the invasion ofUkraine, the Kremlin has pumped vast sums through state-backed banks into companies, particularly in thedefencesector, helping sustain growth and creating what some economists describe as an illusion of resilience. However, that borrowing boom is now turning into a weakness.
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“We are already formally under the criteria of a banking crisis. The only thing that is missing is a bank run," said Vladimir Milov, an exiled opposition politician who was formerly a deputy energy minister under Putin, according toThe Telegraph.
According to Russiancentral bankdata, banking sector profits fell by 55% to 176 billion rubles (£1.7billion) in December, with Moscow Credit Bank, another major lender tied to the state oil giant Rosneft, also reporting a loss in the final quarter of 2025 as it grappled with a surge in loan defaults.
At the start of February, the Centre for Macroeconomic Analysis and Short-term Forecasting (CMASF), a think tank aligned with the Kremlin, published a report stating that a “banking crisis has now been confirmed," which, based on its own definition, means that more than a tenth ofbanks’ loanbooks are unlikely to be repaid.
To cover its war costs over the course of the now over four-year war inUkraine, the Kremlin has been injecting massive amounts of cash into Russian companies through its banks. This, according to Craig Kennedy, from the Harvard Davis Center for Russian and Eurasian studies, has fuelled economic growth and created an illusion of Russian resilience.
“This has created a large pool of opaque, unmeasured and poorly managed default risk at the heart of the Russian banking system,” the former vice chairman at Bank of America Merrill Lynch warned in his Substack, Navigating Russia.
Loans to defence companies alone have surged to more than $200billion (£2billion), accounting for nearly a quarter of all corporate lending - despite the sector’s historically weak credit record. According to Mr Milov, PSB's losses reflect “deep troubles in the Russian military industrial sector”.
Source: Daily Express :: World Feed
