Russian Central Bank: Economic Slowdown Deepens Corporate Strains

Russia’s central bank signaled mounting pressure on corporate finances amid a slowing economy and rising bad loans, though it maintains that even a sharper deterioration would not threaten overall financial stability.

In a report published Thursday, the Bank of Russia said credit risks have become the system’s “primary vulnerability” as economic momentum weakens. While the broader financial position of households and companies remains generally stable, the bank noted that “previously accumulated risks are now materializing, with the most fragile borrowers facing increasing difficulties.”

A combination of weaker economic activity, unfavorable external conditions, and elevated borrowing costs has squeezed profitability across multiple sectors. Corporate net profit dropped 23% in the first eight months of 2025 compared with the same period last year, according to the report.

More companies have slipped into loss-making territory, particularly in construction, oil and gas, and transport, while the coal industry is experiencing “especially severe” financial pressure.

The slowdown has also led large companies to extend payment terms and accumulate receivables, moves that compound liquidity pressures on small and micro-enterprises, which depend heavily on timely payments.

Non-performing loans reached 4% as of October 1, a slight increase since the start of the year.

Despite these warning signs, the central bank expects most firms to remain resilient through 2026, with debt-servicing challenges concentrated among a narrow group of highly leveraged borrowers. Stress tests suggest that even a “significant additional deterioration” in corporate performance would not generate systemic risks.

Governor Elvira Nabiullina reiterated last month that the overall corporate landscape remains sound despite weaker profitability. Her comments followed the bank’s fourth consecutive cut to the key interest rate, prompted by slowing third-quarter growth.

Deputy Governor Filipp Gabuniya emphasized on Thursday that large companies with high debt loads have been borrowing at a faster pace than the broader market in recent months. In response, the central bank has doubled capital requirements for banks lending to such borrowers and stands ready to tighten them further if needed.

“Banks must not allow indebtedness among borrowers to rise unchecked,” Gabuniya warned, underscoring the regulator’s cautious stance as it tries to balance support for economic activity with safeguards for financial stability.