Does Russia really face a wave of bankruptcies

Amid the central bank’s aggressive interest rate hikes last year – taking the key rate to a two-decade high of 21% – the industrial lobby, joined by sympathetic economists, has been increasingly warning of a wave of bankruptcies as over-exposed industries struggle to service their debts. We took a look at how bad things really are.

• “The Russian economy faces the threat of a large-scale surge in corporate bankruptcies,” the Center for Macroeconomic Analysis and Short-term Forecasts (CMASF) wrote in its January report. CMASF was founded by current Defense Minister Andrei Belousov and is now headed by his brother Dmitry. Even such respected individuals as Sergei Chemezov, head of state defense corporation Rostec, and Russia’s wealthiest man Alexei Mordashov are complaining about the difficulties of servicing their debts. The government set up a special commission under deputy PM Alexander Novak to discuss state support for troubled industries.
• Objective indicators support the lobbyists’ concerns. At the end of 2024, over 20% of companies in the manufacturing sector were paying more than two-thirds of their pre-tax profits on debt repayments — double the number of firms as in 2023.
• Industries which saw the most intense overheating and those worst affected by sanctions are now facing the biggest problems.
• The coal industry is in first place: last year, more than half of companies were unprofitable. It was the only sector in Russia to post a combined loss for 2024. As in the 1990s, woes in the mining sector risk becoming a social problem. In December, miners at one pit in the Kemerovo region declared a hunger and labour strike. The main issues facing the industry are low global prices due to falling demand, sanctions, and increased railway tariffs.
• According to CMASF, the companies in the most difficult position are those at the “technological core of the economy”, with transport and engineering in the worst situation. For example, the authorities constantly have to subsidize auto maker AvtoVAZ, which has debts of more than 100 billion rubles. “With the increase in the base rate, payments to banks are up by billions of rubles a year,” complained Chemezov (his Rostec owns a 32.3% stake in the company). But defense and related industries are a separate case. Businesses in the military-industrial sector are among the main recipients of preferential loans. Moreover, the general economic cooling will have less of an impact on them since demand for military equipment comes from the state and this will be sustained, even if the war ends tomorrow.
• Any problems in the economy are inevitably accompanied by discussions about the state of the real estate market. This time, though, developers face a unique situation: the rapid rise in interest rates coincided with the end of a trillion-ruble preferential mortgage program in the summer of 2024. That program had supported the industry since 2020. In the first half of 2024, 80% of all newbuild apartments were sold with a preferential mortgage. After the biggest of these schemes were cancelled, the market for new homes collapsed in the second half of the year. Deputy PM Marat Khusnullin, who is responsible for the industry, allowed isolated bankruptcies to take place. “Some developers miscalculated their economics, they probably won’t cope,” he said. But in general, experts in the sector are in no rush to sound the alarm. Sales of housing commissioned and under construction in 2025 remain high.
• Another candidate for serial bankruptcies is the freight transport sector. High costs for borrowing and leasing, increased recycling fees for imported equipment, higher prices on fuel and vehicle servicing and a fall in demand could push about 30% of freight carriers into bankruptcy in 2025.
• Retail trade is one of the most heavily indebted (.xlsx) sectors of Russia’s economy. High interest rates and the subsequent increase in the cost of borrowing can affect many different industries. First and foremost, the auto market, which became predominantly Chinese after the exodus of Western brands. Even without high interest rates, the profitability of selling cars from China in Russia is very low. Shopping malls have also faced heightened risks. Last year, the Union of Russian Shopping Malls warned that high interest rates and poor performance in competition with online marketplaces could drive a quarter of shopping centers into bankruptcy.

How real is this threat?

Despite debt problems in a whole range of sectors, talk of a full-blown crisis is premature, according to experts who spoke with The Bell.

Economist Sergei Skatov noted that the banks – who have the most accurate information about borrowers – are not anticipating a wave of bankruptcies. If they were worried about this development, lenders would have needed to establish additional reserves last year to cover bad debts. However, according to Central Bank figures, this didn’t happen.

Overdue payments on corporate loans remain (.xlsx) at their lowest level since mid-2021 – 2.7 trillion rubles. Due to the rapid expansion of the loan portfolio, any problems with new debts are not immediately apparent. “But even allowing for the effect of this rapid growth, the overall economic situation does not lend itself to alarmist forecasts,” Skatov reassured.

Bankruptcy is not the usual solution to problems in the Russian economy, Skatov said. The state more often bails out troubled companies with an injection of money. In previous crises, both businesses and banks happily took advantage of this.

Why the world should care

Under pressure from high interest rates – which nobody is planning to lower just yet – and sanctions, Russia’s economic situation is deteriorating. But it’s still a long way from total collapse.