Almost one in four Russian credit organisations was loss-making in August, as the country’s prolonged war and strained monetary policy deepen the financial sector’s divisions.
The number of loss-making credit organisations rose by 87% from the start of 2026 to 86 in August, according to figures from Russia’s central bank reported by Izvestia on 8 September 2026. Banks accounted for 65 of those institutions, out of 300 operating across Russia.
The share of loss-making organisations averaged 24.5% in the second quarter, up from 18% a year earlier. The figures point to a widening divide beneath the sector’s headline profits, with the largest banks benefiting while smaller and regional lenders struggle to absorb higher funding costs, weaker borrowers and a shortage of liquidity.
Profits concentrated among the biggest banks
Russia’s banking sector is still reporting aggregate profits of between 3.9tn and 4.4tn roubles. But 75-76% of that income is concentrated among the country’s ten largest banks, leaving much of the rest of the market increasingly vulnerable.
The losses reported by troubled institutions fell slightly in absolute terms, to 90.2bn roubles by June 2026. That apparent improvement does not reflect a broad recovery. Losses are being carried mainly by smaller organisations with relatively limited assets, while the number of lenders operating at a loss continues to rise. The deterioration has reached some major institutions, including PSB, which is among Russia’s ten largest banks and is designated as systemically important.
The imbalance has been reinforced by the Kremlin’s prolonged war, which has brought a large inflow of unsecured funds into the defence sector and added to inflationary pressure. To contain inflation, the Bank of Russia raised its key interest rate to 21% at the end of 2024. It then cut the rate by 5.75 percentage points, to 14.25%, between June 2025 and June 2026.
That reduction has not brought equal relief across the banking system. Smaller lenders have seen returns on their liquid assets fall rapidly, while remaining tied to expensive deposits raised when interest rates were much higher. Unlike the largest banks, they have been less able to compete for depositors or draw on cheap state-linked funding and salary-account schemes.
Liquidity shortage exposes wider weakness
The sector’s structural liquidity deficit reached a record 2.7tn roubles in August. In practice, Russian banks have increasingly struggled to fund themselves through deposits, market borrowing or interbank lending and have had to rely on repeated refinancing from the regulator. The central bank has consequently become the main source of support keeping large parts of the financial system functioning.
Two further pressures are making that dependence more dangerous. The value of Russian government bond portfolios, known as OFZs, has fallen, while the proportion of problem loans to companies has risen to more than 11%, compared with 5.8% a year earlier.
For businesses facing prolonged double-digit borrowing costs, refinancing existing debt has become increasingly difficult. As defaults rise, banks must set aside funds as mandatory provisions against bad loans. That removes cash from normal circulation, weakens operating performance and increases the risk of further failures among both lenders and companies in the wider economy.
The central bank has stressed that the sector remains stable, pointing to the fall in the combined losses of loss-making organisations. But that measure masks the rapid expansion in the number of institutions under pressure. The headline profits of the largest banks can make the system appear healthy while almost a quarter of its participants lose financial stability.
Consolidation could reshape Russian banking
Experts expect the market to consolidate further, with the number of banks potentially falling by half to about 150. The process is likely to accelerate when higher minimum-capital requirements come into force between 2028 and 2030.
For banks with a universal licence, the minimum will rise from 1bn to 3bn roubles. For those with a basic licence, it will increase from 300m to 1bn roubles. Almost half of existing banks could therefore be forced to seek buyers or change their business models.
The consequences would extend beyond the financial sector. Fewer regional lenders would mean less competition for savers and borrowers, while small businesses could lose important sources of credit. A more concentrated market could also bring lower deposit rates and higher charges for basic services, transfers and card payments. Households may face tighter conditions on mortgages and consumer loans, while people with deposits above the insurance limit would be exposed to greater losses if failures spread.
Russia’s central bank must now contain a liquidity shortage and rising corporate defaults without allowing the rescue of the sector to become a permanent transfer of risk to the state. The way it manages that balance will determine whether consolidation remains a controlled restructuring or becomes a broader contraction in credit.
Could the consolidation of Russia’s banking sector strengthen financial stability, or would it mainly entrench the dominance of the largest lenders?
