Good afternoon,
Today, we are presenting the Financial Stability Review for 2024 Q4—2025 Q1.
Over the past six months, the economy has been expanding, although the pace has slowed recently. Most companies are still making a profit. Banks and other financial institutions are in a stable position, due in part to a conservative approach to regulation. We are not seeing any threats to financial stability. Nevertheless, we are closely monitoring developments to prevent an economic slowdown from triggering the emergence of risks.
Consistent with the previous Review, we highlight the same five vulnerabilities of the Russian financial sector. I will outline each in more detail.
Let me begin with risks in corporate lending, which are a key issue to watch. A temporary reduction in corporate loans was reported between December and February. With fiscal spending rising at the time, recipients of budget funds were repaying previously taken loans. But by March—April, corporate lending was back on a balanced growth path. No credit tightening is in place.
Most industries are reporting high corporate profits by historical standards, despite their decline from the record levels of 2023. Companies’ finances are being affected by sanctions and higher costs driven by an inflation environment, as well as high interest rates. Yet, the tight monetary policy is a temporary factor necessary to steadily reduce inflation, and by extension, constrain growing costs.
While the proportion of highly leveraged major companies is rising, most of them have no difficulty servicing loans. At the same time, it is imperative we limit the risks of excessive leverage. This is why we introduced a macroprudential buffer from 1 April for loans issued to highly leveraged major corporates. It only applies to rising debt, and exclusively to lump-sum loans only available from major banks. This is not a large buffer, but it is needed ensure banks make a more accurate assessment of companies’ creditworthiness.
The share of non-performing corporate loans has been virtually unchanged over the past year, and is 4% as of 1 April. Non-performing loans are typical of the coal industry, residential and commercial real estate, and transport. Small and micro enterprises have shown a decline in solvency. Over the year, the share of those struggling to service debt was up from 5% to 9%. Our recommendation is that the banks meet borrower requests for restructuring.
Compared to banks, leasing companies are showing a more notable increase in non-performing assets. Since the fourth quarter of last year, they have faced more non-payments. They report rising amounts of seizures and returns of equipment under terminated contracts. But the servicing of both loans and leasing remains good overall.
Two thirds of loans in the corporate portfolio are variable-rate loans. Some analysts claim that the growing share of variable-rate loans has raised risks for the economy, but we believe the opposite is true. Traditionally, banks extend such loans to financially stable borrowers, and their quality is still higher than that of fixed-rate loans. However, banks should carefully assess the solvency of all corporate borrowers in case current high rates persist. Effective since last September, the increase in variable-rate loans for micro enterprises is limited to 4 percentage points. This reduces risks for such companies.
Overleveraged companies may still have certain problems. As at any other time, there will be companies with business models that are unstable in the current environment. By the current environment, I mean not just high rates, but also global commodity prices, rising costs, sanctions, and difficulties with logistics. However, most borrowers have sufficient operating profits to service their loans, and will be able to navigate through the times of slower growth and high interest rates.
Now on to retail lending and household debt. We can see a slowdown in lending and deteriorating quality of loans. This is not unexpected. We are prepared for the emergence of these risks and have taken measures in advance, limiting the issue of high-risk retail loans and accumulating capital buffers. There would have been more overdue loans if we had failed to tighten regulation. Thanks to those measures, risks to financial stability are limited.
The portfolio of unsecured consumer lending has declined 3.5% over the past two quarters. The share of bad loans has increased to 10.5%, which is almost 3pp more than a year ago. This is the result of banks actively increasing consumer lending at high rates in 2023 and the first half of 2024, with high-risk borrowers willing to take out such loans. Our regulation lowered the share of overindebted borrowers and allowed banks to form a capital buffer at 7% of the consumer loan portfolio.
Similar developments are seen in the mortgage market, although it is still growing. As of 1 April, the share of loans overdue by more than 90 days in the mortgage portfolio is up to almost 1%. This is twice as much as a year earlier. We note a decline in the quality of servicing mortgage loans issued in 2023 H2 and 2024 H1, when banks relaxed assessments of borrower risks and borrowers rushed to take out loans before the end of the large-scale subsidised mortgage programme. Nonetheless, our measures significantly improved lending standards, and this is set to limit future risks in mortgage lending. To cover possible mortgage losses, banks accumulated a portfolio capital buffer of 2%.
At the same time, new risks are accumulating in the housing market. In an effort to shore up sales, developers are now offering instalment plans on a large scale. This even boosted sales by 7% in January—April, in monetary terms, compared to the same period last year. However, instalment deals may bring risks for buyers, developers and banks, especially if they are for 10 years with a 10% down payment and issued to highly indebted individuals. Once an instalment plan has ended, the buyer may struggle to take out a mortgage, and then they will lose the money paid if unable to repay the balance due to the developer. In fact, not all instalment sales can be considered final.
As of 1 April, buyers’ debt under instalments is estimated at no less than 1 trillion rubles, almost double what it was one year ago. This is why we recommend that banks carefully assess risks in projects where instalment plans account for a considerable portion of sales. We believe that incentivising sales through non-transparent schemes brings increased risks. In future, we will take this factor into account in the regulation of project finance provisions.
Another vulnerability our Review traditionally highlights is the interest risk of banks. It has showed up in an environment of high rates, but the banking sector retains a safety cushion. The sector’s net interest margin declined slightly to 4.2% in the first quarter. This is still fairly high. Margins may be maintained if deposit rates are high. This is enabled by, among other things, a large share of variable rates in the loan portfolio. However, as we have mentioned, it is important that banks prevent interest risk translating into credit risk. However, banks’ positions are mixed: some have narrower margins. Therefore, it is important for banks to improve the quality of interest risk assessments and be prepared for different rate paths.
Banks’ trading books were positively revalued on the back of a marked decline in bond yields between late 2024 and early 2025. This came with a decline in the amount of unrecognised negative revaluation of securities held to maturity.
Finally, a further vulnerability of our market is currency risk. This risk has largely materialised due to sanctions. However, this vulnerability is being eased by dedollarisation trends in the banking sector, with a shrinking market share of the currencies of hostile countries.
Since 1 December, the ruble has appreciated 25% against the US dollar. Yet, before that, beginning in mid-2024, the ruble weakened by a comparable amount. Banks’ foreign exchange risks stemming from a stronger ruble are limited thanks to balanced open currency positions. The loss of banks from foreign currency revaluation is no more than 1% of the sector’s capital.
Overall, a strong ruble is a natural result of the tight monetary policy aimed at curbing excessive demand, including for imports, and supporting investor demand for ruble assets. In recent months, we have seen a reduction in the amounts of foreign currency that companies are purchasing in the market. Traditionally, individuals are the net buyers of foreign currency. However, the accumulated amount of purchases by households in the year to date is half that of the previous two years.
In conclusion, let me say that the situation in the financial sector is stable. Banks will continue lending and supporting borrowers should GDP slow and demand for restructuring rise.
The Bank of Russia is conducting a countercyclical macroprudential policy, and we can support banks with regulatory easing if necessary. As a reminder, last week we published a report outlining the rationale behind our macroprudential policy decisions. We will continue to monitor financial stability closely, to be able to respond to new challenges in time.
