The Russian banking sector: between instability and recovery

Russian banks seem to be slowly emerging from the country’s 2014–15 economic and financial crisis, which had been triggered by the oil price plunge and Western sanctions. While the economy has recovered from the recession and macroeconomic stability has been re-established (including record-low inflation), GDP growth is still modest. Lending has gone from a crisis-driven credit crunch to a retail-driven recovery, while deposits, buoyed by sustained confidence, have expanded. However, some medium-sized private banks, burdened by legacies of mishandled crisis-triggered takeovers of smaller outfits, collapsed in the second half of 2017, delaying the overall improvement of credit quality, profitability and capital adequacy. In reaction, the central bank nationalized and bailed out these systemically relevant players and established a “bad bank” to more effectively control restructuring procedures. While credit risk and related-party lending risk remain serious, shock-absorbing factors are ample and have further accumulated (including high foreign currency reserves, sizable net external assets and a solid fiscal position).