Russia economy meltdown as industry demands ‘major bailouts’ – £190m loss | World | News
Russia’s biggest lender is bleeding hundreds of millions of dollars (Image: Getty)
Russia is facing fears of a full-blown banking crisis after its most important war lender suffered heavy losses, raising warnings that industries could soon seek sweeping state bailouts. Promsvyazbank (PSB), the biggest lender to defense firms backing Vladimir Putin’s war effort, recorded a loss of 19.2bn rubles (£190m) last year after the bank had to set aside a staggering 300bn rubles to cover soured loans.
The sharp reversal marks a dramatic shift for a lender that previously thrived by financing the Kremlin’s military-industrial expansion. Analysts are now warning that the losses could be an early sign of deeper cracks spreading in Russia’s finances. Since the invasion of Ukraine, the Kremlin has pumped huge sums of money into companies, especially in the defense sector, through state-backed banks; It helped sustain growth and created what some economists describe as the illusion of resilience. But the debt boom is now turning into weakness.
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Exiled opposition politician Vladimir Milov says Russia is ‘officially under banking crisis criteria’ (Image: Getty)
Exiled opposition politician Vladimir Milov, who served as deputy energy minister during Putin’s term, said, “We are officially under the criteria of a banking crisis. The only thing missing is a run on the banks.” Telegram.
Banking sector profits fell 55% to 176bn rubles (£1.7bn) in December, according to Russian central bank data; Moscow Credit Bank, another major lender affiliated with state oil giant Rosneft, also reported a loss in the last quarter of 2025 as it grappled with a rise in loan defaults.
At the beginning of February, the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF), a Kremlin-affiliated think tank, published a report stating that the “banking crisis is now confirmed”; This means, by its own definition, that no more than a tenth of banks’ loan books are likely to be repaid.
To finance Putin’s war in Ukraine, the Kremlin is injecting large amounts of cash into Russian companies through its banks (Image: Getty)
To cover war expenses throughout the war in Ukraine, which has been going on for more than four years, the Kremlin has been injecting large amounts of cash into Russian companies through its banks. This fueled economic growth and created the illusion of Russia’s resilience, according to Craig Kennedy of the Harvard Davis Center for Russian and Eurasian Studies.
“This has created a huge pool of opaque, unmeasured and poorly managed default risk at the heart of the Russian banking system,” former Bank of America vice president Merrill Lynch warned in Substack, Navigating Russia.
Despite the sector’s historically poor credit record, loans to defense companies alone rose to over $200bn (£2bn), accounting for almost a quarter of all corporate lending. According to Mr. Milov, PSB’s losses reflect “deep problems in the Russian military industrial sector.”
Russia’s high oil and gas prices provide lifeline due to Iran war (Image: Getty)
Its influence is already spreading beyond the military sector. Three-quarters of Russian industries are now either struggling or in recession, with key sectors such as coal, steel, paper and construction facing serious pressure. Consumer loans also trended from strong growth to contraction; central bank data shows this will contract by -0.7% in 2025; This is a sharp change from the 11.3% growth recorded in the previous year.
Putin announced that Russia’s GDP contracted by 1.8% in January and February compared to the same period last year. In March, the Russian leader told his country’s oil and gas companies that they should use windfall oil profits triggered by the war in Iran “to reduce their debt burdens and pay off their debts to domestic banks.”
For now, Russia’s economy is sustained by the fact that rising oil and gas prices since the start of the war in the Middle East have brought higher revenues to Russia’s energy giants. Some economists predict this will help the Kremlin avoid a recession in the second half of this year.
But if Donald Trump Once it succeeds in striking a peace deal with Iran and the global energy crisis subsides, a resulting drop in energy prices could quickly reveal the extent of the problem and force the Kremlin to step in costly bailouts of banks and state-backed companies. Estimates suggest that such a bailout could reach 10 percent to 20 percent of GDP in a worst-case scenario.
