A year ago, plunging oil prices sent the ruble spiraling to record lows and bank depositors scrambling to get their cash. Sberbank, Russia’s biggest lender, ran through tremendous amounts of cash to survive a run it dubbed Black December—300 tons of it, 1.3 trillion rubles ($20.8 billion), in a single week. “All we could do was relax and pray,” Sberbank Chief Executive Officer Herman Gref says, recalling the worst moment in his eight years of running the state-controlled lender.
Sberbank’s deep pockets ensured its survival, and the government soon rolled out a 900 billion-ruble plan to bail out other big lenders. Smaller banks weren’t so lucky. This year regulators will shut down or take over a record number of institutions.
Largely cut off from international financing by U.S. and European sanctions, and concerned about the outlook at home as the economy heads into a second year of recession, Russia’s bankers have shied away from making new loans. That’s a big problem for the Kremlin, which is counting on domestic investment to revive growth. Instead, with the economy forecast to shrink again next year, Moody’s Investors Service expects bad loans to reach peaks last seen in the crisis of 2009. The central bank says it will continue to purge weaker players.
“We now have full stagnation,” says Oleg Vyugin, chairman of MDM Bank, a top-30 lender. “Demand for loans from high-quality borrowers is very limited, as they remain uncertain about future income. Insolvent borrowers would be happy to take a loan, but banks are not ready to lend to them.”
Maxim Shkadov, who runs Kristall, Russia’s biggest gem polisher and a major exporter, says the weak ruble—it’s lost half of its value since oil began to slide in 2014—slashed his local costs in dollar terms. “We don’t have any problems getting loans, because banks have plenty of cash and can’t find anywhere to put it,” he says. But demand for his diamonds is weak, so he’s paying down debt, not adding to it, Shkadov says.
Businesses that earn money in rubles say high interest rates—15 percent or more on one-year loans—are keeping them from borrowing to expand. PiR, a cheese wholesaler, saw much of its competition vanish after Russia banned the sale of European dairy products in retaliation for the sanctions. Yet its executives say PiR can’t afford to borrow to invest in the business. “It’s impossible to even talk about serious growth,” says Vice President Pavel Bozhko. Interest on the company’s loans has “cut into our operating profit so much that we’re thinking less about profitability than avoiding losses.”
Private banks are being careful. “We will be paying a lot more attention to the quality of borrowers,” Alfa Bank CEO Alexey Marey says. Russia’s second-largest private lender has cut back on loans to small and midsize businesses and has no plans to build market share.
This year the central bank has shut down banks at the rate of almost two a week, closing about 9 percent of the total. Regulators say more will be closed. “The central bank says that revoking banking licenses will soon be an extraordinary event,” says Artem Konstandian, head of Promsvyazbank, Russia’s 11th-biggest lender. “We will get to that point eventually, but I don’t think it will be anytime soon.” Nonperforming loans have risen to 14 percent, from 11.5 percent at the start of the year, and are still growing. Banks have put aside 961 billion rubles in loan-loss provisions so far in 2015. Sberbank is offering a special deal to companies that have seen their lenders fail: New corporate clients can get three months of regular banking services at Sberbank for just 1 ruble a month instead of the usual 2,200-ruble fee. The offer’s valid through the end of 2016.
—With Andrey Lemeshko