Credit troubles: allow time to mature
Dangerous reinstructures, or second-time restructured loans with negative profits and capital or clear debt problems for the borrower, are on the rise. In Q1 2025, these risky reinstructures ballooned to a staggering 2.7 trillion rubles, a 0.3 trillion increase from the previous quarter. The construction sector, with its mounting debt load, accounts for 0.1 trillion of the increase, while industrial and energy companies, also facing a debt spike, contributed an additional 0.2 trillion. New risky reinstructures amounted to a moderate 0.1 trillion rubles, primarily due to borrowers extending payment terms for interest.
A quarter prior, in the last month of 2024, agriculture was a major concern, accounting for more than a third of new risky reinstructures. Farmers largely extended credit payback terms or adjusted interest payment schedules as they struggled to cover their debts, especially those taken out under floating interest rates. The Central Bank had not previously specified the problematic sectors.
Overall, the Central Bank emphasizes no significant deterioration of the corporate loan portfolio quality. These risky reinstructures, including those for small businesses and government structures, amounted to merely 3.4% of the corporate loan portfolio (4% in Q1 2024) and are covered by reserves or quality collateral by 40%.
Problematic corporate loans, including those for small businesses and government entities, increased slightly in Q1 2025, reaching 4.9 trillion rubles (+0.2 trillion), with their share rising from 5.8% to 6.1%. Notably, over half of these loans are also covered by reserves. The total amount of problematic loans and risky reinstructures without coverage, however, reached about 3.6 trillion rubles (45% of banks' capital reserves up to the normative limits). "However, the risks associated with these loans are manageable, as they will not be realized suddenly but will grow gradually," the Central Bank reassures.
Analysts had been warning for quite some time that debt servicing issues would escalate throughout 2025. High interest rates gradually affect the corporate loan portfolio as old debts with low interest rates are replaced by new ones with higher interest rates, including those with floating rates.
This trend occurred in Q1: fixed-interest debts were replaced by more expensive ones as well as adjustable-rate loans. The latter's share in the portfolio increased to 65%, from 55% in Q4 2024. This move ensured banks a decent increase in income from deposited funds. If in January and February, the actual current value of corporate loans hovered around 17.0%, it jumped abruptly to 18.7% in April. Now, the crucial concern is how companies that took out adjustable-rate loans in the hope that the Central Bank would soon relax its policy will manage these payments.
Another worrying point is the mortgage sector, with the volume of restructured loans in this segment quadrupling to 297 billion rubles in Q1 2025 compared to the previous quarter (166 billion in Q4 2024). The share of bad loans in the mortgage sector also increased significantly, reaching 11.1% (10.4% on January 1, 2025), although they are covered by reserves to the tune of 71%.
To soften the blow, the Central Bank allowed banks to maintain the credit rating quality of loans for companies and individuals who applied for restructuring from July 1, 2024, to December 31, 2025. "This measure will support borrowers who found themselves in a difficult situation but have realistic plans to restore their solvency," the Central Bank optimistically stated.
- In light of the escalating debt servicing issues, there's growing concern about personal-finance matters, particularly among borrowers with adjustable-rate loans, as they grapple with the potential implications of higher interest rates.
- Amidst the rising trend of restructured loans, the mortgage sector has seen a significant increase in personal-finance related problems, with restructured loans quadrupling and bad loans reaching anelevated 11.1%.
