Russia's banks are earning more than ever, yet beneath the record profits lie mounting bad debts, a flight to cash and a corporate-loan pile that few in Moscow can measure.

The country's largest lender, state-controlled Sberbank, posted a record IFRS net profit of RUB1.01tn ($12.6bn) in 1H26, up 19% year on year, with a return on equity above 24%. Sberbank alone routinely earns the lion's share of the sector's profit, and its board has just waved through a record RUB850.2bn ($10.8bn) dividend, more than half of which flows straight to the state budget.

That headline strength is doing a lot of concealing. For more than a year Russian bankers have warned, mostly in private, that the figures flatter a system storing up trouble. Executives at several major banks have privately described the risk of a systemic crisis within 12 months, a darker view than official data imply, prompting analysts to ask openly how close to a crisis the sector really is.

“Banks always get all the problems that arise in the economy at the next stage,” Sberbank chief executive German Gref said, warning that companies were increasingly struggling to service their loans and that provisioning would keep climbing. It is an unusually candid admission from the man whose bank sets the tone for the whole system.

Record profits, thinner underneath

Sberbank's own numbers are genuinely strong. Net interest income rose more than a fifth to over RUB2tn, the net interest margin reached 6.5% and provisions actually fell year on year as the bank reported better credit quality on new retail lending. The share of overdue loans on its books held at 2.9%, and it is on course to pay one of the richest dividend yields on the Moscow Exchange.

The picture darkens away from the market leader. VTB (VTBR), the second-largest lender, saw net profit fall 19% to RUB190bn ($2.5bn) in the first five months of the year, its bad-loan share creeping up and its capital adequacy ratio down to a thin 10.5%. Promsvyazbank, the state bank rebuilt as the financial backbone of the war economy, went further still, posting its first annual loss after tripling its provisions — the clearest symptom yet of the stress the sector-wide figures smooth over.

The rate that made and unmade the boom

Behind the profits sits the Central Bank of Russia (CBR) and a policy rate that has whipsawed the sector. To fight wartime inflation Governor Elvira Nabiullina drove the key rate to a two-decade high of 21%, a level that fattened banks' margins even as it throttled borrowers. Since mid-2025 the CBR has unwound part of that, cutting in steps to 14% in July — but the last cut came as inflation was accelerating, not slowing.

The easing is as much political as economic. Vladimir Putin, who for two decades barely commented on monetary policy, has twice publicly pressed for cheaper money, and the business lobby has grown loud. Its head, Alexander Shokhin, warned that holding rates risked “autumn bankruptcies”, while Gref has argued they must fall to 12% to revive growth. Nabiullina, long a byword for central-bank independence, is now holding her line under visible pressure, having cut in July without the forward guidance that was a hallmark of her tenure.

The debt buried in the books

The bigger worry is what the profit figures do not show. Official non-performing loans stood at around 6.2% of the book in early 2025, low enough not to dent capital — but internal bank memos seen by Bloomberg warned the number “may mask the true magnitude of the debt problem”, as lenders quietly renegotiate souring loans and keep classifying them as performing.

Much of the risk was manufactured by the state. Craig Kennedy, a former Bank of America Merrill Lynch banker now at Harvard, has documented how Moscow forced banks to extend between $210bn and $250bn in preferential loans to defence contractors since February 2022, helping drive a 71% surge in corporate borrowing worth close to a fifth of GDP — “a large pool of opaque, unmeasured and poorly managed default risk”, in his words.

Nabiullina has conceded the strain, putting bad debt on corporate loans at 10.6% by mid-2025 even as she insisted the system remained sound. The state, meanwhile, has less room to backstop it than the war years suggested: the federal budget gap reached RUB6.455tn, or 2.8% of GDP, in the first seven months of 2026, and the finance ministry has been forced to halt its regular bond auctions after a run of failed sales.

Cash under the mattress

Ordinary Russians are voting with their wallets. Cash withdrawals hit RUB1.6tn ($17.4bn) in January 2026, the most since the 2022 invasion, and the net outflow from cards and accounts of RUB1.1tn ($12bn) was the second-largest monthly drain in 16 years. The share of cashless payments, once a point of national pride, slipped back below 71%.

The nervousness has reached investors too. In July, Russian retail funds recorded their first net outflow in 18 months, with bond funds shedding a record RUB88bn as savers second-guessed the CBR's next move and shuffled money into short-term instruments.

State giants, private survivors

For all the strain, the sector remains highly concentrated and, by design, hard to break. Below Sberbank and VTB sit Gazprombank, the gas-linked lender the West was slow to sanction; Alfa-Bank, the largest private bank, which has just won a Moscow court fight for direct control of its Belarusian sister bank; and Potanin-controlled T-Technologies (MOEX: T), the fintech group built on the former Tinkoff, whose profit fell on a writedown of its Yandex stake. Rosbank, bought from France's Société Générale, and insurer SOGAZ round out a field trading on the Moscow Exchange (MOEX) that foreign investors can no longer touch.

Sanctions and isolation cut both ways. They have walled Russia's banks off from Western funding and the dollar system, but also from the market discipline that would normally expose a build-up of bad debt. The result is a sector that looks, on its headline numbers, more profitable than almost any in Europe, while its own executives quietly prepare for the losses they expect to arrive at the “next stage”. How close to a crisis Russia's banks really are may turn less on their balance sheets than on how long the state can keep filling the gaps.