Russia's economy is on the brink, European intelligence agencies have found. The banking sector is particularly vulnerable. And the war is costing more and more - this year the costs are at least 24 billion euros more than planned.
The Russian economy has found itself in an "explosive state" due to the military tracks it has been put on, the "Frankfurter Allgemeine Zeitung" (FAZ) newspaper wrote on Thursday, June 18, citing a new report by European intelligence agencies. According to them, a new "economic shock – for example, a large-scale package of sanctions against banks or a sustained decline in oil prices", could become the last straw.
According to the experts' conclusions, Russia's banking sector has demonstrated particular vulnerability. Bank balance sheets are "artificially inflated". In order to attract investors in the conditions of high interest rates (the prime interest rate is still 14.5 percent), banks have lowered the thresholds of permissible risks.
"Mass lending" of state-subsidized mortgage loans has provoked a rise in real estate prices – with the risk of a bubble appearing and unleashing a wave of insolvency. The practice of transferring debts from public-private partnerships in Russian regions to them has become an additional burden for banks – as a result of which banks are forced to "bear losses from low-profit projects and cover the difficulties of the regions in repaying debts".
Hidden debts and the threat of a banking crisis
Added to this are hidden debts - preferential loans that banks have granted "under pressure from the Kremlin" to defense enterprises with "colossal financial needs". In September 2025, alarming signals in the banking sector became so frequent that the Russian authorities began to fear a banking crisis - "despite the efforts of the Central Bank to keep the situation under control".
The document further states that Russia continues to present the Russian economy as dynamically developing, although this no longer corresponds to reality: the government itself officially admits that the economy has been stagnant for at least two years, and the growth forecast for the current year was reduced to 0.4%. Economists from the Kiel Institute for the World Economy and the Stockholm Institute for Transition Economics also consider it "overly optimistic".
The new report by European special services does not call for stricter sanctions or the introduction of a special customs duty on imports from Russia to the EU in favor of Ukraine. But it does give politicians arguments in support of why the current moment is favorable for action – be it sanctions or at least a tougher stance towards the President of the Russian Federation Vladimir Putin, notes the FAC.
The credit portfolio is deteriorating
The document states that the credit portfolio of banks is deteriorating due to the difficulties of entrepreneurs in repaying debts, and the slowdown in the economy may accelerate the wave of bankruptcies. According to experts, the state supports only the defense sector, while civilian enterprises are left to take care of their refinancing on their own.
Today, the Central Bank considers 10 percent of corporate loans to be problematic - significantly more than in 2024. However, the regulator itself allowed a share of 11.5 percent in the spring of last year. Russian analysts also reported a significant increase, but partly attributed it to a change in methodology and assessed the indicator as a warning signal rather than a sign of disaster.
Elvira Nabiullina under pressure
Even more striking is the picture with problem consumer loans. According to the report, the Central Bank of Russia admits that the share of such loans is 6 percent. In reality, however, the Central Bank itself in April estimated the share of "problem" consumer loans at 13.1 percent.
The Central Bank of Russia is finding it increasingly difficult to mitigate the economic consequences of the war in Ukraine, and the pressure on it is growing. Its governor Elvira Nabiullina has missed several public events since the beginning of June - officially due to illness - including Putin's St. Petersburg Economic Forum and the president's video conference with the government last week. At that meeting, Putin called for a reduction in the key interest rate. "Inflation is falling. How much is it there - a little over five percent. I think we can count on a decrease in the base interest rate," he said.
Putin's move was as unusual as the Central Bank's reaction: one of Nabiullina's deputies pointed out that inflationary pressures remain high, and the possibilities for lowering interest rates are minimal - especially considering that government spending is not decreasing, but remains at a high level. And this is even an understatement, notes the FAC, recalling that the Russian parliament has just passed a bill in an accelerated procedure that allows the Ministry of Finance to increase debt above what is planned in the budget without parliamentary approval.
The independence of the Central Bank is in question
All this is happening against the background of the fact that the war is costing Russia more and more - according to government estimates from February, this year alone, the costs are at least 24 billion euros more than planned.
The new law risks becoming a catalyst for the debt burden, undermining budget discipline and reducing transparency. That is why the meeting of the Central Bank leadership this Friday (June 19) is being awaited with particular interest - and not only because the question of whether Nabiullina herself will participate remains open. After Putin spoke out in support of lowering the interest rate, the question arises as to how far the Central Bank still remains independent, notes “Frankfurter Allgemeine Zeitung”.