The corporate lending market of Russia is beginning to experience a crisis. A significant number of large enterprises will face bankruptcy in the coming year. The reason is that the percentage of corporate floating-rate loans is growing. It means that the loan payment is tied directly to the interest rate of the Central Bank.
In simple words, if the company took out a loan when the Central Bank rate was 15%, then it paid at 17% per annum. But since the loan was taken not at a fixed interest, but tied to the rate of the Central Bank, now the company pays 24-25% per annum for the same loan.
The share of such loans, critically depending on the Central Bank rate, is growing. Only 20% of loans were floating-rate by February 2022, there were 44% of such loans by the end of 2023, and the percentage of such loans is supposed to be 53% by the end of 2024.
The reason for the beginning of the crisis is that Russian business took large floating-rate loans in 2023, hoping that the rate in 2024 would be low. The profitability of the business was set at a moderate rate of the Central Bank up to a maximum of 15%. The Central Bank currently has a rate of 21%.
As a result:
1. The number of corporate bankruptcies increased by 20% in 2024 alone, and the main consequences are expected in 2025.
2. The Russian Union of Industrialists and Entrepreneurs sent a complaint to the government that the percentage of late payments (delay in business-to-business transactions) increased from 22% to 37% in 2024, being a sign of a shortage of capital between counterparties.
3. This is especially acute in retail trade. The Russian Council of Shopping Centers sent a letter of request to the government to provide preferential loans with a rate of no more than 7-10% and help in restructuring already existing debts and with a postponement of debt repayment for 5-10 years. Otherwise, the Council warns of the bankruptcy of up to 200 shopping centers and platforms in the coming year.
4. The corporate bond market will also collapse. High interest rates make capital raising more difficult or even impossible. This eventually leads to corporate defaults. The director of Gazprombank notes that many companies did not plan to repay the bonds this year, hoping to prolong payments by refinancing. However, the high rates of the Central Bank paralyze the bond and refinancing market, because the refinancing interest rate now starts at 27% per annum. A number of large companies may face defaults during the year.
5. The real estate market is experiencing the biggest blows. The first blow came when the government effectively froze the mortgage program to divert funds to the war. At the same time, the developer took loans in advance and started building under the guarantee of the functioning of the state mortgage program and the demand.
On the other hand, the number of mortgage applications has halved since July 1. The second blow was dealt by the Central Bank when it raised the interest rate, forcing the developers to look for additional funds exclusively at a high interest rate. The developers themselves, who, after the reduction of the state mortgage program, provided the population with mortgages at a lower rate than the Central Bank, experienced the third blow.
Thus, the developers supported the demand, further hoping that the Central Bank would start lowering the interest rate next year. If this does not happen, then during the year, when the grace period for buyers will pass, the developers will face a sharp increase in defaults on mortgages. The Central Bank openly hints that the rate will be increased again in December, the only question is by how much: either to 22% or to 23%.
The aforementioned phenomena were ramifications of the 19% interest rate. The consequences of the 21% rate are yet to come since it takes from 3 to 6 months for the market to react to the Central Bank rate hike. The effects of the 21% rate and then 22% in December will be tangible in the second half of 2025…
