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The trouble with Russia's banks

Rebecca Zisser / Axios

The Central Bank of Russia agreed to bail out B&N Bank, one of the top five lenders in Russia, according to Bloomberg. This follows the nation's biggest ever banking collapse in the country — the central bank recently took over Russia's largest private lender, Otkritie, after it became clear Otkritie was manipulating the market price of its bonds and falsifying its financials, per FT. Since then, Russian state-run corporations have been withdrawing billions from Russia's private lenders.

It's not an isolated incident: Since 2013, Russia's central bank has shut down more than 300 insolvent lenders. That's more than a third of Russian banks, per Bloomberg.

Why it matters: The private banking sector is experiencing a "crisis," according to Russia's financial ombudsmen, Pavel Medvedev, but it's not a wider problem. (Although there's fears it could be.) Ever since 2014 when oil prices collapsed and a recession was set off, which was worsened by western sanctions, Russia's been falling a little behind.

This major banking collapse "tells us how bad the situation has been. This is about losses already occurred, more than expectations of future losses," Barry Ickes, who used to serve on the board of directors of the National Council for Eurasian and East European Research, told Axios.

  • Why it's happening: B&N was one of several lenders that helped rescue banks that were going under after 2014, but it turns out some of the banks were even worse off than was known. S&P Global Ratings estimate troubled assets in the banking sector are about more than 20% of total loans and the S&P just ranked Russia with the not so stellar credit rating of BB+/BBB- Margins are tightening for banks since Russia's central bank lowered interest rates to 8.5% from 9% to bolster the economy days ago. But generally, Russia's state finances are in relatively good shape, CNN reports.

It's also not the only trouble Russia's got going on. For example, 22 million live below the poverty line, up from 16 million before the crisis, per CNN. It ranks 41st for quality of life and 80th for "open for business" in the world, per U.S. News & World Report. Militarily, Russia is falling behind, as well. Its planes keep falling out of the air, its only aircraft carrier needs a tug boat in case it breaks down, and its technology harkens back to the Soviet era, per The Telegraph. Don't forget, Russia has a large nuclear arsenal and capable submarines — but as The National Interest's Roger McDermott put it, the "representation of Russia's Army as...all-powerful...is hyperbole."

Go deeper: The NYT's Ellen Barry profiles "The Russia Left Behind"

Bottom line: While much of the Western world focuses on how Russia may be manipulating politics in other countries — as part of a theory that Russia is trying to boost its position on the international stage — it's important to acknowledge that Russia might not always be doing as hot back home as its menacing cyber capabilities suggest.

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