Credit Freeze: Worst Behind, Already or Nearly
Going by the latest updates, corporate credit activity in Russia is treading cautiously. The Bank of Russia reported a noticeable contraction, particularly in the unsecured segment of retail lending, while corporate credit activity has shown a bit of revival in the mortgage sector. As for corporate lending, it seems to have activated slightly in the last two months.
In February of this year, the corporate lending market shifted from contraction to expansion, with the most recent phase of portfolio contraction being the least intense and duration-wise, the longest in the last 15 years. Remarkably, despite high real interest rates and the general panic over the tightening regulator, the Russian corporate lending market in domestic currency has been growing steadily for over a year, shrinking only twice in December 2024 and January 2025, with a decline of just 3%. As of May data, it appears the growth in corporate lending continues. According to surveys by Sergey Tsuhlo from the Institute of National Economic Forecasting RAN, as many as 41% of industrial respondents already view credit availability as acceptable in May, following a April low of 32%.
For comparison, during the 2015-2016 crisis, corporate credit contraction extended over 26 months, with the bottom of the portfolio reaching -13.7% from its peak, before taking another 21 months to recover.
Interestingly, the Russian consumer credit market didn't seem to notice the economic crisis of 2020, caused by measures to combat the COVID-19 pandemic. Both the corporate and retail segments continued to grow during this period. It's possible that this was the only period in the history of modern Russia where deteriorating economic conditions and declining incomes were met with interest rate cuts and regulatory relaxations to support banking lending.
Over the past quarter-century, the share of corporate lending in GDP has increased from 8% to 40%, while the retail segment has expanded, virtually from nothing (it's hard to believe, but in 2000, neither credit cards, retail purchases on credit, nor mortgages even existed) to 18% of the GDP.
In February of this year, the corporate lending market underwent a shift from contraction to expansion, and as of May data, it continues to grow, marking an impressive steady increase for over a year. This growth in corporate finance activity, despite high real interest rates and a tightening regulator, is a significant turnaround from the 2015-2016 crisis, where corporate credit contraction lasted for close to three years.
