Why have half a million Russians gone bankrupt amid Ukraine war?

Published 8 July 2026 · europe

European intelligence report says cost of living becoming a strain in Russia, but full-blown banking crisis unlikely. Half a million Russians declared bankruptcy last year

European intelligence report says cost of living becoming a strain in Russia, but full-blown banking crisis unlikely. Half a million Russians declared bankruptcy last year as the country’s banking institutions bear the brunt of the cost of the war in Ukraine, a European intelligence report says this week. As the war in Ukraine continues into its fourth year, Russia’s Ministry of Economic Development has cut its GDP forecast for 2026 from 1.3 percent to 0.4 percent. Rising household debt is one of the things creating the conditions for an “explosive” banking crisis, according to the European intelligence report, seen by Reuters. But experts say that while individuals are facing a cost-of-living crisis – and many face bankruptcy – a full-blown banking crisis is unlikely. Here’s what we know about Russia’s financial woes and what this means for its war effort. What has happened? According to the European intelligence report seen by Reuters, as Russia’s government continues to pour money into its war against Ukraine, it is relying more on banks to support companies and everyday borrowers. To do this, Russia’s banks have extended a growing number of “risky” loans in recent years, the report says. While this has allowed Russia’s war machine to keep humming and helped many Russians make ends meet, including buying homes, it has also introduced heightened financial risk, including more people defaulting on their debt and many declaring bankruptcy. The two-page intelligence report, prepared to inform European officials about the state of Russia’s banks, also highlights their vulnerability to Western sanctions. While Russia’s banks have mostly weathered sanctions imposed by the US and European countries since Moscow’s 2022 full-scale invasion of Ukraine, the new report notes that the EU is preparing a 21st package of sanctions it hopes to finalise in July, which will target banks and cryptocurrency networks. What is causing the strain on Russian banks and borrowers? Russian banks have issued an increasing amount of “bad” loans, according to the European intelligence report. Bad loans are those at higher risk of default. Ten percent of Russia’s corporate loans are now doubtful, the report estimated, a sharp increase from two years ago.

Meanwhile, more than 500,000 Russians declared bankruptcy last year, a year-on-year increase of nearly one-third, it added, while state-backed credit programmes have encouraged more than 13 million Russians to draw three or more loans from banks at the same time to stay afloat amid the cost-of-living crisis. Vladislav Inozemtsev, an associate fellow at the Russia and Eurasia Programme of the London-based think tank, Chatham House, said overdue corporate loans now amount to about 7 trillion roubles ($91bn), comprising 3 percent of Russia’s GDP, currently estimated at $2.65 trillion, or two years’ worth of the banking system’s total profits. However, he added that more than half of the overdue debt in corporate loans consists of loans issued to defence-industry enterprises or to companies connected in one way or another with state defence. “There should be no doubt that these will ultimately be repaid by the state (or, more likely, the government will keep the interest payments on them current so as not to complicate the banks’ position); even if some loans are never repaid, the Central Bank will provide the affected banks with the necessary liquidity.” Overdue loans to individuals total another 1.7 trillion roubles ($22bn). “This segment may see many bankruptcies, and banks will have to write off part of these loans, but reserves have already been set aside for that,” Inozemtsev said. So, is Russia facing a banking crisis? The European intelligence report claims that Russian banks’ reliance on government support, such as state-backed credit programmes, which have encouraged many people to take out multiple loans, as well as widespread loan restructuring, are masking a looming crisis that a new economic stressor – such as new sanctions or more people defaulting on risky loans – could bring to the surface. “The situation creates the illusion of a dynamic economy that, in reality, conceals an explosive situation which an economic shock, such as an ambitious package of sanctions against banks … could trigger,” said the report. However, Russian authorities have consistently downplayed any such crisis, with central bank Deputy Governor Filipp Gabunia last month saying that “vulnerabilities in the financial sector are not critical”.