Vladimir Putin could face a humiliating new setback as his war risks creating a banking crisis in Russia, according to a new report.
The bloodthirsty Kremlin dictator launched his full-scale invasion of Ukraine in early 2022. The “special military operation,” as he called it, has become a protracted war with stubborn Ukraine not bowing to Russia’s imperial ambitions.
This protraction, of course, costs money—meaning Putin has created a bubble that could soon burst, a European state intelligence report seen by Reuters has warned.
The document, titled “Note on the probability of a banking crisis in Russia in 2026,” states that Russia’s bank lending is so high that it has created an “explosive” risk, as Western sanctions continue to wreak havoc.
The outlook for Putin and his cronies is set to become even more bleak, as the European Union prepares a fresh round of sanctions scheduled for sometime this month.
Russia’s Economy Ministry slashed its 2026 growth forecast to 0.4 percent from 1.3 percent, and cut its 2027 projection to 1.4 percent from 2.8 percent, underscoring the mounting strain on the country’s economy.
The intelligence report warned that banks have been pressured into issuing subsidized loans to defense firms, homebuyers, and other borrowers. It said state-backed lending schemes, loan restructurings, and government support were masking growing vulnerabilities across the banking sector.
These loans may never be repaid, it added. “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, banks are playing down any suggestion of a looming crisis. Russian central bank Deputy Governor Filipp Gabunia said last month that “vulnerabilities in the financial sector are not critical.”
Chris Weafer, a Russia expert at consultancy Macro Advisory, agrees with that assessment. He told Reuters that Asia has ignored Western sanctions, giving the Kremlin a powerful lifeline. He added that military spending leads to low unemployment and high wages.
Indeed, one financial boss said Russia has grown “used to” sanctions. “All major banks are already under sanctions ... and when they were introduced in 2022, there was stress,” Taras Skvortsov, chief financial officer of Russia’s largest bank, Sberbank, told Reuters.
“By 2026, everyone has become so used to it. Many clients of the sanctioned banks do not even know about sanctions.”
