Russia faces corporate bankruptcies as Central Bank rate soars

A report by the Resurgam Telegram channel highlights this.

The growing share of loans are tied to the Central Bank's fluctuating discount rate. As these loans become more expensive, businesses are facing serious financial strain.

Previously, companies that took loans when the Central Bank rate was 15% paid around 17% annually. Now, due to the rising rates, they’re paying 24-25%. The share of such loans has jumped from 20% in February 2024 to 44% by year-end, and could hit 53% by 2025.

Many Russian businesses, anticipating lower rates in 2024, took out large loans at these "dynamic" rates in 2023, hoping for stability. Instead, they are dealing with a 21% rate, which has already led to a rise in bankruptcies and payment delays.

Key points from the report include:

1. Corporate bankruptcies: Data from Fedresurs, a centralized database in Russia that compiles information about the activities of various economic entities, shows a 20% increase in corporate bankruptcies for 2024, with the worst consequences expected in 2025.
2. Payment delays: The Union of Industrialists reported a jump in delayed payments from 22% to 37% in 2024, signaling a cash flow crisis.
3. Retail woes: Russia's Union of Shopping Centers has warned of up to 200 shopping centers facing bankruptcy unless they receive loans with rates capped at 7-10%.
4. Bond market collapse: High rates have crippled the bond market, making it nearly impossible for companies to refinance. As a result, corporate defaults are likely, with some companies unable to repay their bonds.
5. Real estate crisis: The real estate market has suffered triple blows, including the freezing of the government’s mortgage program and a spike in interest rates. Developers, who took loans based on the now-stalled program, may face rising mortgage defaults as interest rates stay high.

The Central Bank signals further rate hikes, and Russian business face an uncertain future. The true effects of the 21% rate will become clear in the second half of 2025, the post states.