Page 38 - bne IntelliNews Russia OUTLOOK 2025

debt burden on large businesses. On November 21, it published a draft regulation introducing surcharges on new loans and bonds, for large corporate borrowers, which already have significant debt burdens.
Unlike the retail lending sector, Russia’s corporate sector shows no signs of slowing. “Companies took out loans worth RUB1.6 trillion in August, the same amount in September and, according to preliminary estimates, a similar sum in October,” Nabiullina said. Throughout the first nine months of this year, corporate borrowing rose 14.5% – more than the same period in 2023 (even though interest rates were 10 percentage points lower).
This sort of growth is more than what the CBR expected. Halfway through this year, it estimated the rise in corporate borrowing in 2024 would amount to up to 15%. Last month, it revised that forecast upwards to as much as 20%.
High interest rates, however, have brought notable changes to the way the corporate loan portfolios are structured. In April, the absolute volume of loans issued at floating interest rates outstripped the volume of fixed rate loans for the first time. In other words, businesses were increasingly opting for a variable rate, gambling that the CBR would soon switch to cutting rates. This has not paid off – in turn raising the debt burden further and driving the CBR to push interest rates yet higher. It’s a vicious circle.
The Moscow think-tank, the Center for Macroeconomic Analysis and Short-term Forecasting (CMASF), recently pointed out that we’re increasingly seeing a painful convergence of interest rates and company profitability. This means that, going forward, Russian companies will find it harder and harder to service borrowing. Nabiullina, however, disagrees with this sort of analysis. She argued in the State Duma that, while companies’ debt servicing costs are, indeed, climbing due to high rates, over the last five years, the ratio of spending on interest payments against the cost of production has never exceeded 5%.
Despite the chorus complaints and criticism of the Central Bank, high rates have not yet had any significant economic consequences for Russia. Nabiullina promised to deputies that soon there will be a breakthrough in the battle against inflation, the rate of corporate borrowing will start to drop, and the overheating economy will cool. If that all happens, it will be possible for the CBR to reduce interest rates next year. Nabiullina dismissed claims that high interest rates actually contribute to higher inflation. She appeared determined to defy critics, and continue to pursue her chosen path of a tight monetary policy.
38 Russia OUTLOOK 2025 www.intellinews.com