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

Russia's financial system is experiencing significant stress as the ongoing war in Ukraine continues into its fourth year. According to a European intelligence report reviewed by Reuters, more than 500,000 Russians declared bankruptcy in the past year, representing a year-on-year increase of nearly one-third. This surge in personal insolvencies reflects broader economic pressures facing Russian households as the government diverts substantial resources toward military operations.

Russia's banking institutions have extended an increasing volume of high-risk loans to support both corporate operations and individual borrowers. While these lending practices have enabled Russia's defense sector to continue functioning and have helped ordinary Russians manage living costs, they have simultaneously introduced considerable financial vulnerability. The European intelligence report notes that ten percent of Russia's corporate loans are now classified as doubtful, a sharp rise from two years prior. Additionally, state-backed credit programs have encouraged more than 13 million Russians to simultaneously hold three or more loans from banks, a strategy employed to cope with the cost-of-living crisis.

The accumulation of non-performing loans presents a significant challenge to the banking system's stability. According to analysis from Chatham House, overdue corporate loans total approximately 7 trillion roubles, equivalent to $91 billion or roughly 3 percent of Russia's GDP. More than half of this overdue debt consists of loans issued to defense-industry enterprises or defense-connected companies. Russia's Ministry of Economic Development has reduced its GDP growth forecast for 2026 from 1.3 percent to 0.4 percent, reflecting economic headwinds.

While the financial strain is evident, experts assess that a comprehensive banking collapse is unlikely in the near term. However, the European intelligence report warns that rising household debt creates conditions for an "explosive" banking crisis. The report also highlights the vulnerability of Russian banks to additional Western sanctions, noting that the European Union is preparing a 21st sanctions package scheduled for finalization in July that will target banking institutions and cryptocurrency networks.