A leading think tank advising the government warned that Russia might experience a significant increase in corporate bankruptcies this year. They highlighted the doubling of enterprises with risky levels of debt in total corporate revenue in 2024, underscoring the challenges posed by high inflation and slowing growth, which President Vladimir Putin sees as distortions in the country's wartime economy.
According to researchers from TsMAKP, the percentage of companies with interest payments considered risky, at two-thirds of adjusted earnings, could reach 20% by the end of the year. This is attributed to the Russian central bank's decision to raise its benchmark interest rate to 21% last year, the highest since the early 2000s, in an effort to combat inflation, which exceeded forecasts, reaching 9.5% in 2024.
Several companies have voiced concerns about the impact of high interest rates on their borrowing costs. For instance, Russia's largest mobile operator, MTS, reported an 88.8% drop in third-quarter net profit due to increased interest expenses. Additionally, state-owned monopoly Russian Railways expects a $4 billion increase in interest payments this year.
The TsMAKP researchers also noted a rise in the number of firms facing non-payment from their clients for provided goods and services, reaching 37% of total revenue in the third quarter of 2024 from about 20% in the previous years. This shift was attributed to companies opting to keep cash in banks or invest in risk-free bonds instead of paying their suppliers.
The study further revealed that in the prevailing high-interest-rate environment, the proportion of companies with working capital profitability below the risk-free interest rate doubled to 66% of total corporate revenues. This situation, the researchers claimed, is hindering investment and projecting a decline in investments to 1.7-2.0% this year, down from 7% in 2024.