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Banks stopped buying Russia's war debt

3 min read
10:53UTC

Sberbank's finance chief said Russian lenders have no spare liquidity for government bonds, leaving the Central Bank as the buyer of last resort.

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EconomicDeveloping
Key takeaway

Sberbank says its peers are out of room to lend the state, so the Central Bank fills the gap.

Sberbank chief financial officer (CFO) Taras Skvortsov said on 31 July that Russian banks now hold only enough liquidity to fund customer lending and can no longer buy federal loan bonds, the rouble paper known as OFZ that the finance ministry sells to cover its deficit 1. The Central Bank of Russia has taken up the slack, putting RUB 2.3 trillion into the banking system since January against RUB 6 trillion of total bank debt owed to it.

Three numbers underneath that explain why the banks stepped back. Government bonds have absorbed RUB 200bn in mark-to-market losses, a paper loss measuring how far a holding's market value has fallen below its issue price on stock nobody has sold. Households have pulled RUB 2 trillion in cash out of the system since the start of the year, removing the cheapest deposit funding a bank has. A lender carrying unrealised losses on its existing bond book is a structurally unwilling buyer of more, at precisely the moment issuance rises.

Economist Nikolai Korzhenevsky calls the Central Bank's lending effectively a monetisation of the deficit 2. Handle the word carefully, because it is his characterisation and not a description of the instrument. Liquidity support to banks is not the same thing as a central bank buying government paper outright, "effectively" is doing real work in his sentence, and a Sberbank CFO has an institutional interest in arguing that banks need help. Russia's deficit financing has run as a closed loop since 2022: the Central Bank lends to banks, banks buy OFZ, the ministry spends. Nothing in that chain is a direct purchase of state debt by the issuer of the currency. When the banks drop out of the middle leg, the loop shortens.

Skvortsov's half-year deficit figure of RUB 5.7 trillion is about 2.5% of Russian output, which matches the half-year picture already on this record rather than revising it. June's budget surplus came out of an oil rally rather than a structural turn , and Urals stood at $71.40 on 23 July with Washington's crude waiver still lapsed . The war that yielded a record-low advance in July is being funded, at the margin, by an institution that cannot run out of roubles.

Deep Analysis

In plain English

When a government spends more than it collects in taxes, it borrows the difference by selling bonds, in Russia's case called OFZ. Banks normally buy a lot of these bonds. Sberbank's finance chief said on 31 July that Russian banks have now run out of room to buy more OFZ, because their money is tied up in loans to ordinary customers and businesses. That leaves the Central Bank of Russia as almost the only buyer left. It has already put RUB 2.3 trillion into the banking system since January to keep it working. Economists are watching closely because a central bank stepping in to support government debt directly, rather than through the open market, can be a sign a government is running short of easier options.

Deep Analysis
Root Causes

Russian commercial banks' lending books have expanded rapidly on wartime consumer and corporate credit, pushing capital adequacy ratios toward regulatory ceilings that leave little room to also hold rising OFZ issuance without breaching Central Bank of Russia capital rules.

The RUB 2.3 trillion injected since January is structurally different from an outright OFZ purchase: it is liquidity support through repo and lending facilities against collateral, not the Central Bank buying government paper directly on the primary market, though the practical effect on bank capacity to absorb further issuance converges toward the same constraint.

What could happen next?
  • Risk

    If OFZ auctions fail to find buyers beyond the Central Bank, the finance ministry may need to raise yields sharply or draw further on the National Wealth Fund to cover H2 2026 spending.

  • Precedent

    A Central Bank of Russia balance sheet increasingly dominated by bank liquidity support and OFZ-adjacent holdings would echo Japan's post-2013 pattern, where an initially temporary intervention became structurally permanent.

Sources:The Moscow Times
Mentions:Sberbank →Central Bank of Russia →OFZ →Russia →Urals →Washington →
First Reported In

Update #26 · Russia's costliest month, smallest gain

The Moscow Times· 3 Aug 2026
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Causes and effects
Caused by
Russia fired most, gained least in July
Record missile expenditure for minimal ground gain coincided with banks losing capacity to fund the war.
Occurred 1 Aug 2026
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Urals crude nearly triples in weeks
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