22SEP

Banks stopped buying Russia's war debt

3 min read

10:47UTC

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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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 2.3 trillion roubles into the banking system since January against 6 trillion roubles of total bank debt owed to it.

Three numbers underneath that explain why the banks stepped back. Government bonds have absorbed 200bn roubles 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 2 trillion roubles 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 5.7 trillion roubles 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 2.3 trillion roubles 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 2.3 trillion roubles 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.

Source Landscape

This story draws on neutral-leaning sources

Primary parallel: Japan's 2013 quantitative and qualitative easing programme saw the Bank of Japan become the dominant buyer of Japanese government bonds as commercial banks, holding bonds near regulatory capital limits, stepped back from further purchases, mirroring the balance-sheet ceiling Sberbank now describes.

Counter-parallel: The UK's 2022 gilt crisis shows the opposite outcome: when the Bank of England stepped in as buyer during the mini-budget turmoil, it did so as an explicitly temporary, market-stabilising intervention with a fixed exit date, not an open-ended financing arrangement.

Immediate impact: with commercial banks tapped out, any further OFZ auction beyond the 2.3 trillion roubles injected since January risks either forcing yields higher to attract buyers or requiring the Central Bank to expand its own balance sheet further.

Structural: Urals crude's recovery from a $41.66 average in early July to $71.40 by 23 July will ease some revenue pressure into August, but the OFZ financing gap is a domestic-liquidity problem a higher oil price does not directly solve; the finance ministry's H1 deficit, already running at roughly 2.5% of GDP on figures published previously, was manageable while banks could absorb issuance, and a banking sector at its lending-capacity ceiling narrows the options for the rest of the fiscal year.

Consensus view: The Bank of Finland's BOFIT institute, which tracks Russian banking-sector liquidity monthly, argues that a domestic buyer base unable to absorb further OFZ issuance leaves the Central Bank of Russia as the only actor capable of financing the shortfall without pushing yields sharply higher.

Counter-view: Sberbank's own leadership, represented by CFO Taras Skvortsov's 31 July remarks, frames the shift as prudent balance-sheet management rather than a financing crisis: banks are prioritising customer lending, a commercial choice rather than a signal of state distress.

Key tension: Whether Central Bank absorption of OFZ issuance functions as routine liquidity support to banks or as the leading edge of direct deficit financing, a distinction the bank has not itself clarified.

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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Moscow posts surplus as shares sink

June's budget surplus from an oil rally did not reverse the structural deficit Skvortsov described.

Occurred 9 Jul 2026

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Urals crude nearly triples in weeks

The Urals rally to $71.40 sits inside the same deficit picture Skvortsov's bond-buying warning describes.

Occurred 23 Jul 2026

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This Event

Banks stopped buying Russia's war debt

Who sits on the other side of the trade when Russia's finance ministry issues debt changed inside this window.

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