Russian banks lack liquidity to buy government bonds, Sberbank warns

Russian banks have no spare ruble liquidity to purchase the government bonds used to finance the federal budget deficit, a senior Sberbank executive has said, raising questions about Moscow's ability to cover rising wartime spending through domestic borrowing as the Finance Ministry faces a widening budget shortfall. Taras Skvortsov, Sberbank's vice president and chief financial officer, said cash withdrawals from the banking system had reached approximately 2 trillion roubles since the start of the year, creating a liquidity shortage that has left banks with only enough funds to lend to customers—their core business. "You can buy OFZ bonds, especially without a significant premium, when you have spare liquidity and are confident that it will remain available," Skvortsov was quoted as saying by Reuters. "Today, the situation is the opposite." OFZs are ruble-denominated government bonds issued by the Finance Ministry to finance state spending.

The warning comes as the federal budget recorded a deficit of 5.7 trillion roubles in the first half of 2026 amid higher-than-planned defence spending, with Russia's war-related expenditures potentially exceeding the amount budgeted for this year by 4 trillion to 5 trillion roubles, according to a Bloomberg report in June citing unidentified sources. The government's original 2026 budget plan called for 4.4 trillion roubles in domestic borrowing, but the Finance Ministry suspended government bond auctions in July after OFZ prices fell and yields rose, with banks that held the securities recording approximately 200 billion roubles in mark-to-market losses. The suspension of auctions has left the ministry unable to raise funds through its primary borrowing channel, intensifying pressure on the Central Bank to provide the financing needed to keep debt purchases flowing.

Skvortsov said "all hope" now rested on "some form of support from the Central Bank," which has already increased lending to Russian banks that buy government debt. The regulator has injected an additional 2.3 trillion roubles into the banking system since the beginning of the year, bringing banks' total debt to the Central Bank to 6 trillion roubles. Economist Nikolai Korzhenevsky said the lending was linked to financing the federal budget, observing that "money is being 'printed' in a way that ensures budget spending can be financed." The Central Bank's increased lending reflects the growing reliance on monetary financing, a development that has raised concerns about inflationary pressures and the sustainability of Russia's fiscal position as the war continues.

The Finance Ministry had planned to reduce the 2026 deficit to 3.8 trillion roubles, but analysts at Gazprombank estimate that the shortfall could reach 6.5 trillion to 7.5 trillion roubles—nearly twice the official target—and forecast that federal spending will exceed the amount set out in the budget law by 3 trillion to 4 trillion roubles. The deficit is likely to begin widening again in the autumn, said Ilya Sokolov, a senior researcher at the Financial University under the Russian government, who noted that oil and gas revenues remain under pressure despite higher crude prices because of government subsidies to refineries damaged by drone attacks, while the risk of a shortfall in non-energy revenues is also increasing. Sokolov added that the economy could enter a recession in the second half of the year, potentially leaving the government 600 billion to 800 billion roubles short of expected value-added tax revenue, with corporate profit tax and personal income tax receipts also likely to fall below target. The combination of rising spending, shrinking revenues and limited domestic borrowing capacity presents a formidable challenge for Russian policymakers as they seek to sustain the war effort while maintaining economic stability.