Bankruptcies on the Rise in Russia

The number of Russian bankruptcies is rising. Financial Corporation Otkritie, Binbank and airline VIM Avia are just a few of the Russian firms that have gone bust over the summer as the number of companies going to the wall continues to rise this year despite the nascent economic recovery.

Russia has emerged from one of its deepest post-Soviet recessions and put in an expectedly good 2.5% GDP growth in the second quarter of this year. But that is not good enough for many firms still hurting from nearly eight years of economic sloth, intellinews.com reported.

One of the side effects of the slowdown has been a consolidation of many sectors where the leading cash-rich firms have started aggressive price wars that have put their smaller rivals under pressure, leading to a concentration of many sectors in the hands of the market leaders.

Russian economy has entered the trajectory of "fairly stable growth", President Vladimir Putin said on September 24, but with high borrowing costs and anemic growth in real wages the economy is hardly flourishing.

And things are going to get worse for many firms as the majority of Russia’s enterprises remain directly or indirectly dependent on budget spending; as part of the 2018-2020 budget planning many large state-owned enterprises are losing their subsidies, which in turn feed smaller companies with state orders. The state-owned Rosselkhozbank is only the latest state-owned entity to be cut off from its subsidies under the new budget this week.

The number of bankruptcies of legal entities grew for the third consecutive quarter in the second quarter of 2017, according a report from the Center for Macroeconomic Analysis and Short-Term Forecasting, Vedomosti reports. Some 336 companies more companies collapsed in the second quarter of this year than closed in the same period a year earlier–the highest level since 2007.

The growth in the number of bankruptcies is observed in almost all industries, but almost two thirds of all bankrupts are concentrated in three of them: trade, commercial services and construction. More recently the number of bankruptcies has accelerated in the electric power industry, metallurgy, machine building, and the food industry.