UK banks sound alarm over use of frozen Russian assets for Ukraine

UK banks have voiced strong reservations over government proposals to use roughly £8 billion in frozen Russian assets to support loans to Ukraine, citing potential legal risks and the absence of indemnity against Moscow’s retaliation.

Senior bankers, speaking anonymously due to the sensitivity of the plan, warned they could face significant liability if the assets were deployed to back zero-interest loans for Kyiv. A key uncertainty is whether any future Ukraine-Russia peace deal would include reparations from Moscow to repay the financing, Financial Times reports.

“We’re concerned about the legality… the government is setting a new precedent because they have never seized assets in this type of way,” said one senior banker. “Russia will sue for them.” An adviser to major lenders added, “The legal risk is that if Ukraine doesn’t pay back you need to repossess an asset that the government says is yours but Russia says isn’t.”

The identities of UK banks holding sovereign Russian assets remain undisclosed. UK officials have declined to comment on whether indemnity would be offered. The government’s plan proposes using the assets as collateral for loans rather than outright seizure.

The initiative aligns with EU discussions on €210 billion of frozen Russian assets, largely held by Belgium’s Euroclear. The EU scheme would see member states issue national guarantees covering potential repayment costs to Russia, using emergency powers to immobilize the assets despite opposition from states such as Hungary.

UK Prime Minister Keir Starmer and foreign secretary Yvette Cooper have engaged with EU counterparts, while Starmer has hosted talks with Ukrainian President Volodymyr Zelenskyy, French President Emmanuel Macron, and German Chancellor Friedrich Merz.

An adviser noted, “The expectation is that this is not a loan but a gift and banks know they will need to repossess the underlying collateral… it is a near certain default event and they are concerned they will be left out to dry when Russia sues.”

The UK Treasury emphasized its ongoing engagement with financial institutions and commitment to ensuring that all actions comply with domestic and international law while remaining economically and financially responsible. The plan does not affect the £28 billion in frozen assets held from sanctioned Russian individuals.

By Vafa Guliyeva