UK bankers warn on plan to use Russian assets for loans to Ukraine

UK banks have pushed back against plans to use about £8bn in frozen Russian assets they hold, warning that the British government has not offered to indemnify them against potential retaliation by Moscow.

Senior bankers, speaking on condition of anonymity given the sensitivity of the scheme, said they could be exposed to significant legal risk if the assets were used to backstop zero-interest loans to Ukraine.

One hurdle is the lack of guarantee that an eventual peace deal between Ukraine and Russia will include reparations from Moscow to Kyiv that could help repay the financing.

“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,” they 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,” added an adviser to major lenders.

Which banks in the UK hold sovereign Russian assets is a closely held secret, with bankers refusing to say whether or not their entities are involved.

UK officials declined to comment on whether the government would indemnify banks as part of its plans, which involve using the Russian assets as collateral for loans rather than seizing them outright.

The UK and EU have accelerated discussions on what to do with Russian sovereign assets frozen since 2022, in response to pressure from US President Donald Trump to end the war on terms seen as favourable to President Vladimir Putin.

Prime Minister Sir Keir Starmer and European leaders want to use Russian sovereign assets to fund Ukraine after the Trump administration pulled financial backing, and to buy them influence at the negotiating table.

The UK’s plans are separate but co-ordinated with the EU, whose member states hold about €210bn of frozen Russian assets. Those assets are largely held in Belgium by the country’s central securities depository Euroclear.

The European Commission’s scheme proposes that member states will issue national guarantees to Belgium to cover the cost of repaying the money in case the assets have to be paid back to Russia.

The plans are currently under discussion. Belgium has asked for all potential legal and financial risks to be covered by the guarantees.

The scheme also requires invoking emergency powers to bypass the need for unanimous support from EU member states to indefinitely immobilise the Russian assets, which would remove the risk of them being released to Moscow while underpinning loans to Ukraine.

The move aims to bypass Hungary, which has become the EU’s most pro-Russian state under Prime Minister Viktor Orbán.

On Wednesday UK foreign secretary Yvette Cooper met her Belgian counterpart Maxime Prévot in Brussels to discuss the issue, and Starmer is set to host Prime Minister Bart De Wever at Downing Street on Friday.

The meetings follow discussions in London on Monday between Starmer, Ukrainian President Volodymyr Zelenskyy, France’s Emmanuel Macron and German Chancellor Friedrich Merz.

People close to the conversations cautioned about expecting an agreement on using the sovereign assets before Christmas, though insisted the talks were making progress and were constructive.

The adviser to major lenders said: “The expectation is that this is not a loan but a gift and banks know they will need to repossess the underlying collateral.”

They added: “It is a near certain default event and they are concerned they will be left out to dry when Russia sues.”

The UK Treasury said it engaged “with financial institutions on an ongoing basis on a broad range of issues”.

It added: “We are continuing work, alongside our G7 and European partners, to make use of the value of Russian Sovereign Assets immobilised in our jurisdictions. It’s our priority to ensure that all options are in line with domestic and international law, and economically and financially responsible.”

London’s plans do not include using the more than £28bn of assets from sanctions-hit Russian individuals that are also frozen in the UK.

Additional reporting by Laura Dubois in Brussels