Ratings agency Fitch has placed the ratings of Euroclear Bank on "rating watch negative", citing potential growth in legal and liquidity risks due to EU plans to use frozen Russian assets for a reparations loan to Ukraine.

Source: Reuters

Details: The EU plans to use up to €165 billion in Russian central bank assets that have been frozen in Europe, without formally confiscating them, as a way to finance Ukraine's defence and budget needs in 2026-2027.

Euroclear, a Belgium-based central securities depository financial institution, was holding bonds for the Russian central bank at the time of Russia's full-scale invasion of Ukraine. Those bonds have matured, but the cash is stuck in Euroclear because of EU sanctions targeting the Kremlin.

At present, this cash is placed with the European Central Bank on overnight deposits.

Under the EU's plan, Euroclear is to invest this money in zero-coupon bonds to be issued by the European Commission. The EU would then use these funds to provide Ukraine with a reparations loan.

Ukraine would start repaying this loan only once it receives reparations from Russia under a peace agreement, meaning it would effectively be able to spend the money now without waiting for Moscow to pay.

Fitch has warned that an insufficient level of legal and liquidity protection under such a mechanism could create a maturity mismatch on Euroclear's balance sheet if the obligations to the Russian central bank suddenly became payable.

The agency said it plans to decide on further action regarding the rating once it has sufficient clarity about the political decision and the implementation of the reparations loan, which could be agreed upon at the EU summit on Thursday and Friday.

Background:

• The Central Bank of Russia claimed that EU plans to use its assets are unlawful and that it reserves the right to use all available means to defend its interests.
• In a separate statement, the Bank said it was filing a lawsuit in a Moscow court against Euroclear, which holds a significant share of these assets.

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