Czech municipalities, whose money is frozen in Russian bank, ask state for help

Many regional and municipal administrations in the Czech Republic who saved at least part of their funds in Russia’s Sberbank have lost access to their money since the bank lost its license after the invasion of Ukraine. Amid fears that this could lead to financial problems for some districts, the Association of Towns and Municipalities is set to discuss the issue with the Ministry of Finance.

Dozens of Czech municipalities and towns, as well as four of the country’s regional administrations, had saved parts of their public funds in Russia’s Sberbank over the past several years. Russia’s invasion of Ukraine and the subsequent cutting off of the bank from the Western financial system has led to this money becoming no longer accessible.

For the authorities of the Vysočina region this means a loss of CZK 2 billion, at least until a settlement can be reached regarding the remaining assets of Sberbank in the Czech Republic, which are in the process of liquidation. Meanwhile, for the South Moravian town of Uherský Brod this means being cut off from CZK 21 million worth of public funds. News site Seznam Zprávy, over CZK 2.5 billion of regional public funds could be frozen in Sberbank in total.

This underestimation of political risk has led many of the concerned administrations to look for emergency solutions. One of them is the mayor of the Silesian town of Fulnek, Petr Ertel.

“It could result in limiting investment and maintenance spending. It could also mean that we will have to borrow.”

Around 80 municipalities have since turned to the Czech Republic’s Union of Towns and Municipalities for help. The union’s deputy chairman, Miroslav Žbánek, told Czech Radio that it is now necessary to ensure that they don’t risk going further into debt.

“We have already registered several businesses that say they are able to help claim the money back, in return for a provision. I do not want this to end in such a way that mayors, as part of the Sberbank liquidation, get nothing, or very little, back and at the same time have to pay out even more money in the form of provisions.”

He said that this year’s upcoming communal elections could put further pressure on municipalities to make abrupt moves they may regret later.

“This is especially the case when it comes to those municipalities that have lost access to money being used to finance investments which are already in progress. You can postpone planned projects, but those that are already being financed need to remain supported by a steady cash flow. Taking loans in this regard can be potentially risky, given the rising interest rates.”

Representatives of the Union of Towns and Municipalities and the Ministry of Finance are set to discuss the issue and look for solutions this Thursday.  The talks will include looking for ways to establish a clear line of communication between Sberbank’s liquidators and the regional administrations, something that has thus far been virtually nonexistent according to Mr Žbánek.