articles Ratings /ratings/en/research/articles/241106-banking-brief-barclays-and-santander-lead-european-banks-significant-risk-transfer-activity-13315516.xml content esgSubNav
In This List
COMMENTS

Banking Brief: Barclays And Santander Lead European Banks’ Significant Risk Transfer Activity

Global Banks Outlook 2025 Interactive Dashboard Tutorial

COMMENTS

Banking Brief: Complicated Shareholder Structures Will Weigh On Italian Bank Consolidation

COMMENTS

Credit FAQ: Global Banking Outlook 2025: The Case For Cautious Confidence

COMMENTS

Nordic Banks: Resilient Profitability And Ample Capitalization Continue To Support Financial Performance


Banking Brief: Barclays And Santander Lead European Banks’ Significant Risk Transfer Activity

Significant risk transfer (SRT) securitizations are an established part of European banks' capital and risk management toolkits.   Pillar 3 disclosures on retained SRT tranches indicate that the region's largest lenders dominate issuance volumes, led by Barclays and Santander. Some midsize banks are also active relative to their balance sheet sizes. S&P Global Ratings thinks that SRT issuance will grow and become broader based as further banks look to manage their credit portfolios more actively through the implementation of the final Basel III standards.

image

What's Happening

Strong investor demand for SRTs lowers the cost of capital and encourages new issuance.   SRTs enable banks to assign future credit losses on reference loan portfolios to third-party investors. The transactions provide regulatory capital relief and mitigate expected loss provisioning requirements under International Financial Reporting Standard 9. SRTs have existed for a long time in Europe and banks historically used them primarily to offset regulatory risk-weighted asset inflation. Issuers' motivations have since moved on to proactive management of loan books to improve capital efficiency and shareholder returns.

Why It Matters

SRTs have a track record of loss absorption.   For example, Barclays disclosed in its second-quarter 2024 results that it had claimed about £250 million of credit losses since 2016 through its SRTs. Similarly, Deutsche Bank reported credit loss provisions on two particular corporate exposures in its third-quarter 2024 earnings, and said that about 70% of this sum was mitigated by credit concentration hedges. Corporate loans are the traditional focus of European SRTs but we see growing activity in other wholesale asset classes and retail loans.

We see well-designed SRTs as an effective capital and risk management tool.   They complement similar measures including loan syndications and trading position hedges. We do not see a material risk of a bank becoming overly dependent on SRTs in view of the limited market size and regulatory constraints including the leverage ratio requirement.

SRTs contribute to the transfer of traditional banking risks to non-banks.   Most European SRTs are funded structures in which investors collateralize their potential obligations. European banks typically sell one or more junior SRT tranches and we have not found evidence of material leverage or direct bank financing of investors' positions, although there is a lack of data in these areas. Banks may provide secured financing to funds that invest in SRTs but this exposure is largely in the form of subscription lines, which are secured on the limited partners rather than the fund assets.

What Comes Next

Regulatory changes will influence the development of the European SRT market.   European regulators appear generally supportive of SRTs and the broader securitization market. Examples include:

  • In their implementation of the final Basel III securitization rules, EU authorities compromised on the level of the non-neutrality p-factor add-on to help maintain the risk-sensitivity and economic viability of SRTs. The U.K. regulator has proposed a similar approach.
  • The September 2024 Draghi report on EU competitiveness recommended measures to encourage the growth of the region's underdeveloped securitization market. A subsequent European Commission consultation paper invited feedback on the regulatory framework for securitization, including SRTs.
  • The U.K. regulator has proposed joining the EU in recognizing unfunded credit protection, which is generally provided by highly rated investors such as certain insurers and multilaterals.

SRTs are likely to become more expensive for issuers.   Despite the regulatory concessions, we expect that banks will need to sell thicker tranches to achieve capital relief under the final Basel III standards. In addition, as SRT supply increases, transaction pricing may not remain as favorable to issuers as it has been so far this year.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Richard Barnes, London + 44 20 7176 7227;
richard.barnes@spglobal.com
Secondary Contacts:Matthew S Mitchell, CFA, Paris +33 (0)6 17 23 72 88;
matthew.mitchell@spglobal.com
Andrew H South, London + 44 20 7176 3712;
andrew.south@spglobal.com

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.

 

Create a free account to unlock the article.

Gain access to exclusive research, events and more.

Already have an account?    Sign in