HSBC is reportedly gauging investor interest for a significant risk transfer (SRT) linked to approximately $2.15 billion (€2 billion) of investment-grade corporate loans. This move is part of a broader strategy by the bank to boost its solvency ratios and reduce reliance on less shareholder-friendly options, such as issuing new equity or cutting dividends. The SRT would also provide HSBC with more flexibility for new lending, acquisitions, or shareholder payouts. This comes as HSBC finalizes a $14 billion takeover of Hang Seng Bank, which is expected to reduce its common equity Tier 1 ratio by 125 basis points.
SRTs allow banks to insure loans against default, typically covering 5% to 15% of the loan's value. These transactions, often structured as credit-linked notes, are gaining popularity, with the SRT market projected to double in size over the next five years, according to Man Group estimates. In 2025, banks, primarily in Europe and North America, issued $41 billion in SRTs, an increase from $29 billion the previous year, with total credit risk offloaded hitting over $1 trillion in loans by the end of last year.
Several other financial institutions are also engaging in SRTs. Sumitomo Mitsui Banking Corp. (SMBC) is considering SRTs tied to $1.8 billion of infrastructure project loans and $4 billion of corporate loans in Latin America. DBS, Southeast Asia’s largest lender, is also reportedly weighing an SRT transaction, following Standard Chartered's similar deal in 2025 involving $1.5 billion of trade finance loans. This growing trend enables banks to optimize their capital, especially as regulatory pressures continue to evolve. Toronto-Dominion Bank, Erste Group Bank, and BNP Paribas have also recently completed or are in discussions regarding SRT transactions.
