Bank of Nova Scotia is working on a significant risk transfer tied to roughly $2 billion of corporate loans, aiming to wrap up the deal before the end of the year. The transaction would hedge a portfolio of large corporate loans and represent a first‑loss piece of the reference portfolio, according to people familiar with the matter.
Structured Risk Transfer (SRT) instruments are high‑risk, high‑yield investments that insure the first‑loss or junior portion of a portfolio in exchange for coupons that regularly exceed 10%, allowing lenders to offload risk and free regulatory capital for new lending, shareholder payouts or acquisitions.
The appetite for SRTs has surged, with European and North American lenders collectively offloading risk on about $1 trillion of loans, and Canadian banks such as Bank of Montreal have already completed two deals covering about $5 billion of corporate loans earlier this year. Other lenders discussing similar transactions this year include BNP Paribas SA, Societe Generale SA, Banco Santander SA and Intesa San Paolo Sp A.
Scotiabank has not responded to multiple requests for comment, but the move fits a broader trend of lenders seeking to capitalize on strong demand for risk‑transfer products before year‑end.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing