Sumitomo Mitsui Banking Corp. is exploring two significant synthetic risk transfers to free up capital for more profitable growth. The lender is sounding out investors regarding an offload of risks linked to $1.8 billion in infrastructure project lending. A second proposed deal involves a larger portfolio of roughly $4 billion in corporate loans across Latin America.

These transactions allow banks to shift credit risk to hedge funds and asset managers in exchange for coupons that often top 10%. This strategy helps SMBC move toward a 15% return on tangible equity target. While North American and European lenders lead this trend, Asian banks have been slower to adopt these structures for their portfolios.

Recent global activity shows a surge in this market, with banks offloading risk on over $1 trillion in loans by late last year. SMBC's potential deals follow a $3.2 billion transaction completed by its Asia Pacific arm with partners like Blackstone. The current Latin American portfolio specifically targets corporate loans in Chile, Brazil, and Mexico.

This shift reflects a broader industry trend where lenders use emerging market collateral to optimize balance sheets. Other institutions like BBVA and Deutsche Bank are pursuing similar synthetic securitizations to manage risk in high-volatility regions. SMBC has not yet decided whether to proceed with these specific deals.