International Finance Corporation Participates in Emerging Market Synthetic Significant Risk Transfer Deal with BNP Paribas
Posted on 02/28/2023
International Finance Corporation (IFC), a member of the World Bank Group, and BNP Paribas announced a Synthetic Significant Risk Transfer (Synthetic SRT) transaction, which will enable BNP Paribas to expand its trade finance activities and continue to support emerging market economies. The transaction is expected to be particularly impactful, as international trade finance flows have been adversely impacted by ongoing global economic uncertainty.
BNP Paribas is a strategic user of SRTs across a variety of asset classes in developed economies, where the SRT product plays an important role in allowing the bank to meet increased lending needs of its clients. But this deal – a US$ 1 billion SRT on which IFC provided a US$ 50 million risk guarantee – marks the first time BNP Paribas is deploying this product to enable further lending operations in emerging markets. IFC is the sole investor in this transaction.
Synthetic SRTs are still relatively new in emerging markets. By effectively transferring credit risk to investors, this type of transaction allows banks to lower the risk weights on their asset exposures. Unlike a traditional securitization in which assets are sold to a special purpose entity issuing securities to investors, synthetic SRTs leave the assets on a bank’s balance sheet and third-party investors, such as IFC, assume some of their risk – freeing up regulatory capital and enabling the financial institution to undertake increased lending operations.