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(Bloomberg) -- A relatively small Italian bank is considering selling its first significant risk transfer, demonstrating how the deals are going more mainstream.
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BPER Banca SpA is considering issuing an SRT linked to €2.5 billion ($2.6 billion) in loans to small and medium-sized Italian companies, according to people familiar with the matter. The potential transaction is being arranged by Intesa Sanpaolo SpA, the people said.
The considerations are at a preliminary stage and there is no certainty BPER will end up selling the SRT, the people said asking not to be identified because the information is private.
Representatives for BPER and Intesa declined to comment.
SRTs are an increasingly popular tool for lenders across Europe to shuffle around credit risk and free up capital for fresh investments. Norwegian lender DNB Bank ASA recently sold its inaugural SRT and Germany’s Helaba has said the deals are becoming more common.
With €140 billion worth of assets on the balance sheet at the end of last year, BPER is much smaller than Banco Santander SA and BNP Paribas SA, which lead SRT issuance in the European Union.
The surging popularity of SRTs has also increased regulatory scrutiny, with the International Monetary Fund recently warning the deals could create financial stability risks. German lender Deutsche Bank AG has decided to reduce its appetite to provide funding for those transactions as part of its dialog with banking regulators, Bloomberg News reported last week.
The transaction from BPER is taking place as it’s joining a wave of consolidation washing over Italian banking. It recently made a all-stock takeover bid for Banca Popolare di Sondrio SpA.
The Italian lender said in October it’s planning to use “synthetic securitizations” to offset an expected increase in the riskiness that new bank rules known as Basel will assign to some of its assets.
A rise in so-called risk-weighted assets forces a bank to set aside more capital as backstop, which reduces its ability to deploy the resources to revenue-producing activities such as lending. SRTs help banks to lower RWAs by shifting credit risk to investors, who earn what’s effectively an insurance premium for their willingness to cover potential future losses.