DBS lays groundwork for significant risk transfers: sources

[SINGAPORE] DBS Group Holdings is weighing a foray into the market for significant risk transfers (SRTs) as lenders increasingly turn to such deals as a way to drive growth and absorb shocks.

South-east Asia’s largest bank held preliminary talks with funds investing in SRTs, according to people familiar with the matter. Preparations are at early stages and specific transactions have not been discussed, said the people, who did not want to be identified because the matter is private.

Banks use significant risk transfers as a way to insure loans against default. The transactions, which are often structured as credit-linked notes, allow lenders to boost their solvency ratios and reduce their reliance on less shareholder-friendly options like issuing new equity or cutting dividends. They also increase their leeway for new lending, acquisitions or shareholder payouts.

A representative for DBS declined to comment.

Acquisitions have been part of DBS’ growth strategy. The lender is looking to buy up to 30 per cent of Alliance Bank Malaysia Bhd. Previously, it purchased Citigroup’s consumer banking business in Taiwan in 2023 and increased its minority stake in China’s Shenzhen Rural Commercial Bank last year.

DBS is considering an SRT transaction after Standard Chartered carried out a similar deal tied to US$1.5 billion of trade finance loans last year, which allowed the bank to claim capital relief for its Singapore subsidiary.

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The significant transfer market is set to double over the next five years, according to Man Group estimates. While most of these deals are issued by banks in Europe and North America, lenders in other regions are also eying the instruments.

Sumitomo Mitsui Banking Corp’s Asia-Pacific arm has completed its first US$3.2 billion synthetic risk transfer deal with Blackstone, Stonepeak Partners and Clifford Capital last year. First Abu Dhabi Bank and Abu Dhabi Commercial Bank are also considering debut SRTs. BLOOMBERG