(Bloomberg) -- NatWest Group Plc is turning to securitization to free up capital for investments in green energy.
The UK lender is selling a bond to help de-risk a £1.1 billion (US$1.4 billion) portfolio of renewable energy project-finance loans, it said on Tuesday. The so-called synthetic risk transfer will allow NatWest to lend more to the renewables and energy transition sectors. Nuveen Infrastructure and Christofferson Robb & Company provided funding for the deal, NatWest said.
SRTs are emerging as a popular tool among banks looking for ways to cut the capital costs associated with green deals. That’s as the wider market for SRTs takes off against a backdrop of higher interest rates and capital requirements. The International Association of Credit Portfolio Managers estimates that in 2023, the percentage of sustainability-linked SRTs increased to 11 per cent from 6 per cent the prior year and an average of 3.4 per cent during the previous six years.
“Renewable lending is a core business for the group,” Alberto Abascal, managing director in project finance at NatWest, said in a statement. “This is an important transaction to help the business efficiently recycle our capital to allow us to continue to grow and support our clients with the significant volumes required in the sector.”
NatWest said its SRT will provide credit protection against a reference portfolio of about 40 renewable energy project-finance loans. The portfolio includes loans to onshore and offshore wind, solar, smart meters, energy from waste, and biomass power, it said.
The capital relief generated through the deal “will be redeployed into further lending to clients across the renewable energy franchise,” NatWest said. The bank has already conducted numerous such SRT transactions, with the latest representing its second linked to a portfolio of renewable technologies. The transaction was executed by NatWest’s Project Finance and Portfolio Risk Mitigation teams, and distributed by NatWest Markets.
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