As regulatory pressure eases, Canadian banks ramp up risk transfer deals to manage credit exposure
Canadian Imperial Bank of Commerce (CIBC) is exploring investor interest in a significant risk transfer (SRT) transaction tied to corporate loans, according to sources familiar with the matter, as reported by BNN Bloomberg.
The potential deal, denominated in US dollars, involves a portfolio of $4.5bn in loans. A CIBC representative declined to comment on the development.
SRT transactions enable lenders to manage regulatory capital constraints by transferring credit risk to investors while retaining the assets on their balance sheets.
This mechanism allows banks to continue providing new loans under increasingly stringent regulations. In these transactions, banks typically secure default protection for up to 15 percent of the loan portfolio, while investors can receive yields often exceeding 10 percent.
Canadian banks, including CIBC, have been active in selling SRTs, as the country leads in implementing Basel III reforms.
In July, Canada’s financial regulator extended the deadline for banks to change their methods for calculating lending risks, providing some relief from immediate regulatory pressures.
CIBC's current exploration of investor interest follows a similar move by TD Bank, which recently announced plans for an SRT linked to a $3bn portfolio of corporate loans, as reported by Bloomberg last month.
The global market for SRTs is on track to reach record issuance levels, with estimates by Chorus Capital projecting a total between $28bn and $30bnfor this year, compared to $24bn in 2023.
This surge is driven by a robust pipeline expected in the second half of the year.
