A bank strategically secured credit loss protection for a mezzanine tranche of a reference portfolio comprising SME loans, leveraging an unfunded financial guarantee from a supranational institution.

This transaction was not only a prudent risk management measure but also a strategic maneuver to bolster the bank's commitment to sustainable finance. The financial guarantee was not merely a shield against potential credit losses; it also catalyzed a purpose-driven approach to capital deployment. Under the terms of the guarantee, the bank committed to channel the proceeds into new loans that met stringent climate-linked eligibility criteria, thereby augmenting its green lending portfolio. This symbiotic arrangement not only fortified the bank's risk position but also reinforced its dedication to environmental sustainability.

Structured Risk Transfer (SRT) transactions, exemplified by this intricate arrangement, offer banks a multifaceted toolkit to optimise risk and capital allocation. By efficiently managing risk exposure and capital through such transactions, banks are empowered to redirect resources towards green lending initiatives.

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