BBVA has closed its first balance sheet synthetic securitization of a project finance loan portfolio. This is a transfer of risk to institutional investors Alecta and PGGM that allows the bank to free up 80% of the capital on a portfolio of project loans that will remain on the bank's balance sheet.
BBVA has closed a risk sharing transaction with Alecta and PGGM for a project finance loan portfolio worth 500 million euros. This portfolio represents a variety of projects, mainly in Spain and Western Europe, with one third of the portfolio consisting in renewable energy related projects, as that has been a clear focus in BBVA origination activities. The bank retains a risk alignment of minimally 20% for each project in the portfolio.
The transaction also establishes a framework for future collaborations with institutional investors PGGM and Alecta, which rely on BBVA's origination capabilities to continue investing and provide the bank with capital that will allow it to continue promoting projects that help combat climate change.
BBVA has been actively using credit risk sharing to capitalize their small- and medium-size lending activities, and is now expanding this to its project finance loan book. This is a further step in the sophistication of risk management in its wholesale banking business. BBVA has a proven track record in the project finance business, which is managed from its BBVA Corporate & Investment Banking division, focusing on its core markets and leveraging its relationships with key clients.
Pablo Fenoll, Head of Portfolio Management at BBVA Investment Banking & Finance: “Credit risk sharing transactions have proven to be a very efficient tool to recycle regulatory capital and reduce risk-weighted assets at a very attractive cost for the bank. We are proud to establish this long-term co-investment relationship with two investors of the caliber of Alecta and PGGM.”
Angélique Pieterse, Senior Director at PGGM says: “We are very happy to be adding BBVA as one of our latest risk sharing relationships, as we add a counterparty with a strong reputation and expertise. The longer dated profile of loans to infrastructural, social and energy related projects fits well with the long-term, buy-and-hold approach of our mandate. Next to that, the transaction reflects both our and our end-investor PFZW’s ambition to contribute to the Sustainable Development Goals. One of the ways to do that is by teaming up with banks that have high-quality origination capabilities and providing them with capacity to grow the lending to projects that help fight climate change. We hope there will be many more transactions to follow.”
Tony Persson, Alecta’s head of Fixed Income and Strategy, shares: “For Alecta the transaction offers a valuable source of credit diversification as it presents the first risk sharing investment based on project finance loans. This fits well with the long-term strategy of our fund and will create value for our 2,6 million Swedish customers.”