Insurers Buy Erste SRT Deal Linked to €10 Billion Loans for M&A

Erste Group Bank AG sold a significant risk transfer linked to more than €10 billion ($11.7 billion) of loans as the Austrian bank seeks to free up capital for its largest ever acquisition.

The Vienna-based lender sold the SRT to a small group of insurance companies, according to people familiar with the matter, who asked not to be named because the details are private. The reference portfolio includes loans from small and mid-sized firms originated by Erste’s network of Austrian savings banks, the people said.

The transaction is one of the largest SRT deals exclusively targeting insurance companies, the people said. Erste said it has concluded its envisaged SRTs for the 2025 financial year, comprising transactions in Austria, Romania, the Czech Republic, Slovakia and Hungary.

“These transactions support our growth ambitions in the respective geographies, as well as group-wide,” a representative for Erste said in an emailed response to questions, without providing further details on SRTs.

Erste is in the process of finalizing the purchase of a 49% stake in Santander Bank Polska as part of a €7 billion deal. The bank has said it hopes to close the transaction, which includes the Polish bank’s asset management arm, by mid-January, after regulatory approvals last year.

Erste will pay for the Polish bank without raising new capital, anticipating its common equity tier 1 ratio, a key metric of financial strength, falling by about 460 basis points. SRT transactions are helping to partially off-set the impact of this expansion, increasing the CET1 ratio by over 40 basis points, Chief Financial Officer Stefan Doerfler said in a call with analysts in August.

SRTs allow banks to insure loans against default by selling credit-linked notes to funds. Lenders typically obtain default protection for between 5% and 15% of the loan value. The market for these instruments could double over the next five years, according to Man Group estimates.

Insurance companies take part in the market but frequently issue a guarantee instead of buying the notes. European policymakers are considering improving the terms under which insurers can invest in SRTs as part of a wider overhaul of the region’s capital markets.

Photograph: Erste Group branding. Photo credit: Michaela Nagyidaiova/Bloomberg