#Saudi National Bank Explores Foray into Booming SRT Market - Bloomberg

Saudi National Bank Explores Foray into Booming SRT Market - Bloomberg

Saudi National Bank is considering a foray into the rapidly-growing market for significant risk transfers as it seeks fresh ways to maximize its capacity to bankroll the kingdom’s $2 trillion Vision 2030 agenda.

Saudi Arabia’s largest bank by assets has held preliminary talks with experts on the benefits of SRT transactions, which can help banks unlock capital tied up against existing loans, according to people familiar with the matter. Discussions are at an early stage and no specific deals have been shared with prospective investors, said the people, who asked not to be named because the matter is private.

A decision on any such deal would likely come following approval by bank supervisors, one of the people said. A representative for SNB did not respond to multiple requests for comment.

Though historically seen as strong lenders with ample liquidity, more onerous capital demands and slower growth in deposits at some Saudi banks have challenged their ability to finance a raft of expensive development projects across the country. The sector’s loan-to-deposit ratio rose to a record 108% as of November, according to an index compiled by the Saudi Central Bank.

Saudi Arabia has ordered sweeping reviews of its project pipeline, which originally included the Asian Winter Games in 2029 and the FIFA World Cup in 2034. Though home to a $1 trillion sovereign wealth fund and 35 million people mostly under the age of 35, the country has been in fiscal shortfall since 2022 as revenues trail spending.

SNB recently raised $1 billion by issuing perpetual securities, data compiled by Bloomberg show. The notes, which are eligible for the lender’s Additional Tier 1 buffers, were priced at a yield of 6.15% on Jan. 15, following earlier discussions with investors at around 6.625%, people familiar with the matter said at the time. The Riyadh-based bank last month posted full-year profit of 25.01 billion riyals ($6.7 billion), beating the analyst consensus compiled by Bloomberg, helped by higher net fee income from banking services and a rise in investment income.

SRTs enable banks to insure a portfolio of loans against default. The privately-structured deals typically allow banks to buy protection for between 5% and 15% of the loan’s value and can help free up capital they would otherwise need to stockpile against those exposures. That cash can then be used in new lending, acquisitions or to boost shareholder payouts.

The SRT market is set to double in size over the next five years, driven by banks in Europe and the US, according to Man Group estimates. BNP Paribas SA is helping Abu Dhabi Commercial Bank PJSC lay groundwork for a potential SRT deal, while Singapore’s DBS Group Holdings Ltd. is also considering its entry into the rapidly-growing global market, people briefed on the lenders’ plans said last month.

In Europe, several big banks including Deutsche Bank AG and ING Groep NV have said they will expand their use of such instruments, while BBVA SA, UniCredit SpA, HSBC Holdings Plc are among those in discussions about new potential deals, Bloomberg has previously reported.