Learned from the Zhitong Finance and Economics APP, Westminster National Bank (NWG.US) is seeking to enhance its lending capacity. A senior executive of the bank stated that the bank plans to reach a transaction with investors to reduce some loan risks in order to further enhance its capital, while retaining dividends.

Since receiving assistance in 2008, Westminster National Bank, which is focused on domestic business in the UK, still has over 19% of its shares owned by the British government. Like its peers, the bank reduces some loan exposure through private transactions with investors, which can reduce the bank's capital requirements by hundreds of millions of pounds. Robert Begbie, CEO of the bank's Commercial and Institutional Division, said that significant risk transfer (SRT) transactions would stimulate new loans and help maintain dividends to shareholders. The bank has also conducted such transactions in the past. It is reported that SRT transactions enable banks to transfer loan risks to third parties through derivatives or collateral, to provide protection to lenders in the event of loan losses.

Robert Begbie, CEO of the Commercial and Institutional Division of Westminster National Bank, said that significant risk transfer (SRT) transactions would stimulate new loans and help maintain dividends to shareholders. The bank has also conducted such transactions in the past. It is reported that SRT transactions enable banks to transfer loan risks to third parties through derivatives or collateral, to provide protection to lenders in the event of loan losses.

Banks are exploring ways to alleviate the pressure brought by the Basel regulations. The new rules will impose higher risk weights on certain loans from 2025 onwards, forcing banks to allocate more capital to these loans and may squeeze the chance for some borrowers to obtain credit.

"Our Commercial and Institutional Business consumes the most funds among our three major customer businesses," says Robert Begbie. He explained the decision to restart SRT transactions after a four-year pause, saying, "We have a responsibility to be consistent in improving our capital management activities." Through the use of SRT transactions, banks will not deal with the related loans and will retain their relationships with customers. More importantly, this type of transaction allows banks to release some capital that is tied up with these assets. Investors who engage in SRT trading with banks can access high-quality loan risks and obtain returns that are typically less volatile than publicly traded fixed-income securities.

Through the use of SRT transactions, banks will not deal with the related loans and will retain their relationships with customers. More importantly, this type of transaction allows banks to release some capital that is tied up with these assets. Investors who engage in SRT trading with banks can access high-quality loan risks and obtain returns that are typically less volatile than publicly traded fixed-income securities.

As one of the largest small and medium-sized enterprise loan institutions in the UK, Westminster National Bank's future lending activities will not be dependent on its SRT market activities, but Robert Begbie pointed out that it is definitely "beneficial and supportive." The bank's executives refused to disclose how many SRT transactions are planned to be completed this year, nor did they reveal the details of asset risk sharing.

In the past 12 months, Westminster National Bank's stock price has risen by 48%. In the first half-year performance report released at the end of July, the bank's tangible stock return rate (an indicator of profitability) was 16.4%, and the total amount of dividend distribution for the first half of the year reached 1.7 billion pounds.

Although it is generally expected that the new Basel rules will encourage larger SRT trading activities, some analysts have said that under the new rules, banks may find it more difficult to obtain the same amount of capital requirement reductions in certain transactions. Regulatory authorities must assess each proposal for loan risk transfer before approving the capital requirement reductions sought by banks.

Andrew South, head of structured finance research at rating agency Standard & Poor's, said: "In simple terms, the Basel Agreement will increase the risk weight of certain types of assets, thereby increasing capital requirements. This prompts banks to be more creative in managing their balance sheets." "But in reality, banks may need to pay more money to investors in order to obtain the same capital requirement reductions."

However, the executives of Westminster National Bank are confident in the benefits brought by SRT transactions and the growing demand for such assets from pension funds, insurance companies, and private equity firms. Andrew South also stated that investor demand for SRTs may exceed supply. Data released by the European Central Bank in May showed that banks regulated by it had completed about 31.7 billion euros in SRT transactions in the two years to the end of 2023. The Bank of England keeps the scale of SRT transactions confidential.

José Manuel Campa, Chairman of the European Banking Authority (EBA), said he was aware of criticisms from some banks about the time it usually takes for regulatory authorities to approve SRT transactions. He said: "In my view, those banks that really want to make faster progress in utilizing SRT to reduce their capital requirements should consider launching a standardized product. This is also a way to expand this market and maintain a certain degree of consistency in your products."