From risk transfer to return engine: The evolution of SRT
- The SRT market has doubled in size since 2020 and continues to grow as regulation drives banks to optimise capital.
- What began as a balance-sheet management tool has evolved into a mainstream private credit asset class with strong diversification and return appeal.
- Investors are increasingly drawn to SRT’s attractive risk-return symmetry which combines high carry, short duration and favourable convexity.
The significant risk transfer (SRT) market has doubled in size since 2020. We believe this growth is likely to continue as stricter regulations incentivise banks to further reduce their risk capital. SRT has now gone from a balance sheet risk reduction mechanism to a mainstream asset class within Private Credit, thanks to its own unique return and diversification opportunities.
A maturing asset class
SRT is the process of transferring a portion of credit risk associated with a financial asset, such as a loan portfolio, to third parties. Banks use SRT to reduce their exposure to potential losses while ensuring compliance with regulatory standards. Banks have used SRT for over two decades, but it’s only in the last few years that institutional investors have started to significantly invest in the asset class.
Historically SRT transactions were sporadic, but as the market matured, this turned into a year-round stream of issuances. Rather than only issuing when under capital pressure or at regulatory deadlines, many banks now treat SRT as part of their ongoing balance‐sheet optimisation toolbox, and new types of portfolios are being transferred, such as trade finance or ESG-related assets.
European banks have been long-time issuers, but more US banks are issuing — and more regulary — especially after regulatory clarifications in 2024. Globally, issuers now number in the 60s, not just among G-SIBs (Global Systemically Important Banks), but also among smaller and regional banks.
Several banks now set explicit targets for SRT issuance as part of their capital management strategy. They have built out dedicated SRT teams to manage what is a complex process involving reference portfolio selection, risk layering, regulatory approval, ratings and sub-asset class expertise.
An established market
As the market has grown, market transparency has significantly improved, and regulators — particularly in Europe — have issued clearer guidance. The introduction of the STS (Simple, Transparent, Standardised) securitisation framework has allowed some SRT transactions to qualify for more favorable regulatory treatment. Additionally, fast-track approval processes are being developed to expedite regulation for simpler, standardised transactions.
Reporting requirements related to reference portfolios, underwriting, risk layering, and deal structures have also become more uniform and standardised.
As a result of these measures, most large European banks have now completed at least one SRT transaction. Among the top banks issuing SRT in Europe1, on average, SRT made up c. 0.50% of CET1 (Common Equity Tier 1 – the highest quality form of regulatory capital banks must hold under Basel III standards).
- BNP Paribas Asset Management. June 2025.
On average c. 2% of European banks’ assets are referenced by SRT1, reaching as much as 5% at some banks. Despite this rapid growth of the SRT market, we still believe it could grow significantly more before reaching its limits.
Quality portfolios
To illustrative the high quality of the portfolios that banks tend to include in SRT tranches, here is an example from a European bank and their use of SRT:
The bank’s total gross exposure of their securitised assets are €150bn, as at end of 2024. That’s an increase of over 9% from just a year before. Out of the €150bn, the default rate was c. 0.4%, largely skewed to retail assets, with the corporate assets having a default rate of 0.009%2.
Relative value
Regulatory pressure on banks to optimise risk-weighted assets has created a growing non-cyclical seller base. While supply of SRT has grown rapidly, demand has more than kept up as investors are increasingly attracted to the risk return characteristics of the asset class. Its distinct cash-flow structures can deliver resilient returns in rising-rate environments while reducing correlation with core Investment-Grade and High Yield assets.
Strong performance of underlying bank loan books through recent volatility have driven attractive risk-adjusted returns, particularly as spreads in more crowded areas of the alternative credit market have compressed.
- BNP Paribas Asset Management. June 2025.
- Annual report of the bank. December 2024.
*Private credit data only available until Sept 2025. For illustrative purposes only. AT1 USD: Spread on AT1 bank capital. JPMorgan. US HY: Spead on US HY Bonds: H0A0 – ICE BofA US Yield Index. Private credit: Spread of LBO financed in BSL vs Direct lending. Pitchbook LCD. SRT deals: BNP Paribas Asset Management. US B Lev Loans: Morningstar LSTA B rated US Leveraged Loan Index. Pitchbook.
A long-term SRT investor
While SRT has become a more mainstream asset class, it requires extensive experience and resources to assess underlying portfolio quality, model risk and ongoing monitoring obligations. We have managed SRT for over 25 years across multiple generations of SRT strategies, with a team that has an average experience of 25 years. We have completed more than 125 transactions and invested nearly $8bn since the launch of our first strategy. Our scale, resource and reputation translate into ready market access, built on enduring relationships with over 50 originating banks.
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This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.
Edited by BNP PARIBAS ASSET MANAGEMENT Europe, a company incorporated under the laws of France, having its registered office located at 1 boulevard Haussmann - 75009 Paris, registered with the Paris Trade and Companies Register under number 319 378 832, and a Portfolio Management Company, holder of AMF approval no. GP 96002, issued on 19 April 1996.
AXA IM and BNPP AM are progressively merging
AXA IM and BNPP AM are progressively merging and streamlining our legal entities to create a unified structure
AXA Investment Managers joined BNP Paribas Group in July 2025. Following the merger of AXA Investment Managers Paris and BNP PARIBAS ASSET MANAGEMENT Europe and their respective holding companies on December 31, 2025, the combined company now operates under the BNP PARIBAS ASSET MANAGEMENT Europe name.