JPMorgan and HSBC want to arrange the risk transfers that let development banks lend more

JPMorgan and HSBC are drumming up a new line of business arranging securitizations that let development banks offload credit risk to private investors and make capital available, Bloomberg reports, citing the two lenders. The move follows a formal pledge early last month by 30 multilateral development banks (MDBs) and development finance institutions (DFIs) to make synthetic risk transfers (SRTs) and collateralized loan obligations (CLOs) a standard part of how they fund themselves, according to Reuters.

So what’s the choreography behind it? A development bank pays an outside investor, usually a pension fund, an insurer, or a hedge fund, to absorb part of the credit losses on a loan portfolio. Regulators and rating agencies then let the bank hold less capital against those loans, and it can lend the difference again. The potential pool is large, with MDBs holding around USD 1.5 tn in development assets between them, according to a joint report by the lenders. The urgency comes from shrinking support from wealthy shareholder governments.

Investors have already tested the waters. Dutch pension manager PGGM anchored an SRT in May, taking part in the mezzanine tranche in the European Bank for Reconstruction and Development’s (EBRD) inaugural EUR 1 bn synthetic securitization, according to the bank. PGGM’s Luca Paonessa, lead portfolio manager for credit risk sharing investments, tells Bloomberg that appetite should grow as development lenders publish more of their historical loss and default data, which investors need to price the risk.

For the banks, the real prize is a repeatable product. JPMorgan’s Faheen Allibhoy, who heads the bank’s development finance and advisory team, argues the market needs regular, standardized issuance to take hold. “You can’t do one-offs,” she says. HSBC’s Himesh Patel, managing director and head of public sector banking for EMEA, says the shift “will create further [avenues] across structuring, risk distribution, capital markets execution, and investor placement” — the transaction lifecycle from designing the structures to selling them. Deutsche Bank has also welcomed the shift. Deutsche’s caveat is that volume will be capped by the supply of bankable projects and the depth of investor demand.

Where the bigger risk is: Moving loans off a balance sheet doesn’t, on its own, mean more money reaches developing economies, three ODI Global researchers argued in a recent commentary. They point to the IFC’s co-lending program, where investors set eligibility criteria before the IFC originates a single loan, which means investor preferences can steer what gets financed in the first place.

The push lands days before COP31 opens in Antalya on 9 November, where scaling climate finance for the poorest countries will be high on the agenda. JPMorgan and HSBC are both sending teams. Allibhoy says the new tools are no substitute for the funding shortfall MDBs face.

The mechanics are already in this region. The World Bank’s Multilateral Investment Guarantee Agency (Miga) wrapped USD 313 mn of HSBC and Standard Chartered trade loans to the National Bank of Egypt in March, and the EBRD’s first risk-sharing facility with an Egyptian bank, USD 25 mn with Emirates NBD Egypt, closed in June 2025. Both moved credit risk off a lender’s book so it could lend again. What JPMorgan and HSBC are pitching is the industrial-scale version of the same trade — and Egypt sits on both sides of it, as a regular borrower from the development banks whose capital is being released and as a securitization issuer in its own right.

OUR TAKE- Private investors will naturally favor loan books with long track records they can price, and there’s nothing wrong with that. The bigger concern is whether MDBs eventually start lending with those investors in mind, favoring loans they can easily securitize over riskier projects in fragile states, early-stage climate adaptation, or sectors where there’s little data to price risk. MDB shareholders need to make sure the capital unlocked by these transactions goes back into the kind of lending private investors are unwilling to finance. Otherwise, securitization could end up changing not just how development banks fund their lending, but who gets that funding in the first place.

MARKETS THIS MORNING-

Korean stocks ended higher yesterday after a volatile session as investors weighed US midterm results. Kospi swung into negative territory on tech losses before recovering to close up +0.6%. In Japan, Nikkei 225 fell -1.4%.

THE CLOSING BELL-

The EGX30 rose 2.8% at yesterday’s close on turnover of EGP 9 bn (18.5% below the 90-day average). Local investors were the sole net sellers. The index is up 21.1% YTD.

In the green: Rameda (+7.0%), Ibnsina Pharma (+6.9%), and Edita (+6.6%).

In the red: AMOC (-1.3%), Orascom Development (-0.5%), and Palm Hills Developments (-0.4%).