BNP Paribas, together with the European Investment Bank (EIB) and the European Investment Fund (EIF), which make up the EIB Group, have executed the first synthetic securitisation deal on a portfolio of loans granted to French SMEs and midcap firms under the Juncker Plan. Under the agreement, risk sharing will be undertaken by EIB and BNP Paribas, while the assets will remain on BNP Paribas’ balance sheet. This highly innovative operation enables BNP Paribas to free up part of the regulatory capital allocated to a portfolio of SME and midcap loans.
Once the capital has been liberated through the arranged loan guarantee, further loans can then be made available to support investment projects by French SMEs (companies with fewer than 250 employees) and midcaps (those with fewer than 3,000 employees). The beneficiaries of these loans will be able to obtain highly favorable borrowing terms, with a 25-basis-point reduction in the interest rate due to the agreed asset retrocession to BNP Paribas by EIB. The provided financing may take the form of a bank loan or a financial leasing arrangement.
The financial engineering undertaken for this deal is a 'first' in the market and may serve as an example to other European banks, enabling them to channel the regulatory capital saved into new loans to SMEs and midcap firms.