Winner: Project Patagonia

Project Patagonia has won Emerging Markets Transaction of the Year in this year’s SCI Capital Relief Trades Awards. This forward-looking transaction involves a pioneering approach in which a bank, a private investor and a multilateral development bank (MDB) partner together to: achieve capital relief for the bank, deploy resources from a leading private international investor into a new emerging markets jurisdiction for it, and  enable greater amounts of developmental activities to be undertaken by the MDB – with all three of these objectives accomplished in a financially sustainable way.

Banco Santander Chile, IFC and PGGM closed in June 2024 an innovative credit risk sharing facility which involved impactful collaboration between a Latin American bank, an MDB, as well as a private investor. The transaction will allow Banco Santander Chile to undertake increased amounts of mortgage lending to women in Chile. It also represents a new way for MDBs to grow their developmental activities with existing balance sheet resources.

The transaction references a US$500m portfolio of corporate loans to Chilean borrowers which remain on Banco Santander’s balance sheet. IFC provides full credit risk protection on US$400m of that portfolio. At the same time, PGGM offers a first loss guarantee to IFC on this US$400m amount, with IFC thereby retaining senior risk exposure towards the latter. The transaction also features a three-year replenishment period, which is rather unique – especially in such a jurisdiction.

Overall, the incorporation of SRT features into this transaction - as well as the participation of both IFC and PGGM - permit a longer-tenor risk sharing facility. This approach goes beyond what would otherwise be a conventional MDB risk sharing structure and allows the bank to maximise benefits from Project Patagonia. Furthermore, the approach enhances the positive social impact achieved through new eligible lending by the bank.

The transaction’s capital relief is achieved both at the bank’s local and group levels. Such an outcome is enabled by a long-tenor transaction structure, whereby Banco Santander Chile issues a 0%-100% tranche on an unfunded basis to IFC, and the bank therefore obtains zero-risk weighted full credit risk mitigation on a predetermined portion of a portfolio of assets. Simultaneously, PGGM offers IFC a first loss guarantee on the credit protection it has provided to Banco Santander Chile.

The capital freed up by the transaction will be reinvested by Banco Santander Chile in mortgage loans to women in Chile, who represent a financially underserved segment in the country.

By mobilising resources from a leading global SRT investor into a new emerging markets jurisdiction, this approach “crowds-in” private capital alongside an MDB investment and therefore permits IFC to undertake a larger and longer-tenor credit risk sharing facility than might otherwise be possible for it.

“The success of Project Patagonia is very much based on its collaborative nature, in which each party contributed its own expertise and played a critical role in achieving intended results,” says Luca Paonessa, senior director, credit and insurance linked investments at PGGM.

In Project Patagonia, Banco Santander Chile leveraged the risk transfer experience of Santander Group to conceptualise the transaction alongside IFC, which had undertaken previous shorter-tenor conventional credit risk sharing facilities with Banco Santander Chile, and PGGM brought its capabilities as a leading global SRT investor to a new jurisdiction.

“By mobilising private investor participation along the lines successfully undertaken here, Project Patagonia highlights an innovative way that MDBs like IFC with existing balance sheet resources can implement additional risk-sharing arrangements for emerging market banks, which in turn enables them to undertake additional developmentally impactful lending,” notes Xavier Jordan, chief investment officer responsible for capital markets in the financial institution group at IFC. “This approach could be replicated in other emerging markets – thereby enhancing the relevance of MDB risk sharing transactions to banks around the world.”

For the full list of winners and honourable mentions in this year’s SCI Capital Relief Trades Awards, click here.