Deutsche Bank’s risk transfer enables more green mortgages
DEUTSCHE Bank has entered a capital-relief deal with the European Investment Bank (EIB) that allows the German lender to grant discounts on more than 600 million euros (S$877.1 million) of green mortgages in its home market.
The agreement is the latest sign that capital-relief products are increasingly being viewed by the finance industry as a way to strike more green deals against a backdrop of tougher regulations and stiff competition. Such products allow banks to transfer a portion of their portfolio risk to a third party and thereby reduce their capital requirement.
Regulators in Europe have encouraged such transactions as a way to channel more funds to targeted areas such as the low-carbon energy transition.
Under terms of the Deutsche Bank arrangement, EIB will guarantee a 150 million euro mezzanine tranche in a consumer-loan securitisation with the Frankfurt-based lender, according to a statement on Friday (May 17). Deutsche Bank said its private bank has already started offering discounted mortgages, and that corresponding products from BHW Bausparkasse are expected to follow at the beginning of June.
The deal “enables us to expand our mortgage-financing business and offer clients additional financing options”, Achim Kuhn, head of product management at Deutsche Bank, said. “By offering favourable conditions for mortgages, we can specifically help individuals who want to invest in energy-efficient housing.”
The bank said it’s looking to doing similar transactions in the future, as part of its goal “to increase lending capacity”.
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Earlier this year, lawmakers in the European Union passed the Energy Performance of Buildings Directive. The rollout of the new law will be gradual – lasting more than a decade – but property owners that fall too far behind risk being saddled with assets that can no longer be sold or rented. The EU estimates that about 85 per cent of buildings in the bloc were built before 2000, with 75 per cent of these having a “poor energy performance”.
The EU has set a goal of cutting emissions in the building sector by 60 per cent by 2030, with complete decarbonisation set as a target for 2050. At 42 per cent of energy consumed, buildings “are the single largest energy consumer in Europe”, according to the European Commission.
Renovation activity in Germany has so far been limited. Improvements that led to energy savings of more than 60 per cent were conducted on just 0.1 per cent of German homes between 2012 and 2016, compared with 0.2 per cent for the EU, according to a report from ING Groep. For Germany to reach the EU’s energy label target by 2033, the pace of green renovation will have to increase 65-fold, the analysts said.
“Climate-friendly housing is a top priority for people because it helps them reduce energy costs and enhances their comfort and well-being,” said EIB vice-president Nicola Beer, who’s responsible for operations in Germany. “Our cooperation with Deutsche Bank will enable thousands of households in Germany to construct green homes or improve the climate footprint of existing houses.”
The agreement between Deutsche Bank and EIB Group supports “private individuals in Germany by granting them low-interest loans when building new, climate-friendly houses or when modernising their houses to make them more climate-friendly with a focus on energy efficiency”, according to Friday’s statement.
The agreed securitisation falls under the framework for simple, transparent and standardised securitisations of the European Securitisation Regulation.
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