OCBC, RHB enter into sustainability-linked loan and swap transactions

SINGAPORE’S OCBC Bank and Malaysia’s RHB Banking Group have entered into two sustainability-linked solutions that will boost RHB’s efforts to integrate sustainability into its operations and add to OCBC’s sustainable financing portfolio.

One of the solutions is a two-year S$150 million sustainability-linked loan and cross currency swap between the two banks. This is OCBC’s first sustainability-linked derivative (SLD) transaction with a Malaysian financial institution, and the second for RHB, which structured Malaysia’s first green cross currency swap in 2021.

The cross currency swap will be used to hedge the currency risk coming on the back of the underlying S$150 million loan. It will allow RHB Malaysia to convert its Singapore dollar-denominated proceeds to US dollars at a competitive rate and, at the same time, hedge its exposure to the currency pair for the duration of the swap.

SLDs are derivatives that embed a cash-flow component tied to environmental, social or governance (ESG) key performance indicators.

The other solution is a S$100 million sustainability-linked loan to RHB Bank Singapore.

Both transactions are structured in a way that aims to drive impactful sustainable business practices, by allowing RHB to enjoy better rates if it meets agreed sustainability performance targets in two key metrics.

“This collaboration further reinforces RHB’s commitment to providing end-to-end sustainable financing solutions for our customers, as well as increases the depth and breadth of the ESG funding and derivatives market in both Malaysia and Singapore,” said RHB’s group treasurer Angus Salim Amran.

These solutions will also add to OCBC’s sustainable financing portfolio, which stood at S$44 billion as at end-2022. 

Tan Yuen Siang, OCBC’s head of Global Financial Institutions, said these would support RHB in its sustainability goals, and provide a competitive swapped US-dollar rate, an expanded funding choice by tapping a liquid Singapore dollar bank market, and the ability to hedge foreign currency exchange risk with a cross currency swap.

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“As we strengthen our foothold in Asean, which is expected to continue to register economic growth in 2023 despite global headwinds, we will continue to expand our suite of innovative product offerings to support our regional customers’ evolving business needs and sustainability ambitions,” Tan said.