Deutsche Bank transfers risk on portfolio of green mortgages

LONDON: Deutsche Bank AG has entered a capital relief deal with the European Investment Bank (EIB) that allows the German lender to grant discounts on more than €600mil 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 into targeted areas such as the low-carbon energy transition.

Under the terms of the Deutsche Bank arrangement, EIB will guarantee a €150mil mezzanine tranche in a consumer-loan securitisation with the Frankfurt-based lender, according to a statement last Friday.

Deutsche Bank said its private bank has already started offering discounted mortgages, and that corresponding products from BHW Bausparkasse AG 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 in a statement.

“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 into doing similar transactions in future, as part of its goal “to increase the lending capacity”.

Earlier this year, lawmakers in the European Union (EU) 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% of buildings in the bloc were built before 2000, with 75% of these having a “poor energy performance”.

The EU has set a goal of cutting emissions in the building sector by 60% by 2030, with complete decarbonisation set as a target for 2050.

At 42% of energy consumed, buildings “are the single largest energy consumer in Europe,” according to the European Commission.

“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. — Bloomberg

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