NatWest (NWG.US) is planning a major risk transfer on its £1bn leveraged loan portfolio.

British bank NatWest (NWG.US) is reportedly in the process of a significant risk transfer (SRT) related to its leveraged loan portfolio.

The size of the portfolio is estimated to be around £1bn ($1.3bn), and the SRT is valued at around £90m.

SRT is an increasingly popular tool for banks to manage risk. By selling the notes to pension funds, sovereign wealth funds, and hedge funds, they ensure the loans do not default, allowing them to free up capital to meet regulatory requirements while investors can expect returns often above 10 per cent.

Terms including size are still being discussed with investors, and the bank is also marketing additional Tier 1 bonds denominated in pounds, a type of debt used by lenders to bolster their capital buffers.

The growing popularity of SRT means such deals are on course to hit a record this year. Chorus Capital Management, which invests in SRT, expects global issuance to rise to $35bn from $29bn last year, with most of that in Europe.

Last year, NatWest hired bankers to its SRT division and marketed a risk transfer related to a £1.4bn loan. Other recent UK deals include a deal with Standard Chartered related to a $1.5bn loan portfolio.

The UK government is set to sell its stake in NatWest, acquired during the 2008 financial crisis. The government further sold its stake in NatWest this month and now owns less than 7 per cent. Paul Thwaite, the bank's chief executive, said the second quarter would be a reasonable timetable for a full exit.