SpA is working on a potential deal to hedge €1 billion ($1.1 billion) in German home loans as it prepares to expand its footprint in Europe’s biggest economy.

The Milan-based lender, which is set to take control of Germany’s Commerzbank AG in the coming months, is assessing investor appetite for an unfunded credit protection, according to people familiar with the matter who asked not to be identified because the discussions are private.

Significant risk transfers on residential mortgages are rare. Spain’s BBVA SA completed two synthetic securitizations linked to home loans earlier this year, but such deals accounted for just 2% of collateral in all SRT transactions in the first half of 2026, according to data compiled by Crescent Capital.

German house prices have been recovering from a slump since late 2024, but the pace of the upturn has slowed in recent quarters and the market outlook is uncertain given rising interest rates. Banks have also been tightening conditions on mortgage lending.

Synthetic, or unfunded, SRTs involve insurers agreeing to cover some of the loan losses in exchange for a coupon, rather than investors paying cash up front. Such guarantees are taking a larger share of the market even as European policymakers debate whether they are as resilient as funded deals, and therefore whether they should result in a comparable level of capital relief for banks.

UniCredit has become a prolific issuer of SRTs, using the trades to free up capital that it recycles back into its loan origination business with the aim of undercutting competitors. Italy’s biggest lender has gained relief equivalent to 82 basis points of its common equity tier 1 ratio, according to CreditSights Inc. estimates released earlier this month.

SRT deals continue to be churned out by banks, mostly in Europe and North America, even as risk premiums in wider financial markets deteriorate on the back of higher interest rates, growing government debt burdens and worries about the sustainability of huge investments in artificial intelligence.

Still, heightened risk aversion could prompt investors such as hedge funds and pension managers to start demanding better terms for SRTs, which typically insure a first or junior portion of a portfolio in exchange for coupons that regularly exceed 10%.

The cost of SRTs and the pace of issuance could be affected by “potential higher funding costs, and higher sovereign risk perception,” wrote Barclays Plc’s banking analysts including Paola Sabbione in a Oct. 15 note.

UniCredit is also discussing a potential SRT tied to the equivalent of around €1 billion in loans to small and mid-size enterprises in the Czech Republic, the people said.

Separately, KBC Group NV, which operates one of the largest banks in the central European country, is also working on an SRT tied to over €2 billion of company loans, according to other people familiar with the matter.

All three potential deals are still subject to discussions with investors so terms may vary during the sales process, the people added. Representatives for UniCredit and KBC declined to comment.