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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Back-to-back loan

What is a back-to-back loan, and why do banks look at them closely?

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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

In bank lending, a back-to-back loan is a loan secured by a deposit of equal or greater value, often placed by a parent, an owner or another related party, with the bank holding a charge over the deposit or a right of set-off. It can fund a subsidiary the parent cannot lend to directly. The credit risk is small if the documents hold, but financial crime teams read these structures closely, because borrowing against an offshore deposit is a known way to make criminal money look like a loan. In corporate treasury the name also means two companies in different countries lending each other equal sums in their own currencies.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

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