European banks, vowing to sell distressed assets as regulators tighten capital requirements, are lending money to buyers to get deals done.

European banks, vowing to sell distressed assets as regulators tighten capital requirements, are lending money to buyers to get deals done.

Royal Bank of Scotland Group Plc (RBS) may provide as much as 600 million pounds ($939 million) in debt to help Blackstone Group LP acquire part of a 1.4 billion-pound portfolio of commercial mortgages from the bank after the private-equity firm struggled to get outside funding, three people with knowledge of the transaction said. The deal, scheduled to close within weeks, follows Credit Suisse Group AG (CSGN)’s agreement to finance the sale of $2.8 billion of property loans to Apollo Global Management LLC in December, two people with knowledge of the matter said.

“The use of vendor financing to de-lever defeats its own purpose,” said David Thesmar, a professor of finance at HEC Paris, a business school. “The assets may become safer because the buyer injects equity, but the actual gain in core Tier 1 capital ratio for the bank isn’t as great as if it was purely and simply sold. It shows banks’ deleveraging is going to be tougher than planned.”

The increase in vendor financing reflects the challenge European banks (BEBANKS) face selling their distressed loans and avoiding greater losses as the sovereign-debt crisis deepens. Lenders have pledged to cut assets by more than 775 billion euros ($1.05 trillion) within two years as regulators require them to meet a 9 percent core capital ratio earlier than planned and urge them to reduce funding needs.