Banks issued 8.4 billion ALL of bonds last year

2024-05-08 13:05:00, Ekonomi CNA

The banking sector in Albania last year issued 8.4 billion ALL of private offering bonds to cover the new regulatory requirements, related to the macroprudential capital additions and the minimum requirement for regulatory capital instruments and accepted liabilities (MREL).

According to the Bank of Albania, the value of bond issues increased by 79% compared to a year ago.

Of the 8.4 billion ALL corporate debt instruments issued, 5.2 billion ALL were subordinated debt and 3.2 billion ALL senior unsecured debt.

Subordinated debt financial titles are subordinated obligations, which are issued for regulatory capital purposes and simultaneously serve for MREL financing purposes. Financial debt securities of

unguaranteed, are senior obligations known as "accepted obligations", which serve the purpose of MREL financing.

The issuance of senior bonds was carried out for the first time by special banks in 2023. Senior bonds have a lower risk for the investor, because in case of bankruptcy of the issuer, they have priority in repayment compared to the subordinated debt, which remains last in line of repayment.

According to currencies, for 2023, the issue in the local currency is 1.96 billion ALL, the issue in Euro reached 6.3 billion ALL and that in US dollars 148 million ALL.

92% of the total debt securities issued in the capital market were carried out by banks that are subject to the requirement for MREL, for an amount of 7.8 billion ALL.

In 2022, this ratio was at the level of 25% of the total, where most of the issuances were carried out by other banks in the sector, for regulatory capital purposes. In line with the developments of the sector as a whole, issuances in foreign currency occupy the main weight for MREL banks, especially for the last quarter of 2023.

The subordinated debt instruments have maturities of 7 years, without reflecting changes over the years. Meanwhile, the first-time issuances of unsecured debt securities for MREL purposes have reflected lower maturities, at the level of 4 years for the euro currency.

According to the Bank of Albania, the capacity of the capital market to absorb these emissions remains satisfactory.

The interest in the market has been greater for the purchase of issues in Lek and Euro, which marked a greater increase in the interest rate and a greater value of the issues.

Interest rates have increased during 2023, in the conditions of the overall increase in interest rates in the market and the simultaneous issuance of debt securities by several banks.

On average, during the year 2023, the interest rate has recorded an annual increase of 2.1 percentage points for issues in Lek, 0.9 percentage points for issues in euros and 1.7 percentage points for issues in dollars.

The peak of the interest rate increase was marked in the third quarter of 2023, reaching the maximum levels of 7.5% for the lek and 5% for the euro.

Despite the increase in the activity of banks in the capital market for the last quarter of the year, the average interest rates decreased to the level of 6.5% for the lek and 4.3% for the euro. The interest rate for the dollar currency, which has not had a large number of issues, has maintained its stability until the issues of the last two quarters of 2023, when it experienced an increase of 1.5 percentage points.

The largest banks in the banking sector last year faced a further increase in capital requirements. This obligation has entered into force for the four banks of systemic importance, Banka Kombëtare Tregtare, Banka Credins, Banka Raiffeisen Albania, Banka OTP Albania, as well as for Banka Intesa Sanpaolo Albania.

They are subject to meeting the minimum requirement for regulatory capital instruments and accepted liabilities (MREL), according to the regulation approved by the Bank of Albania in December 2020. This regulation is related to the new framework brought by the law "On the recovery and intervention of extraordinary in banks".

Most of the banks have met the new requirements through the issuance of bonds with a private offer, while Raiffeisen has signed a loan line for this purpose with the European Bank for Reconstruction and Development (EBRD)./ Monitor Magazine