According to announcements from the International Finance Corporation (IFC), a member of the World Bank Group focused on the private sector, two more banks in Serbia are planning to issue so-called MREL bonds. According to IFC projects, OTP Bank and Erste Bank are planning to place debt securities on the Belgrade Stock Exchange. Prior to them, Raiffeisen Bank announced that it would incur debts through the Minimum Requirements for Own Funds and Eligible Liabilities (MREL) instrument, where repayment is primarily guaranteed by investors and shareholders in case of losses.
IFC has allocated $200 million to OTP Bank (figures are indicative, according to the institution’s website) through the MREL 2 project. The investment proceeds will be used to finance eligible assets related to climate and social enterprises in Bulgaria, Croatia, and Serbia, with a list of potential target markets for project expansion, as stated on the IFC website.
For OTP Bank’s second MREL bond project, approval from IFC is pending, while Erste Bank has been allocated $69.73 million, which is also an indicative figure for now.
“The proposed project involves an investment of up to €65 million for IFC’s own account in an instrument with Minimum Requirements for Own Funds and Eligible Liabilities (MREL), to be issued by Erste Bank A.D. Novi Sad, a reputable bank in Serbia and a subsidiary of Erste Group, a strategic partner of IFC and one of the largest banking groups in Europe. Proceeds from IFC’s investment will support MSME clients of the bank and projects to mitigate climate change,” states the project description.
In June, Raiffeisen Bank became the first financial institution to meet the conditions for MREL in Serbia.
EBRD has supported Raiffeisen’s issuance of these bonds with €50 million (in local currency equivalent) of unsecured bonds that meet MREL requirements, thereby joining IFC as a major investor in the project.
The bonds will be listed on the exchange to further develop the local capital market and are originally a joint project of the Ministry of Finance and the World Bank.
“Raiffeisen Bank’s MREL-compliant bonds have attracted the attention of international financial and development institutions, as they could only be sold to professional investors in the primary offering. It is still early to discuss secondary trading of these bonds until purchasers from the primary sale appear on the secondary market and offer part of their securities. Given the current high interest rates on these bonds, there will certainly be demand, but it is debatable to what extent there will be sellers,” said Miroljub Ristić, Director of Operations at the Belgrade Stock Exchange, to Nova Ekonomija.
The interest rate for these bank’s MREL bonds consists of a variable and fixed component. The variable part is based on quarterly BELIBOR, while the fixed part represents a fixed margin of 2.50%.
