During the annual conference of the Association of Financial Directors of Serbia, State Secretary Saša Stevanović from the Ministry of Finance revealed that two domestic banks are gearing up to issue MREL bonds by the year’s end.
As this marks a new financial instrument for the domestic market, the National Bank of Serbia (NBS) was approached to shed light on MREL bonds. According to the central bank, any commercial bank meeting specific conditions can issue such bonds in compliance with regulations. The concept of MREL bonds was brought to attention ten days ago by Nova Ljubljanska banka, the parent company of NLB Komercijalna banka in Serbia. The Slovenian bank successfully placed bonds worth 500 million euros with professional investors, fulfilling the so-called MREL requirements.
MREL bonds, or MKO bonds (Minimum Requirement for Capital and Eligible Liabilities), as termed in Serbian, are issued by banks and meet the conditions stipulated in banking laws and by-laws for inclusion in the calculation of the minimum requirement for capital and eligible liabilities, the NBS explained to Biznis.rs.
Despite being a novelty in our capital market, the NBS recalls that the MKO requirement for commercial banks in Serbia was introduced in 2015 with amendments to the Banking Act. This move aligned with EU directives for bank recovery and restructuring.
Regarding the characteristics of MREL bonds, the NBS emphasized key conditions such as full payment, non-creditor status of the bank, non-financing of investments, and a minimum remaining maturity of one year.
While the Slovenian NLB bank issued MREL bonds in euros, domestic banks can only issue them in the local currency. This aligns with the NBS’s strategy for dinarization, encouraging investment in local securities and fostering domestic capital market development.
The potential issuance of MREL bonds on the domestic market reflects the state’s initiative to attract investors. Initial public offerings and other market activities are planned for 2024 and 2025, as announced by State Secretary Saša Stevanović.
When asked about the regulatory framework for MREL bonds, the NBS confirmed that existing regulations, including the Law on Banks and the Decision on MKO, provide a sufficient basis for issuing MREL bonds in the domestic market.
