BSH: The banking sector has met the additional capital requirements for the extraordinary intervention

2024-11-01 14:32:00, Ekonomi CNA

BSH: The banking sector has met the additional capital requirements for the

The banking sector has managed to fully meet the minimum requirements for regulatory capital instruments and accepted liabilities (MREL).

This regulation is related to the new framework brought by the law "On extraordinary recovery and intervention in banks".

According to the information of the Bank of Albania, the intermediate objective of the request for MREL for 2024, reaches an average of 18.2% of risk-weighted exposures, against the intermediate objective of 2023 of 16.4%. During this period, the banking sector has fully met the intermediate objective, maintaining an average MREL capacity at the level of 21.6% of risk-weighted exposures.

During the first half of 2024, there are 5 banks of the banking sector that are subject to the regulatory framework of extraordinary intervention, fulfilling the requirement for MREL.

The final target to be met by 2027, on average, stands at 24.9% of risk-weighted exposures.

Regulatory capital constitutes the main source of financing of MREL, while senior financial titles newly constitute the main weight of accepted obligations.

In June 2024, Tier 1 capital has funded the MREL level with 18.6% of risk-weighted exposures, Tier 2 capital has funded 1.4% of exposures, subordinated debt not part of regulatory capital has a larger contribution down to 0.5% of exposures, while senior financial titles have increased funding to around 1.1% of them.

The first six months of 2024 marks a moderate level of bank activity for issuing financial securities for the purposes of regulatory requirements, compared to 2023.

During this period, banks subject to the MREL requirement issued in the capital market in the form of bonds with a private offer, unsecured debt securities.

The capacity of the capital market to absorb these emissions, according to the Bank of Albania, remains satisfactory. For the first six months of 2024, financial securities approved for issuance were purchased by investors in the market, in which individuals constitute the main investor base.

Interest rates in the capital market have decreased, reflecting developments in the financial market, the supply of securities and the nature of unsecured debt. During the first half of 2024, interest rates have marked a decrease of about 2.2% for the issuance in Lek, 0.7% for the euro and 1.7% for the US dollar, compared to the total issuance for 2023.

The maturity of the securities issued in the capital market in Albania has shown a slight decrease. In the first half of 2024, the issuance of unsecured debt securities, realized in the national currency and in foreign currency, was made for lower maturities of 3 years, from 4 years in the previous half.

Banks that are subject to the requirement for MREL present positive developments in profitability, in line with the developments of the sector. At the end of the first half of 2024, the net result from interest for these banks increased by 11% in annual terms, reaching the level of ALL 26.3 billion. The net interest margin also marked a significant improvement, at the historical level of 4.29% against the level of 4.25% at the end of 2023.

Following the satisfactory developments in profitability indicators, the cost of financing the request for MREL is considered affordable. At the end of the first half of 2024, interest expenses for subordinated debt constitute 2% of net interest income for banks that are subject to the MREL requirement.

Certain banks, which have a longer history of issuing debt securities for regulatory purposes, have a higher weight of this indicator, which however remains limited in its impact on profitability./ Monitor Magazine