The Bank of Cyprus is set to complete its Minimum Requirement for Own Funds and Eligible Liabilities (MREL) target one year earlier than expected, signalling progress towards sustainable profitability, as announced in the bank’s financial results for the nine months ending in 2023.
According to the bank, in November 2023, they received a preliminary notification from the Single Resolution Board (SRB) regarding the decision on the Minimum Requirement for Own Funds and Eligible Liabilities (MREL).
The 2024 decision stipulates the minimum requirement for own funds and eligible liabilities to be 25.00 per cent of the weighted sum of risk-weighted assets (RWAs), with compliance now expedited one year earlier, by December 31, 2024, “reflecting the group’s progress towards a robust, well-capitalised organisation with sustainable profitability”. Based on the bank’s internal estimations, the MREL target, excluding the profits for the third quarter of 2023 as of September 30, 2023, calculated under the SRB’s current eligibility criteria, amounted to 24.1 per cent of the weighted sum of risk-weighted assets (RWA) and 11.0 per cent of the leverage ratio exposure (LRE). The bank’s total estimated MREL target is €2.31 billion, with the current index already at €2.23 billion, excluding the third-quarter profits.
However, with the inclusion of third-quarter profits, adjusted based on the high payout ratio of the approved dividend policy, the MREL index rises to 24.6 per cent of the weighted sum of risk-weighted assets and 11.2 per cent of the leverage ratio exposure as of September 30, 2023.
During its recent market move, the bank issued high-priority bonds of €350 million in July through the European Medium-Term Note (EMTN) Programme, with an annual coupon rate of 7.375 per cent, contributing to meeting MREL requirements. According to the bank’s presentation, its market funding has reached €1 billion, indicating access to funding. The bank, however, affirmed its intent to continue evaluating opportunities to optimise obligations meeting the criteria for minimum MREL requirements.
MREL was introduced following the implementation of the Bank Recovery and Resolution Directive (BRRD) and serves as a financial tool strengthening the capacity of a banking institution to absorb losses during resolution. The MREL requirement is distinct from capital requirements and is determined individually for each bank based on its size, funding, and risk profile.
Source: Cyprus Mail