Page 46 - Annual Report 2023

46 BANKA KOMBËTARE TREGTARE

BOX: ISSUANCE OF A DEBT OBLIGATION RECOGNIZED AS
ELIGIBLE LIABILITY FOR MREL PURPOSES

During 2023, BKT has successfully issued a debt claims of other creditors, including depositors and
instrument, a bond, designed to attain the status of creditors with priority over EL bondholders, but
an eligible liability to fulfill requirements on regulatory precedes holders of CET1 instruments, AT1 capital
capital instruments and eligible liabilities (MREL). instruments, T2 capital instruments, and subordinated
debt that is neither AT1 nor T2 capital instrument.
What is a debt obligation recognized as eligible liability?
Despite the unconventional features of this debt
Eligible liabilities are instruments that facilitate the instrument, it is important to note that the yield for
implementation of the preferred resolution strategy these instruments is higher, to compensate for the
by the Resolution Authority. There are various complexity, ranking and optionality. In addition to
approaches on how to originate eligible liabilities. In the yield, the bondholders of such instruments are
its first round, BKT decided to issue a bond, through provided with tailored information related to the
the process of private offering. The issuance process institution financial performance and a comprehensive
was finalized with the subscription of EUR 30.1 million overview of the risk spectrum that associate the
and subsequent recognition as eligible liability. Each investment. Moreover, debtholders have the right to
bond carries a nominal value of EUR 10,000, with a be organized and elect a representative that protects
minimum subscription amount of EUR 50,000. The their interest. In general, it has to be noted that even
bonds entitle holders to collect interest at a fixed rate though an investment in a debt instrument with the
of 4.00% per annum, payable in two installments, with status of eligible liabilities embeds more complexity
maturity of 4-years and eligibility for MREL purposes and risk compared to a standard retail deposit, at the
for 3 years.
same time it provides more information symmetry and
powers that are provided through the Act-offer of the
The debt instrument with the EL status, is an instrument.
unguaranteed and unsecured bond, fulfilling the
criteria as a loss-absorbing buffer in the event of Issuance Process
resolution implementation by RA. Under this scenario,
the RA might exercise the powers of devaluation and For BKT, the market and the regulatory authorities,
conversion of EL debt instruments either before or this was the first EL bond issuance. The issuance
simultaneously with the application of the resolution underwent three pivotal processes: the approval by
instruments. To facilitate the recovery of the issuing FSA of the bond issuance, the issuance process and
bank, the RA may cancel these bonds, depreciate the eligible liability (EL) recognition process, overseen
their value, or convert them into capital, to achieve by Bank of Albania, as the Resolution Authority (RA).
the resolution objectives. The issuance process started on March 2023, when
Board of Directors approved the bond issuance and
However, if the issuing bank, despite the resolution it was finalized by December 2023, with finalization
implementation, is unable to recover and is directed of the offer process at EUR 30.1 million subscribed
into forced liquidation, the repayment claims of the amount and the recognition from BoA as eligible
bondholders are prioritized as explicitly expressed liability.
in the bond’s Act-offer. Their repayment follows the