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Lukas Tursa for Capital.bg: How a Bulgarian bank offered 9% interest

Our Executive Director Lukas Tursa was invited by Capital.bg to talk about the public bond issue we launched, aimed at professional investors, including pension and insurance funds, asset management companies, individual professional investors, etc.  You can read the full interview below:

 

tbi bank releases bonds with a fairly attractive coupon that are designed for professional investors. But there are loopholes for non-professional as well.

In the banking market, interest rates have long been anchored at the bottom and almost nothing happens there. Deposits continue to be the most preferred product for Bulgarians, mostly because of the state guarantee on them, but also because of the conservative investment character of Bulgarians. This week, however, a very attractive offer came from the banking sector – tbi bank announced that it will place bonds with an annual interest rate of between 8.5% and 9%, which have a 3-year maturity. The minimum volume for the success of the issue is EUR 5 million. the maximum is EUR 20 million. In the future, the maximum could reach EUR 70 million. The bonds are unsecured and subordinated – in case of possible problems of the bank, their holders may incur losses along with the shareholders. But since such events seem distant against the backdrop of the well-performing operational banking sector, the appetizing yield immediately caught the attention.

Refinancing Views

At first glance, the question immediately arises why a bank will be financed at these interest rates, given that the interest rates on deposits are around zero and there is ample resources in the system. The answer is that the issue is structured to meet the regulatory requirements for eligible liabilities instruments (MRELs) that affect all banks in Europe.

[quoteblock content=”This issue is not to raise capital or finance, but to meet regulatory requirements. We are funded at a much lower price through the deposit market. So this bond (aiming at 10-20 million euros) will be a very small part of our total liabilities with a negligible effect on costs.” author=”Lukas Tursa” author_position=”Executive Director” author_avatar=”https://tbibank.com/wp-content/uploads/2023/06/New-Microsoft-PowerPoint-Presentation-1200×675.png” section_id=””][/quoteblock]

He added that the bank had taken into account the current market conditions in Europe and therefore decided to offer investors such a return and a shorter-term maturity. “We think that interest rates in the euro area will peak this year and thus in 2-3 years we will be able to refinance the bond at a lower interest rate,” Tursa said.

Limitations and opportunities

The issue has some restrictions – it is provided for institutional (pension funds and insurers) and professional individual investors, with the minimum amount being one lot, or EUR 100 thousand per bond as is the nominal value. On paper, this excludes retail investors. In practice, however, they can do it through trust management of investment intermediaries, but in this case there are also fees that may be higher than the standard ones, which can eat from the yield.

Expat Capital has already announced that it has the opportunity to buy a limited amount for its customers with a minimum investment amount of 100,4. euro. This is parallel to an offer for bonds of the Romanian Banca Comerciala and the Polish PKO Bank Polski with maturities of 3 and 7 years, yields of 03.5 and 10.10% with a minimum amount of EUR 1000 thousand. However, the volumes are much larger, which suggests that there may be a more active market than the issue of the Bulgarian bank, which will be listed on the BSE.

Subscription of the bonds will start on June 5 and will last 5 business days. The short announcement of the deadlines can also speak of serious interest, and market representatives with whom Capital spoke confirmed this. For example, Expat is taking orders until this Friday, June 2.

tbi bank currently has a 10-year bond issue of 10m euros. issued in 2021 and the coupon on it is 5.25%. It defines itself as a challenger bank and is one of the aggressive in Bulgaria. At the beginning of the year, he launched a mobile application with a bank card without fees and interest on the amounts, which directly challenged fintech companies. Its focus is also on relatively riskier, but also with higher interest rates consumer loans, which allows it to operate with the highest margins and profitability indicators on the market, as in the latest edition of the bank ranking of “Capital” K10 tops this category.

 

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