BBVA considers that it is currently in compliance with the MREL requirement, which today was notified by the Bank of Spain. BBVA also considers the possibility of refinancing the future maturities of senior debt and covered bonds (€6.5 billion through 2020) issuing MREL eligible liabilities. This issuance volume is very manageable.
Bank of Spain has today notified BBVA the new MREL requirement (Minimum Requirement for own funds and eligible liabilities), set up by the Single Resolution Board (SRB). Starting January 1, 2020, BBVA must hold a volume of own funds and eligible liabilities equivalent to 15.08% of total liabilities and own funds of its resolution group, as of December 31, 2016. The requirement would be equivalent to 28.04% in terms of risk weighted assets (RWAs).
MREL does not apply to BBVA Group’s consolidated balance sheet but only to a European perimeter, of which BBVA S.A. accounts for approximately 95%. With information at the end of 2016, which is the balance sheet period analyzed by the supervisor, BBVA’s total own funds and eligible liabilities of this perimeter stood at €385,647 million and RWAs at €207,362 million.
BBVA considers that the current structure of own funds and eligible liabilities of this resolution group is in line with the above-mentioned MREL requirement.
Also, BBVA’s wholesale funding plan anticipates the roll-over of senior preferred debt and covered bonds maturities for the period 2018-2020 (as of January 1, 2018, they stood at approximately €9 billion) through the issuance of MREL eligible liabilities.
Of the €9 billion, BBVA has already issued in 2018 a total of €2.5 billion in senior non-preferred debt - in February it issued a 5-year €1.5 billion floating rate bond, and in April it placed a 7-year €1 billion green bond-. The remaining €6.5 billion are to be issued through 2020, an issuance volume very manageable for a bank like BBVA.
What is MREL?
The purpose of MREL is to ensure that European banks have own funds and eligible liabilities to absorb possible losses in case the supervisor deems them as failing. The MREL is set on a per institution basis.
The Bank Recovery and Resolution Directive (BRRD) created this requirement to make sure that troubled institutions hold enough own funds and eligible liabilities to, first, absorb possible losses, and, second, recapitalize without having to resort to public funds. So, the purpose of this buffer of own funds and eligible liabilities is to avoid taxpayers footing the bill of an eventual bank bailout.