As part of its strategy to ensure steady growth while maintaining a low-risk profile, the Bulgaria AIF Fund has participated in the recent MREL bond IPO of First Investment Bank, acquiring one lot with a nominal value of €50,000 and a 7% annual coupon. While this is a small fraction of the total €50 million issuance, the allocation plays an important role in diversifying the Fund’s fixed-income portfolio.
What Are MREL Bonds – and Are They Riskier?
MREL bonds are often described as higher-risk instruments, typically targeted at professional investors and financial institutions. While this holds true in some markets, the Bulgarian context presents a different picture.
MREL bonds issued by established Bulgarian banks can be considered relatively safe while offering significantly higher yields than many international benchmarks. For example, Intel’s USD bonds currently yield slightly below 5%, whereas Bulgarian MREL bonds provide around 7% in EUR.
Why Bulgarian MREL Bonds Shouldn’t Be Viewed as Excessively Risky
It is true that MREL bonds are not secured by specific collateral. However, failure to pay would imply the collapse of the issuing bank itself, which is considered an unlikely and extreme scenario.
On the positive side:
- Their issuance demonstrates a bank’s ability to attract fresh capital, which reinforces confidence in its stability.
- They are often used to rebalance balance sheets, refinance earlier high-yield debt, or to position the bank strategically for a future merger.
A practical example is TBI Bank, which had previously issued bonds with a 9.5% coupon. These were later called and repaid using proceeds from a new MREL bond paying just 7.6%, lowering the bank’s financing costs and strengthening its position.
While bonds can be riskier if issued solely to cover operational shortfalls, debt raised as part of a clear strategic plan—such as preparing for consolidation—remains a sound instrument. For investors in the Bulgaria Golden Visa Program, this creates an opportunity: capture today’s attractive yields while maintaining the low-risk profile that aligns with the program’s objectives.
Outlook for the Bulgarian Banking Sector
The Bulgarian banking sector remains highly fragmented, with many banks serving a relatively small population. Consolidation is already underway—BACB acquired Tokuda Bank in 2024, and a year earlier KBC merged with United Bulgarian Bank. This trend is expected to continue, leaving larger institutions stronger and their debt instruments more reliable.
It is therefore highly unlikely that a Bulgarian bank will default in the near future. On the contrary, MREL bonds continue to serve as a tool for balance sheet optimization, refinancing of older higher-yield debt, and strategic positioning for mergers.
