Subordinated Bond Debt Reaches 1,634,287 Million TND by End of February 2024
By the end of February 2024, the outstanding amount of subordinated bond debt reached 1,634,287 million TND. Although this figure is not a record, it is still significant, considering we had reached 1,783,089 million TND by the end of September 2023.
This type of debt instrument is commonly used by credit institutions (banks and leasing companies) to strengthen their net equity in accordance with the Tunisian Central Bank's Circular No. 91-24 of December 17, 1991, which defines subordinated debt as a component of supplementary capital. These subordinated bonds will only be taken into account annually for the calculation of supplementary capital up to the remaining capital due and within the limit of 50% of the base net equity.
In 2023, only one such operation took place, and no issuance was recorded in 2024. From a prudential ratio perspective, the situation is much better than in previous years. With a remarkable increase in profits and stricter dividend distribution rules, credit institutions have been able to improve their equity capital. Furthermore, with the slowdown in credit growth to the economy, risks have been better managed, and most banks have set aside lower provisions compared to 2022.
The cost of these subordinated bonds is higher than that of classical bonds, given their lower ranking. With current market rates, it is almost impossible to issue debt at a single-digit rate. Credit institutions therefore avoid adding a few basis points to their resource costs.
We predict a limited number of such operations in the coming years, unless the Central Bank decides to further tighten prudential standards before the 2024 financial statements.
