HSBC Bank Malta plc has announced the signing of a €60 million loan agreement with its parent company HSBC Continental Europe, marking a strategic move to bolster its capital structure and ensure compliance with regulatory requirements.

This development follows two other facilities of €60 million and €30 million received in 2021 and 2023, respectively.

The loan is specifically aimed at helping HSBC Bank Malta meet the Minimum Requirement for Own Funds and Eligible Liabilities (MREL), a key regulatory framework established under Directive 2014/59/EU, commonly known as the Bank Recovery and Resolution Directive (BRRD).

The BRRD was introduced to ensure that banks and investment firms have sufficient capital and liabilities to absorb losses and support their recovery or orderly resolution in the event of financial distress. It was introduced following the financial crash of 2008 and the subsequent eurozone debt crisis.

The MREL requirement is designed to prevent taxpayer-funded bailouts by ensuring that banks maintain a buffer of funds and liabilities that can be written down or converted to equity during a crisis.

The €60 million loan is unsecured, meaning it is not backed by collateral, and has a maturity period of three years. However, the bank has the option to repay the loan early, starting from the second year, subject to the terms of the agreement and applicable regulations.

The interest rate on the loan is tied to the three-month EURIBOR, a benchmark rate reflecting the cost of borrowing in the euro interbank market, plus a margin of 76 basis points (0.76 per cent).

The loan is designated as a lower ranking liability. In the context of bank resolution frameworks, liabilities are ranked based on their priority in the event of a bank’s insolvency or resolution. Lower ranking liabilities, also known as subordinated liabilities, are those that rank below other obligations, such as senior debt or deposits, in the creditor hierarchy. This means that in a resolution scenario, these liabilities would be written down or converted to equity before higher-ranking claims are affected.

By issuing lower ranking liabilities, banks can strengthen their loss-absorbing capacity, which is a core objective of the MREL framework.