mBank’s Strategic EUR 400M Tier II Capital Raise: A Catalyst for Financial Resilience in Poland’s Evolving Banking Sector?

mBank’s EUR 400 million Tier II capital raise in Q2 2025 represents a strategic maneuver to fortify its capital structure while aligning with evolving regulatory frameworks in the European Union and Poland. As the first publicly issued Tier II bond by a Polish bank and the largest in the CEE region in five years, this transaction underscores mBank’s proactive approach to capital optimization and risk management [1]. The issuance, underpinned by a ten-year maturity and euro-denominated structure, not only diversifies mBank’s funding sources but also positions it to navigate regulatory tightening and economic uncertainties in Poland’s banking sector [2].

Capital Structure Optimization: Tier II as a Strategic Tool

Tier II capital, which includes subordinated debt and hybrid instruments, serves as a critical buffer for banks to absorb losses without diluting equity. mBank’s decision to raise EUR 400 million in Tier II capital reflects a calculated balance between maintaining a robust Tier 1 capital base and enhancing total capital adequacy. As of Q2 2025, mBank reported a CET1 ratio of 12.75%, a Tier 1 ratio of 14.0%, and a Total Capital Ratio of 15.01% [3]. These figures, already exceeding regulatory minima, suggest that the Tier II issuance further strengthens mBank’s ability to support growth in retail and corporate lending while preserving flexibility in its capital allocation.

Compared to Tier I instruments, Tier II capital is often less costly to issue, particularly in a low-interest-rate environment. By leveraging Tier II debt, mBank avoids the dilution associated with equity raises, which could otherwise erode earnings per share and shareholder value. This approach aligns with broader industry trends, as the European Banking Authority (EBA) notes that Tier I capital requirements will rise by 7.8% by 2033 under Basel III reforms, but Tier II remains a supportive, albeit secondary, component of capital adequacy [4].

Regulatory Alignment and Risk Mitigation

The issuance also aligns with Poland’s regulatory evolution, including the 2023 introduction of CoCo bonds (contingent convertible bonds) and amendments to the Banking Law to incorporate EU CRD VI/CRR standards [5]. While CoCo bonds are designed to convert into equity during stress events, mBank’s Tier II subordinated bonds provide a more predictable capital buffer. This choice reflects a pragmatic response to Poland’s regulatory landscape, where banks are incentivized to diversify capital sources without over-reliance on complex instruments like CoCo bonds.

Moreover, the ECB’s 2024 Supervisory Review and Evaluation Process (SREP) results indicate minimal adjustments to capital requirements for 2025, with average CET1 requirements rising marginally to 11.3% [6]. mBank’s post-issuance Total Capital Ratio of 15.01% comfortably exceeds these thresholds, ensuring compliance while leaving room for strategic reinvestment. The bank’s CFO, Pascal Ruland, emphasized during the Q2 2025 earnings call that the capital raise “meets very comfortably the thresholds,” reinforcing confidence in its regulatory resilience [3].

Strategic Positioning in Poland’s Growing Economy

Poland’s projected GDP growth of 3.8% in 2025 and 3.5% in 2026 [7] creates a favorable backdrop for mBank’s expansion ambitions. A well-capitalized balance sheet enables the bank to extend credit to retail and corporate clients without compromising solvency. The EUR 400 million Tier II issuance, combined with retained earnings and operational efficiency (evidenced by a 28.2% cost-to-income ratio in Q2 2025 [3]), positions mBank to capitalize on this growth while maintaining a conservative risk profile.

Critically, the issuance also signals mBank’s international credibility. The involvement of global lead managers like Goldman Sachs and UBS, along with the bond’s listing on the Luxembourg Stock Exchange, enhances liquidity and investor confidence. This internationalization is a strategic move to attract non-domestic capital, a trend likely to gain traction as Polish banks seek to diversify funding sources amid domestic market constraints.

Conclusion: A Model for Resilience and Growth

mBank’s EUR 400 million Tier II capital raise exemplifies a forward-looking strategy that harmonizes regulatory compliance, capital efficiency, and growth potential. By bolstering its capital ratios without over-leveraging equity, the bank strengthens its ability to navigate macroeconomic and regulatory headwinds. As Poland’s banking sector evolves under EU directives and domestic reforms, mBank’s approach offers a blueprint for balancing prudence with ambition—a critical asset in an increasingly competitive landscape.

Source:
[1] Dentons advises mBank on inaugural €400 million Tier 2 bond issuance [https://www.dentons.com/en/about-dentons/news-events-and-awards/news/2025/june/dentons-advises-mbank-on-inaugural-euro-400-million-tier-2-bond-issuance]
[2] White & Case advises joint lead managers on mBank's €400 million Tier 2 subordinated bond [https://www.whitecase.com/news/press-release/white-case-advises-joint-lead-managers-mbanks-eu400-million-tier-2-subordinated]
[3] Earnings call transcript: mBank sees strong Q2 2025 growth despite rising costs [https://www.investing.com/news/transcripts/earnings-call-transcript-mbank-sees-strong-q2-2025-growth-despite-rising-costs-93CH-4163314]
[4] Further Tier 1 capital needs for the full implementation of the EU specific Basel III reform are minimal, the EBA Report finds [https://www.eba.europa.eu/publications-and-media/press-releases/further-tier-1-capital-needs-full-implementation-eu-specific-basel-iii-reform-are-minimal-eba-report]
[5] New Banking Law Overhaul to Implement EU CRD VI/CRR [https://www.linkedin.com/pulse/poland-moves-forward-new-banking-law-overhaul-eu-crd-mruk-zawirski-f343f]
[6] ECB keeps capital requirements broadly steady for 2025 [https://www.bankingsupervision.europa.eu/press/pr/date/2024/html/ssm.pr241217~8ca7d1d44e.en.html]
[7] mBank Q2 2025 presentation: Profit surges as loan growth accelerates [https://au.investing.com/news/company-news/mbank-q2-2025-presentation-profit-surges-as-loan-growth-accelerates-93CH-3951340]