The Hungarian National Bank (MNB) issued a circular reminding financial institutions that they must actively reduce their exposure to LIBOR before the end of this year and stop using all such interest rates as soon as possible, but no later than December 31, 2021. The only exceptions to this are a smaller number of LIBOR reference contracts that cannot be converted to untied interest rates or modified through an appropriate reserve procedure before the expiry of LIBOR.
The circular highlights the following key points:
- A significant portion of LIBOR interest rates will expire after December 31, 2021, with the exception of some USD LIBOR maturities, which will be available until June 30, 2023
- It is appropriate and strongly recommended that, for the remainder of the period, domestic market participants actively reduce their exposure to the use of LIBOR
- The use of "synthetic" LIBOR should be limited to cases of "tough legacy"
- In all contracts using LIBOR, it is worthwhile to specify an appropriate replacement clause and an alternative rate.
MNB expects financial institutions to inform stakeholders, via their websites, regarding the derecognition of LIBOR as well as the associated rationale, effects, the related measures taken by the institution, along with any customer actions that may be required. Financial institutions should also draw attention to the fact that customers (if they so request) have the opportunity to initiate the conversion of their foreign currency debt into HUF on the basis of the Consumer Credit Act. MNB welcomes the proactive action of the Banking Association in preparing for the termination of LIBOR and encourages the institutions under its supervision to contact either the representatives of the Banking Association or the MNB with their questions if they deem it necessary during the preparation.
MNB also published a statement with respect to the results of the stress testing exercise of the European Banking Authority. MNB noted that, from Hungary, only OTP Group participated in this 2021 stress test exercise, as it was the only institution with total assets exceeding EUR 30 billion, which was the limit to participate in the exercise. The OTP Group is present in eleven countries of the Central and Eastern European region through its subsidiaries. With respect to the capital position of the Group, which is the most important factor in the stress test, the results of the OTP Group slightly worsened in comparison with the exercise that was conducted three years ago; however, the Group would still exceed the current regulatory minimum Supervisory Review and Evaluation Process (SREP) capital requirement throughout the stress horizon.
Keywords: Europe, Hungary, Banking, Securities, LIBOR, Interest Rate Benchmarks, LIBOR Transition, Benchmark Reforms, Stress Testing, Regulatory Capital, EBA, MNB
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