MNB Issues Climate Stress Test Results and Macro-Prudential Report
The Hungarian National Bank (MNB) presented key results of its long-term climate stress test at the International Green Finance Conference. The MNB Deputy Governor Csaba Kandrács, Deputy Governor of the MNB, highlighted, in his presentation, that—both globally and in Hungary—a swift and orderly transition to a carbon-neutral economy, as soon as possible, would be important for the quality of bank credit. Presentations and panel discussions at the conference focused on the implications of the COP26 climate summit for the financial system and further environmental anomalies beyond climate change. At the conference, the Green Finance Awards for financial institutions and the Green Finance Science Awards for excellence in academia were also presented. In a separate development, MNB has published the Macro-Prudential Report for 2021, which presents the macro-prudential measures of the past year, the adaptation of market participants to the ongoing crisis, and the broader economic effects of regulatory measures.
The Macro-Prudential Report highlights that the liquidity position of banking system remains stable while the liquidity coverage ratio (LCR) of the banking sector has been rising steadily since the onset of the coronavirus pandemic, mainly due to central bank measures. The net stable funding ratio (NSFR) requirement, which limits the maturity mismatch of institutions, came into force at the European Union level in June 2021, but its introduction did not require significant adjustments for domestic banks in view of the own funding requirements of MNB. The report notes that there is a significant gap in the availability and use of data at the domestic level, thus hindering the time and cost reduction required for lending processes, the deepening of finances, the spread of digitalization and green financial products, factors which in in turn contribute to weakening the competitiveness of the banking sector and the country. To strengthen the digitalization of banking operations, in addition to market developments, it is necessary to improve access to the State databases, an initiative in which the country significantly lags behind the rest of the European Union.
In addition, MNB announced that, according to Sustainable Financial Regulation and Central Bank Activities Tracker developed by the World Wide Fund for Nature (WWF), its sustainability activity and measures for handling financial risks related to climate change are the most advanced. The Tracker, which was released in October 2021, assessed the financial regulatory environment of 37 countries, including Hungary, in three sustainability categories: climate, environment, and society. Overall, the evaluation paints a very positive picture of the sustainability-related activities of the central bank of Hungary.
Keywords: Europe, Hungary, Banking, Climate Change Risk, Stress Testing, ESG, Sustainable Finance, Liquidity Risk, Regulatory Capital, Systemic Risk, Macro-Prudential Policy, MNB
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