MNB Extends Scope of Green Lending, Discusses Bank Carbon Risk Index
The Hungarian National Bank (MNB) announced that the green preferential capital requirement program for green lending by credit institutions to the corporate sector and local governments is being extended to incorporate further corporate green credit objectives. Thus, banks will now have the opportunity to provide green lending for promoting the development of electromobility and sustainable agriculture and, without restriction to specific industries, for other funding objectives serving environmental sustainability. In addition, green exposures under a green financing framework developed by the debtor or the bank may also be included in the program in any sector.
Under the green preferential capital requirement program, MNB contributes to increasing the share of green industries and clients in banks’ balance sheets compared to "brown" assets, which are more exposed to sustainability risks. According to the decision of MNB, in the future, credit institutions may pool capital allowances for housing loans and for the provision of funding to companies and local governments currently in effect, thus maximizing their use. Following the decision, a bank active in green financing may utilize capital allowances amounting to 1.5% of its total risk exposure. As an incentive, MNB encourages green lending under the program by waiving part or whole of current year’s capital requirements of environmentally sustainable corporate and local government exposures meeting the conditions laid down in the detailed set of criteria under Pillar 2 of the capital regulation.
MNB also published a paper that proposes Bank Carbon Risk Index as a simple indicator of climate-related transition risks of bank lending activity based on transaction-level loan data. The underlying assumption is that the higher the greenhouse gas intensity of an economic activity (and so a debtor), the higher its transition risk, because of factors such as increasing future carbon price and greening consumer preferences. The idea is that the greenhouse gas emission of an economic activity is in line with its probability of default and, thus, the climate-related transition risks. Consequently, the risk of a debtor and that of the lending bank can be outlined by mapping greenhouse gas intensities to loan data. The paper introduces the concept of greenhouse gas intensity, presents the methodological background of the indicator, compares the indicator with similar devices, and discusses the trends based on Hungarian data.
Keywords: Europe, Hungary, Banking, ESG, Sustainable Finance, Lending, Credit Risk, Bank Carbon Risk Index, Transition Risk, Climate Change Risk, Probability of Default, MNB
Previous Article
JFSA Updates Guidance and Financial Intermediation KPIs for BanksNext Article
MAS Announces Finalists for Global CBDC ChallengeRelated Articles
OSFI Issues Results of Pilot on Climate Risk Scenario Analysis
The Office of the Superintendent of Financial Institutions (OSFI) published an update on the discussion paper that intended to engage federally regulated financial institutions and other interested stakeholders in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns.
EC Issues Regulation on Adjustments to K-Factor Coefficients Under IFR
The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU).
ECB Issues Opinions on Green Bonds Standard and CRR Proposals
The European Central Bank (ECB) published its opinion on a proposal for a regulation on European green bonds, following a request from the European Parliament.
ESRB Explores Policy Response to Risks Arising from Digitalization
The Advisory Scientific Committee (ASC) of the European Systemic Risk Board (ESRB) published a report that explores the expected impact of digitalization on provision of financial and banking services, and proposes policy measures to address the risks stemming from digitalization.
HKMA Consults on FIRO Code, Revises Policy on Foreign Exchange Risk
The Hong Kong Monetary Authority (HKMA) is consulting on the draft Financial Institutions (Resolution) Ordinance (Cap. 628), or FIRO, Code of Practice chapter on liquidity and funding in resolution, until March 14, 2022.
FI Publishes Multiple Regulatory and Reporting Updates
The Swedish Financial Supervisory Authority (FI) announced that the capital adequacy reporting as at December 31, 2021 must be done by February 11, 2022.
EU Authorities Address COVID-19 Reporting, MCD, and PSD2 Issues
The European Banking Authority (EBA) announced that the guidelines on the reporting and disclosure of exposures subject to measures COVID-relief measures shall continue to apply until further notice.
BSP Tackles Aspects of Lending and Islamic, Open & Sustainable Finance
The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.
US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
EBA Issues Guide on Bank Resolvability, Consults on Transferability
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
