MNB published the General Decision of the Financial Stability Council of MNB to amend the systemic risk buffer (SRB) requirement. While calculating the capital requirement, MNB will take into account not only problem project loans but also non-problem foreign currency project loans in the future to prevent the potential re-emergence of systemic risks related to the unhealthy structure of commercial real estate project financing. The modifications will come into effect on January 01, 2020. MNB also notified EBA, ECB, and ESRB about its decision on changing the scope of an existing systemic risk buffer (SRB).
As of January 01, 2020, the calibration of systemic risk buffer required by MNB will be extended to new risks. In addition to problem exposures already covered, project loans qualified as non-problem, but denominated in foreign currency, will also be included in the determination of the capital buffer rate. To ensure that the capital buffer does not unduly hinder lending processes, non-problem foreign-exchange commercial real estate project financing loans will initially be taken into account with a low, 5% weight. The de minimis limit for the exemption threshold is also being modified. The limit on the amount of problem and non-problem foreign currency project loans is raised to HUF 20 billion to exempt institutions that manage a stock which is non-material from a systemic risk perspective.
So far, the systemic risk buffer requirement has been aimed at mitigating systemic risks related to non-performing and restructured, but not yet performing, project loans, together with on-balance sheet held-for-sale commercial real estate (the so-called problem stocks). As the targeted systemic risk related to problem exposures has been substantially decreased with the support of the existing systemic risk buffer and along favorable market conditions, adjusting the instrument in accordance with the changing risk environment has become timely. The amendment of the requirement is intended to strengthen the shock resilience in case of an excessive outflow of foreign currency project loans and may also contribute to counteracting excessive risk-taking. In line with the preventive nature of the modification, it is expected that no institution will be required to maintain a systemic risk buffer as of January 01, 2020, based to the rate determination conducted on the third quarter data for 2019.
Related Link: Notification to EBA, ECB, and ESRB (PDF)
Effective Date: January 01, 2020
Keywords: Europe, Hungary, Banking, Systemic Risk Buffer, Systemic Risk, Capital Requirement, MNB, EBA, ECB, ESRB
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
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