MNB Reviews Financial Stability, Issues Credit Measures and D-SIB List
The Hungarian National Bank (MNB) issued a circular to the relevant credit institutions and financial enterprises on the management of possible payment difficulties of customers who have dropped out of the redemption moratorium or who did not participate in it. MNB expects financial institutions to focus on retail and corporate customers struggling with repayment problems by developing financing structures, solutions, and internal processes to adequately address the changed solvency of debtors. MNB is amending Decree No. 32/2014. (IX. 10.) on the regulation of the debt-service-to-income ratio for installment payments and the loan-to-value ratios. The amendments, which will take effect on January 01, 2022, will support the spread of good market practices, the pursuit of digitalization efforts, and the maintenance of responsible lending. MNB also published the financial stability report and has identified seven banking groups as systemically important this year.
The systemically important banking groups are OTP Bank Nyrt., Magyar Bankholding Zrt., UniCredit Bank Hungary Zrt., Kereskedelmi és Hitelbank Zrt., Erste Bank Hungary Zrt., Raiffeisen Bank Zrt., and CIB Bank Zrt. MNB has identified seven banking groups as systemically important this year, instead of the eight institutions identified in the previous years. Due to extraordinary circumstances caused by the coronavirus epidemic, the capital buffers temporarily released by MNB in 2020 will have to be gradually rebuilt by these credit institutions in three years starting from 2022. In 2022 and 2023, the transitional buffer rates will increase by one-quarter of the expected final rates. Then, from 2024 onward, MNB will expect compliance with the intended final buffer rates. Nonetheless, MNB may modify the final buffer rates if material future changes in the systemic importance of the credit institutions necessitate adjustments during the annual revisions.
The financial stability report highlights that the Hungarian banking system is stable, and has considerable capital reserves, rendering it resilient to risks. A small proportion of debtors indicated that they were in need of a third phase of the payment moratorium, which significantly reduced future uncertainty about the impact of the program. No major risk can be identified in terms of the sector’s lending capacity, and thus a smooth return to market-based lending is ensured. The liquidity reserves of the banking sector continued to expand in the first half of 2021, but the central bank instruments contributing to this are being gradually phased out. As a result of the subsidized credit programs, the expansion of the corporate loan portfolio was outstanding in an international comparison as well. The report also notes that risks may materialize in certain segments of the commercial real estate market, but the exposure of Hungarian banks to the real estate market is low in a European comparison. Further, the report mentions that the phasing out of the general payment moratorium is not causing a drastic surge in the non-performing loan portfolio. During the crisis, the banking system performed well, but looking ahead, banks also need to adapt to the challenges of new entrants and continuous technological development.
Keywords: Europe, Hungary, Banking, Credit Risk, Loan Repayment, Lending, Financial Stability Report, Regulatory Capital, LVR, DSTI, D-SIBs, Basel, COVID-19, MNB
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