Featured Product

    MNB Issues IFRS 9 Guidance on Loan Classifications in Context of COVID

    July 27, 2020

    MNB amended a Circular on the use of macroeconomic factors and on the application of factors indicating a significant increase in credit risk, in connection with IFRS 9. By amending the circular, MNB has set minimum requirements for the calculation of impairment levels and introduced flexibility to its prudential expectations related to impairment. From July 27 to the end of next year at the latest—that is, December 31, 2021—market participants in credit institutions will be able to use these modification measures aimed at mitigating the effects of the COVID-19 emergency. The circular applies to domestic banks and credit institution branches.

    According to the MNB impact assessment, without jeopardizing the stable, safe, and prudent operation of the banking system, these recent measures could reduce the level of impairment of credit institutions by up to HUF 120 billion, improve the capital position, and increase lending capacity; this may help to reduce the economic effects of the pandemic. Although the new measures will remain in force until December 31, 2021, the central bank may, based on the current situation, decide to revoke them earlier. The following are the key highlights of the guidance, as explained by MNB in its press release:

    • To preserve prudent practice, MNB has set an expected minimum level of impairment, which must always exceed the level of impairment projected on the stock data for the first quarter of 2020 multiplied by the average impairment coverage at the end of last year. 
    • In connection with macroeconomic forecasts, the central bank expects banks to apply macro-paths along several scenarios and to use the weights assigned to each scenario, which can be calculated in addition to the MNB macroeconomic forecasts (if duly justified) with their own complex macroeconomic models.
    • The central bank reaffirmed that banks are still expected to apply a strong corporate governance system based on management responsibility.
    • Banks are also expected to ensure transparency in their financial statements when applying assumptions and judgments concerning their models, impairment levels, and estimates of uncovered portfolios, when calculating losses, applying credit risk measures, and reclassifications due to increased risk.
    • The unchanged expectation of MNB is that credit institutions identify their risks in relation to their exposures in a timely, consistent, and comparable manner. In line with this, in the current context of calculation uncertainties, it is good practice for banks to also set a portfolio-level lump sum expected loss value for their portfolio for which their model is likely to underestimate expected losses.

     

    Related Links (in Hungarian)

    Keywords: Europe, Hungary, Banking, Accounting, IFRS 9, Financial Instruments, SICR, Credit Risk, COVID-19, Loan Moratorium, Payment Deferrals, Impairment Calculations, MNB

    Featured Experts
    Related Articles
    News

    HKMA Publishes Hong Kong Taxonomy for Sustainable Finance

    The Hong Kong Monetary Authority (HKMA) published the Hong Kong Taxonomy for Sustainable Finance.

    May 21, 2024 WebPage Regulatory News
    News

    EU Taking Steps to Set Out and Enforce AI Regulations

    Many believe that the transformative power of generative artificial intelligence (GenAI) has potential to reshape the financial sector in the time to come.

    May 21, 2024 WebPage Regulatory News
    News

    ISSB Releases Digital Sustainability Disclosures Taxonomy

    The themes of the harmonization and interoperability of sustainability disclosure standards among various jurisdictions remain at the top-of-mind for international standard-setting bodies.

    May 21, 2024 WebPage Regulatory News
    News

    BCBS Report Studies Implications of Digitalization of Finance

    The Basel Committee on Banking Supervision (BCBS) published a report that examines the implications of the digitalization of finance for banks and supervisors.

    May 21, 2024 WebPage Regulatory News
    News

    BCBS Consults on Guidelines for Counterparty Credit Risk Management

    The Basel Committee on Banking Supervision (BCBS) is seeking comments, until August 28, 2024, on guidelines for counterparty credit risk management of banks.

    May 21, 2024 WebPage Regulatory News
    News

    BIS Paper Outlines Vision for Future Financial System

    In a recent paper, the General Manager of Bank for International Settlements (BIS) and the Indian entrepreneur (Infosys co-founder) Nandan Nilekani have laid out a vision for the Finternet, which is proposed to be a network of multiple financial ecosystems, much like the internet.

    April 29, 2024 WebPage Regulatory News
    News

    NGFS Outlines Options for Supervisory Review of Transition Plans

    The Network for Greening the Financial System (NGFS) recently published three reports on the use of transition plans to boost sustainable finance and manage climate-related financial risks.

    April 29, 2024 WebPage Regulatory News
    News

    BCBS Issues Discussion Paper on Climate Scenario Analysis

    The Basel Committee on Banking Supervision (BCBS) issued a discussion paper on the use of climate scenario analysis to strengthen the management and supervision of climate-related financial risks.

    April 29, 2024 WebPage Regulatory News
    News

    OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.

    April 25, 2024 WebPage Regulatory News
    News

    CFIT to Chair Open Finance Taskforce Announced by UK Government

    The UK government announced the formation of an industry-led Open Finance Taskforce, chaired by the Center for Finance, Innovation, and Technology (CFIT).

    April 25, 2024 WebPage Regulatory News
    RESULTS 1 - 10 OF 8967