The Financial Stability Board of the Hungarian National Bank (MNB) decided to maintain the countercyclical capital buffer rate (CCyB) at 0.5% from October 01, 2023 and launched a research project, within the framework of its Green Program, to develop supervisory methodology for assessing financial risks resulting from the decline of biodiversity. MNB also announced that new green reporting requirements will be added to the collateral management system of MNB.
With respect to the assessment of biodiversity risks, MNB launched a two-year cooperation project with the European Commission Directorate-General for Structural Reform Support (DG REFORM), which the European Union finances. Under this project, a supervisory framework for the assessment of financial risks related to biodiversity is being developed, including the transmission channels of physical and transition risks, which will contribute to increased awareness of MNB and banks operating in Hungary, assessment of the exposure, effects, and vulnerability points related to these risks, and the implementation of possible ways to manage these assessed risks. As part of another related development, which follows the adoption of the green toolkit strategy in July 2021, MNB announced that it will continue to supplement its collateral management practice with green elements to develop the domestic green securities market and consolidate best practices. To strengthen green aspects, develop the domestic green securities market, and consolidate best practices, MNB decided in September 2022 on additional measures to support increased transparency. Pursuant to the decisions, in the case of green securities, a preferential haircut can be applied in the future if the following transparency conditions are met:
- Publication of the annual allocation report on the issuer's website.
- Publishing an impact report on the issuer's website: (a) In the case of bonds financing individual projects and investments, a minimum of 2 reports must be published. The first report is to be published before the implementation of the project or investment, the second report after the implementation of the investment, already taking into account specific data. (b) In the case of portfolio-based financing that issues several green bonds and finances several projects, annual impact reports are required.
- In the case of mortgage bonds, MNB introduces an additional transparency requirement in addition to the normal green bond regulations. Mortgage bonds represent the second largest weight in the Hungarian securities market after government securities. The condition for the application of the preferential haircut, in addition to the allocation and impact reports, is that in the case of the issuer's green mortgage bond, publish a transparency report on its website from the fourth quarter, in which the climate risk aspects of the mortgage bond program are presented.
MNB considers increasing transparency important not only in the case of green securities, but also in relation to non-green securities markets. For as many non-green issuers as possible to take climate risk aspects into account in their operations and publish a climate risk report on their operations, MNB will also accept non-green securities whose issuers have published a climate risk report on a preferential haircut from October. The purpose of the new regulations is to increase the transparency of green financing forms, thereby helping the development of domestic reporting standards.
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Keywords: Europe, Hungary, Banking, CCyB, Regulatory Capital, Basel, Climate Change Risk, ESG, Sustainable Finance, Collateral Management, Biodiversity Loss, MNB
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