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
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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