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Tenders, quick tenders

Tenders

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Central bank tenders and quick tenders are one of the allocation mechanisms for central bank instruments. The MNB can apply both deposit and loan tenders (including fixed rate, variable rate and free tenders) on the basis of the Terms and conditions for money market operations.
The MNB constantly monitors, assesses and, if necessary, introduces reforms to its monetary policy instruments. In October 2008 and April 2012, the Bank announced several instruments it had previously not used to support the Hungarian banking sector’s forint and foreign currency liquidity and strengthen banks’ lending capacity. In April 2014, the Bank reformed its instruments, closely related to its self-financing programme: in addition to the modification of the key policy instrument, an interest rate swap facility was introduced and the set of potential monetary policy instruments was expanded. Within the framework of the self-financing programme, further changes to central bank instruments will take place in 2015 and 2016. With the introduction of the Market-Based Lending Scheme (MLS), the MNB’s instruments will be supplemented with new elements.

Instruments designed to support the banking sector’s forint liquidity

On 21 October 2008, the Magyar Nemzeti Bank announced two forint lending facilities: a two-week, fixed rate (central bank base rate plus 0.50%) collateralised loan without a quantity limit, and a six-month, variable rate collateralised loan with pre-announced quantities. From September 25, the two-week loan was replaced by the one-wee, the six-month loan by the three-month collateralised loan tender. The Bank announces both loan tenders once a week, from December 7 due to the discontinuation of the three-month loan tender only the one-week loan facility is available for credit institutions.

From 3 April 2012 until withdrawal, the Magyar Nemzeti Bank introduced a two-year, variable rate loan tender with interest indexed to the central bank base rate, in order to strengthen banks’ capacity to lend. Counterparties had the right to prepay the loan after one year. Credit institutions eligible to participate in the tender must undertake that during the term of the loan the stock of their gross lending to the corporate sector, adjusted for write-offs and problem loans sold, will not fall below its level as at the end of June 2012. The MNB suspended the loan tenders in April 2013.

On 4 October 2016, the MNB announced a fine-tuning one-week deposit instrument and an FX swap instrument providing forint liquidity with one-week, one-month and three-month maturities related to the quantitative restriction on the three-month deposit instrument. The fine-tuning tenders may be held on an ad hoc basis, depending on liquidity developments.

Actions to ease foreign currency liquidity tensions

Under the 16 October 2008 cooperation agreement between the Magyar Nemzeti Bank and the European Central Bank, from 16 October 2008 until withdrawal the MNB introduced a new standing overnight FX swap facility providing euro liquidity. Under the facility, counterparties are able to purchase euro against forint from the MNB at a pre-determined price, conducting FX swap transactions on business days.

From 9 March 2009 until withdrawal, the MNB announced new euro liquidity-providing three-month variable rate EUR/HUF FX swap tenders, which were discontinued from 11 November 2016. Since 2011 at the end of each year, the MNB has held variable rate one-week and two-week EUR/HUF FX swap tenders providing euro liquidity, in order to ease temporary liquidity tensions. In 2011–2012, the MNB conducted euro sale auctions related to early repayments, on the one hand, and the conversion of foreign currency loans in arrears by more than 90 days, on the other. The aim of the tenders was to defend the exchange rate of the forint and reduce credit institutions’ risks. Between 13 October 2014 and January 2015, the MNB conducted euro sale tenders and between 24 August 2015 and 21 September 2015 it held Swiss franc sale tenders related to the phasing out of consumer loans as well.

New instruments developed in connection with the Self-financing Programme

At its meeting on 23 April 2014, the Monetary Council of the MNB adopted a self-financing programme, aimed at increasing the role of domestic sources in financing government debt and reducing the country’s reliance on foreign financing, thereby enhancing financial stability. As part of this programme, the Bank’s instruments have been reformed several times. From 1 August 2014, the two-week MNB bill was transformed into a two-week time deposit. As of 16 June 2014, the MNB announced its interest swap instrument, on the one hand, and added a three-year collateralised forint loan facility and an asset swap facility to its potential central bank instruments, on the other. In view of the Monetary Council’s decision of 7 July 2015, the interest swap facility was announced for credit institutions with a 10-year maturity, in addition to the 3 and 5-year tenors. The last IRS tender took place on 7 July 2016. From 23 September 2015, the two-week deposit instrument was replaced by the three-month deposit as the key policy instrument. In order to support the liquidity management of the banking sector, the two-week deposit instrument remained temporarily available for credit institutions in the form of variable rate tenders with limited quantity until the end of April 2016. From the end of July 2016, the three-month deposit instrument is offered for credit institutions with monthly frequency, and, from the tender held on 26 October 2016, with a quantitative restriction in order to support credit institutions’ participation in the securities markets. In connection with the quantitative restriction on the deposit instrument, on 4 October 2016 the MNB introduced a fine-tuning deposit and an FX swap instrument to facilitate banks’ adjustment.

New instruments to be introduced under the Market-Based Lending Scheme (MLS)

Following the decision by the Magyar Nemzeti Bank’s Monetary Council on 3 November 2015, from January 2016 the Bank will launch its Market-Based Lending Scheme (MLS) in order to reduce credit risks and stimulate economic growth through lending to SMEs, thereby helping banks switch to market-based lending. As part of the programme, the MNB is introducing a lending interest rate swap facility conditional on lending activity (LIRS) and a preferential deposit facility. The LIRS, announced with a three-year maturity, is expected to encourage lending through managing the risks associated with SME loans and the partial assumption of such risks by the MNB. The preferential deposit facility is an instrument helping credit institutions manage their liquidity, which will contribute to an increase in counterparty banks’ lending activity.