16 December 2015. - The MNB has tightened slightly its rules for eligible collateral accepted in its credit operations. As a result of the changes, the importance of fixed coupon, highly liquid government securities will increase compared to other securities. The changes will contribute to the improvement of the Bank’s risk profile; however, adjusted market values of available collateral will decrease only slightly, either at the system or individual bank level. In addition to the current changes, in 2016 the Bank will review the haircuts of mortgage bonds, in order to achieve a further improvement in its risk profile and harmonise its practice with that of the European Central Bank.
Under the provisions of the MNB Act, the Bank may provide credit to its counterparties only on a collateralised basis. In order to avoid under-collateralisation and any potential losses, risk management instruments (e.g. haircuts) are used when collateral is accepted by the Bank in its operations. During the current review, the Bank took into account the recent changes in the securities market and the trends observable in the practice of central banks’ collateral management.
After the review, the Bank continues to prefer using fixed coupon, highly liquid government securities as collateral; however, the preferential treatment of government securities compared to other securities will improve. In order to enhance liquidity in the securities market and provide a stimulus to the market, the Bank has further improved the preferential haircut treatment of securities with available quotations, considering the liquidity of securities.
The above changes are expected to lead to an improvement in the Bank’s risk profile; however, they will not result in a significant decline in the adjusted market values of available collateral, either at the system or individual bank level. The changes will come into effect on 31 March 2016, supporting the preparation of the banking sector.
In addition to the current changes, from early 2017 the Bank plans to introduce an additional haircut to manage the concentration of credit risk imposed by the excessive use of mortgage bonds issued by affiliated entities. The schedule for the introduction and the levels of the haircut will be published in 2016.