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Phase 2 of the Market-based Lending Scheme to be launched

The objective of the Scheme is to enable the banks to raise their lending commitments

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24 May 2017

In 2016, the banks participating in the Market-based Lending Scheme significantly overfulfilled their commitment to increase lending to SMEs; however, under the MLS developed in autumn 2015, they had no opportunity to raise their lending commitment. To enable the banks to raise their lending commitments, the Monetary Council decided to launch Phase 2 of the Market-based Lending Scheme. In Phase 2 the MNB will continue to make available its risk management and liquidity management instruments for the banks used earlier. In Phase 2 of the MLS banks will have access to the central bank instruments only to a limited degree. The limit amount for conditional interest rate swaps and the preferential deposit facility will be HUF 300 billion and HUF 150 billion, respectively. In order to raise the commitments of individual banks, in Phase 2 of the MLS the banks that undertake to increase lending to an outstanding degree will benefit from the preferential deposit facility to a proportionally higher degree.

In autumn 2015 the Magyar Nemzeti Bank launched the Market-based Lending Scheme (MLS). Under the Scheme in early 2016 banks committed to increasing their outstanding lending to SMEs by nearly HUF 200 billion. The first year of the Scheme was successful, as the participating credit institutions exceeded their commitments by more than 50 per cent in 2016. As a result, the MLS greatly contributed to the fact that last year lending to the entire corporate sector grew, while lending to the SME sector rose sharply, by more than 8 per cent (12 per cent including the self-employed).

In Phase 1 of the MLS banks had no opportunity to raise their lending commitments: they could only reduce the undertaken credit growth. To enable the banks to increase their lending commitments and thereby to ensure that credit growth remains in the upper part of the 5–10 per cent band deemed by the MNB as sound and desirable for economic growth, the Monetary Council decided to launch Phase 2 of the Market-based Lending Scheme.

The purpose of Phase 2 of the MLS is to enable banks to make additional lending commitments, thereby ensuring persistent dynamic growth in outstanding lending to SMEs. In Phase 2 the Bank will expand its lending incentive instruments, and by making the Scheme more targeted, it will provide special support for more dynamic lending activity. Phase 2 is available for banks that are already active in MLS at present as well.

The main instrument of Phase 2 of the MLS, similarly to Phase 1, is the interest rate swaps conditional on lending activity (LIRS) and the preferential deposit facility supporting liquidity management. Phase 2 may be regarded as a seamless continuation of Phase 1; compared to Phase 1, the MNB decided on the following changes in respect of the individual instruments.

  1. In Phase 2 of the MLS interest rate swaps conditional on lending activity (LIRS) will be available for the banks in the amount of not more than HUF 300 billion. The maturity of the instrument, corresponding to that of the LIRS allocated in Phase 1, will be 28 February 2019. In Phase 2 the Bank will hold one tender, where the participating banks undertake, similarly to Phase 1, to increase their outstanding lending to SMEs by 25 per cent of the nominal value of actual transactions.
  2. In Phase 2 of the MLS the stock of preferential deposits may increase by not more than HUF 150 billion. By default, the banks will benefit from the preferential deposit facility in the same manner as in Phase 1; however, in respect of Phase 2, the Monetary Council stipulated that dynamic banks, undertaking a credit growth in excess of their original commitment by at least 100 per cent, may benefit from the preferential deposit facility to a higher degree than the credit institutions making a lower extra commitment.

The MNB will publish the operative details of Phase 2 of MLS in June 2017.