The MNB has undertaken an important role in the conversion of foreign currency and foreign currency-denominated household mortgage loans into forints by providing the necessary amount of foreign currency to banks. The Bank’s main aim under the conversion programme is to make available the required amount of foreign currency for the financial intermediary system in a way which facilitates the smooth, simultaneous and fast conversion of loans. This has required significant preparatory work.
As a first step, on 4 November 2014 the Monetary Council made a decision that the MNB should make available for the banking sector a maximum amount of EUR 9 billion necessary for the conversion of foreign currency household loans into forints. As a second step, on 7 November the MNB proposed for every counterparty involved to enter into a formal agreement, under which the Bank has undertaken to provide to credit institutions belonging to the range of its counterparties the whole amount of foreign currency required for hedging against foreign exchange risk related to forint conversion. In turn, the credit institutions entering into individual agreements with the MNB have undertaken to purchase the amount necessary for conversion from the MNB instead of the foreign exchange market. The agreement has already been signed by all banks with significant foreign currency and foreign currency-denominated household mortgage loans. Finally, also on 7 November György Matolcsy, Governor of the Magyar Nemzeti Bank, and Mihály Patai, President of the Hungarian Banking Association, signed the agreement which sets out in detail the most important business conditions of the transactions related to forint conversion.
Under both the individual agreements with banks and the arrangement between the MNB and Banking Association, the MNB will hold its first foreign currency liquidity-providing tender at 10:00 am on 10 November 2014. The Bank will provide to banks having signed individual agreements the amount of foreign currency required to satisfy their hedging needs arising from the conversion of foreign currency and foreign currency-denominated household loans into forints. The necessary foreign currency will be provided in euros, at the MNB’s latest official exchange rate available at the time of the tender. The Bank’s foreign currency liquidity-providing scheme has been specifically designed to ensure that it provides sufficient cover for banks’ needs and that it does not jeopardise the MNB’s reserve adequacy even if the amounts envisaged are fully allotted. A guarantee for the latter is that (i) the amount of foreign currency made available by the Bank will reduce short-term external debt and consequently the MNB’s foreign exchange reserve needs, and (ii) foreign exchange reserves will be used to satisfy banks’ needs for foreign currency arising from forint conversion gradually, by spreading out the amount adequately over the next three years.
The MNB has been prepared for the phasing-out of household foreign currency loans. The actions taken will enable the fast and orderly conversion of foreign currency and foreign currency-denominated household loans.
MAGYAR NEMZETI BANK