Budapest, 15 December 2015 – In order to manage the banking system's economic and financial cycle strengthening nature, as of next year the Magyar Nemzeti Bank introduces the countercyclical capital buffer. At present no excessive credit growth may be observed in the Hungarian banking system, thus the central bank has set the countercyclical capital buffer rate to 0 per cent from 1 January 2016, which supports the increase in lending. In the future the additional capital requirement prescribed in periods of excessive lending will mitigate excessive credit outflow, while in crisis periods the release of the formerly accumulated capital buffers will support lending, and thereby the recovery of the economy.
In the post-crisis financial regulation the instrument known as the countercyclical capital buffer has become one of the most important tools of mitigating the cyclical systemic risks. This new instrument, on the one hand, directly increases the banking system's shock absorption capacity, and on the other hand it also mitigates the financial cycle swings. That is, the additional capital requirement accumulated in the ascending phase of the credit cycle may curb excessive credit outflow, while in crisis periods the release of the formerly accumulated capital buffers will help lending, and thereby the recovery of the economy. Thus the purpose of the countercyclical capital buffer is to increase the stability and resilience of the financial intermediary system across lending cycles, and ultimately to ensure the financial system's sustainable contribution to economic growth.
The application of the countercyclical capital buffer was rendered possible by the adoption of the EU regulation (CRD IV/CRR) and the integration thereof in the national legislation in 2013. Based on the regulation, the capital buffer rate is defined by the Magyar Nemzeti Bank (hereinafter: MNB) in its capacity as macroprudential authority. The central bank sets the countercyclical capital buffer rate quarterly in a decree, which is determined after giving due consideration to several cyclical and vulnerability indicators. The rate of the countercyclical capital buffer may be between 0 and 2.5 per cent of the total risk weighted assets, but in justified cases the rate may also exceeding the upper bound. The capital buffer must be accumulated from the capital components of the highest quality (CET1). The countercyclical capital buffer must be accumulated by credit institutions and investment firms, but the MNB has exempted the small- and medium-sized investment firms, not jeopardising the stability of the financial system in terms of the cyclical systemic risks, from the requirement.
At present no excessive credit growth may be observed in the domestic banking system, thus the MNB has set the countercyclical capital buffer rate to 0 per cent from 1 January 2016. On the whole, based on the indicators used upon determining the countercyclical capital buffer rate the degree of the cyclical systemic risks may be deemed low. No change may be expected in the rate on the time horizon of the next 1 year, thereby supporting the increase in the banks' lending activity.