25 August 2015
The MNB has decided to speed up the implementation of the Liquidity Coverage Requirement (LCR), in order to help enhance the domestic banking sector’s shock-resilience. Under the new MNB Decree, credit institutions will have to fully comply at 100 per cent with the requirement imposed by the European regulation from 1 April 2016. As the requirement becomes effective, the balance sheet coverage ratio and the deposit coverage ratio currently in force will cease to function and will be phased out from 1 January 2016.
Regulation No 575/2013/EU of the European Parliament and the Commission on prudential requirements for credit institutions and investment firms and Commission Delegated Regulation No 2015/61 require credit institutions to comply with the Liquidity Coverage Requirement (LCR). The purpose of the LCR is to ensure that banks have liquid assets of adequate quality and quantity over the short term (30 days) to withstand a liquidity shock. Under EU legislation, the minimum requirement for meeting the LCR will be set at 60 per cent on 1 October 2015 and will be raised gradually to reach 100 per cent on 1 January 2018. However, the national authorities may choose to overcome this schedule and accelerate the implementation of the LCR.
Currently, domestic credit institutions’ short-term liquidity is adequate; however, the MNB judges it appropriate to require banks to accelerate compliance with the LCR, in order to strengthen the banking sector’s shock-absorbing capacity. Taking into account financial stability considerations and the time needed for banks to adjust, the MNB will require 100 per cent compliance with the LCR from 1 April 2016. This entails that Hungary will join EU Member States that have already indicated the accelerated introduction of the LCR (e.g. the United Kingdom and the Netherlands).
In parallel to the implementation of the LCR, the balance sheet coverage ratio and the deposit coverage ratio currently in effect, dealing with the short-term liquidity position of credit institutions, will cease to function and will be phased out from 1 January 2016.
The text of the MNB Decree is expected to be published in the Hungarian Gazette in September 2015.