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Credit dynamics do not justify systemic intervention

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Budapest, 28 December 2018 The MNB has decided on the countercyclical capital buffer rate applicable from 1 January 2019. The level of cyclical systemic risks is low, therefore increasing the countercyclical capital buffer is still not justified. Nevertheless, besides maintaining the buffer rate at 0 percent, the MNB closely monitors the developments in lending.

The Financial Stability Council of the Magyar Nemzeti Bank (MNB) has decided to keep the countercyclical capital buffer rate applicable to domestic exposures at 0 percent. The Hungarian economy is in the ascending phase of the lending cycle, but overall the net credit outflow cannot be considered excessive in any segment. Comparing domestic lending to that of regional peers, in Hungary there is room for the expansion of sustainable lending and financial deepening. The benchmark credit-to-GDP rate is considerably below its long-term trend, and, in addition, the current level and dynamics of the supplementary indicators relevant for the Hungarian financial system signal low level of cyclical systemic risks, as well. Furthermore, the increase of lending takes place now in a sounder structure compared to pre-crisis period, in terms of the indebtedness of debtors, the encumbrance of collaterals, the denomination of loans and the proportion of loans with variable interest rates as well.

The MNB monitors regularly the cyclical systemic risks of non-European Union (EU) third countries material for the Hungarian banking system, since the financial developments in these economies may affect risks of the Hungarian banking system, as well. In its recent annual review, the MNB left unchanged the list of material third countries for Hungary consisting of Montenegro, Russia, Serbia and Ukraine. Based on the evaluation by the MNB and – for Russia as material country at EU level – by the European Systemic Risk Board, the current level of cyclical systemic risks in all of these countries is low, and therefore the prescription of countercyclical capital buffer for exposures in those countries is not justified.

The purpose of the countercyclical capital buffer is to increase the stability and resilience of the financial intermediary system across credit cycles. The MNB reviews the rate of the countercyclical capital buffer applicable for the Hungarian exposures quarterly, the rates for exposures in material third countries annually. No change is expected in the buffer rate over the forthcoming one-year horizon given the current trends, which may support the sustainable lending activity of credit institutions.

Further information on the countercyclical capital buffer and other information necessary for the functioning thereof

Magyar Nemzeti Bank

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