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Level of cyclical risks remains low

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Budapest, 25 June 2020 – The indicators monitored by the MNB do not indicate an overheating in lending. The evaluation of the cyclical position is currently significantly influenced by the coronavirus pandemic and its financial and economic effects. Thus, the maintenance of the countercyclical capital buffer rate of 0 percent in effect following 1 July 2020 is warranted. The development of a lending level justifying the introduction of the capital buffer is likely to be delayed.

The Financial Stability Board (FSB) of the Magyar Nemzeti Bank (MNB) has not changed the 0-percent countercyclical capital buffer rate applicable in case of domestic exposures. The increase of the capital requirement is not justified, either based on the level and dynamics of the benchmark credit-to-GDP gap or on the additionally monitored indicators. Based on available data, lending to the economy, even given the dynamic credit growth observed so far, real estate market processes and the close-to-equilibrium level of corporate credit, was not overheated.

At the beginning of 2020 the coronavirus pandemic created an economic situation that also affects the financial cycle. Due to the expected financial-economic shocks related to the pandemic, the build-up of the countercyclical capital buffer may be delayed beyond what was previously expected.

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 quarterly in case of Hungarian exposures.

The development of cyclical risks in the domestic financial system may be affected by financial developments foreign countries where financial institutions licenced in Hungary have material exposures. Among these, the case of non-EU, so-called third countries should especially be kept in focus, as possibly developing cyclical risks may require certain steps from the MNB with regard to domestic institutions due to the missing EU legal framework in these countries. Accordingly, the MNB monitors the developments in lending in material third countries for the Hungarian banking system and, if necessary, prescribes a countercyclical capital buffer rate for the exposures of domestic credit institutions in those countries. The MNB reviewed the list of third countries that are material for the domestic banking system containing Albania, Montenegro, Russia, Serbia and Ukraine and left it unchanged. In relation to the countercyclical capital buffer rates that may be required in relation to exposures to these countries, the MNB will make its decision by the end of this year.

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

Magyar Nemzeti Bank

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