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Magyar Nemzeti Bank prepares for purchases of green mortgage bonds

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In order to promote long-term sustainability and consistent with the principles of the Bank’s Green Programme disclosed in February 2019, the Monetary Council has decided that the MNB will further develop its mortgage bond purchase programme and in the future it will purchase mortgage bonds qualifying for green bond status. The Magyar Nemzeti Bank will consult the market participants involved on the green qualification criteria for inclusion in the programme and on the details of green mortgage bond purchases, to ensure that green bonds are issued as soon as possible. The MNB will cease to purchase securities under its mortgage bond purchase scheme on the primary market and will withdraw the opportunity to roll over mortgage bonds until the programme for purchases of green mortgage bonds is drawn up. However, the Bank will continue its purchases in the secondary market to maintain the liquidity of the mortgage bond market.

In May 2020, the Magyar Nemzeti Bank relaunched its mortgage bond purchase programme, introduced in 2018, to increase the banking sector’s access to long-term, stable funding. The programme has been successful in supporting the objectives set and, as a result, the amount of mortgage bonds issued in the domestic market has increased significantly. During the period from May 2020, mortgage bonds meeting the eligibility criteria for inclusion in the programme were issued to the tune of nearly HUF 250 billion, significantly exceeding the total amount of fixed-rate bonds issued between the end of the purchase programme in 2018 and the relaunch of purchases in May 2020, thereby providing long-term, stable forint funding to the banking sector. The programme contributed significantly to managing economic and financial risks arising in connection with the coronavirus pandemic and to increasing the effectiveness of monetary policy transmission.

In addition to the mortgage bond purchase programme, the MNB’s monetary policy instruments have been extended with other schemes to provide long-term funding, primarily long-term credit facilities, which facilitate access for the banking sector to long-term, stable funding looking ahead. The extended set of the Bank’s policy instruments and the resulting changes in the market environment make it possible to further improve the mortgage bond purchase programme and to make it more targeted.

It is a key priority for the MNB to integrate long-term sustainability considerations as it has become an increasingly important issue among central banks. Therefore, the Bank has been one of the first central banks in the world to adopt the approach. For this reason, the Monetary Council has decided that in the future the MNB will purchase green bonds as part of its mortgage bond purchase scheme. Green bonds eligible for purchase must contribute to environmental sustainability and must promote financing aimed at improving energy efficiency. Supporting the market of green mortgage bonds is an integral part of the objectives set out in the MNB’s Green Programme and fosters the development of the domestic green financial market, thereby contributing to long-term sustainability, efforts to combat climate change, and to broadening the base of conscious investment decisions.

The MNB will undertake consultations with the Hungarian Banking Association and mortgage banks on the operative details of green mortgage bond purchases and in particular on the qualification criteria for green bond status being a requirement for participation in the programme, in order to ensure that green bonds are issued as soon as possible.

From 16 November 2020, the MNB will cease to purchase bonds under its mortgage bond purchase scheme on the primary market and will withdraw the opportunity to roll over mortgage bonds until the programme for purchases of green mortgage bonds is drawn up. However, the MNB will remain active in the market and will continue with its purchases in the secondary market during the transitional period to maintain the liquidity of the mortgage bond market, and will be ready to raise the amount of liquidity available for allocation under its long-term lending facility to support the banking sector’s access to long-term, stable funding.

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