Budapest, 21 December 2020 Based on the indicators examined by the MNB, the level of cyclical systemic risks is low, especially in view of the coronavirus pandemic and its negative financial and economic effects. Therefore, the MNB's Financial Stability Board will keep the countercyclical capital buffer rate at 0 percent from 1 January 2021.

The Financial Stability Board (FSB) of the Magyar Nemzeti Bank (MNB) has left the 0-percent countercyclical capital buffer rate applicable in case of domestic exposures unchanged. The main indicator on which the decision is based, i.e. the credit-to-GDP gap is showing an accelerated closure; however, this cannot be considered as a sign of overheating. Instead, the evolution of the indicator could be explained by the continued but slower growth of credit, the decline in nominal GDP due to the pandemic, and the decline in the estimated trend of credit-to-GDP. The set of overheating and vulnerability indicators in the MNB's cyclical systemic risk map, which cover other relevant information, indicated a slightly increasing but still low level of cyclical systemic risk, despite the persistence of lending activity and the economic shock stemming from the coronavirus pandemic.

Therefore, the increase of the capital requirement is not justified, and no process indicating the need for intervention can be observed. Based on the data available, lending to the economy is not overheated, and the growth of the credit stock is supported by the payment moratorium, as well as the credit incentives of the government and the central bank.

The spread of the global coronavirus pandemic, which became global by March 2020, and its first wave had severely negative economic and financial consequences. The emerging economic shock resulted in a significant contraction of GDP in the second quarter of 2020 also in Hungary, and even with the payment moratorium introduced by the Government, it still had a significant dampening effect on the growth of bank credit. The so far experienced and the uncertain future effects of the pandemic significantly affect the state and evolution of both the business and financial cycles. This also influences the indicators underlying decisions related to the countercyclical capital buffer, and the decisions related to the buffer rate setting.

The MNB regularly monitors and evaluates the cyclical systemic risks of third countries outside the European Union (EU). On the one hand, the financial processes of these countries may also have an impact on the development of the risks of the Hungarian banking system, and on the other hand, the authorities of these countries operate in a different legal and prudential framework from those of the EU Member States.

During the 2020 review, the MNB did not change the list of material third countries (Albania, Montenegro, Russia, Serbia and Ukraine) for the domestic banking system. Based on the evaluation by the MNB – and by the European Systemic Risk Board for Russia as a material country at the EU level –, the current level of cyclical systemic risks in these countries is low. Like the domestic situation, the pandemic affects the business and financial cycles of these countries in such a way that the need to determine an effective capital requirement in these markets is also expected to be postponed. It is therefore still not justified to require a countercyclical capital buffer for domestic banks for exposures to counterparties in third countries outside the EU.

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.

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

Magyar Nemzeti Bank