The studies published in the June issue of the Magyar Nemzeti Bank's scientific journal discuss the expected impact of the introduction of the leverage ratio, the Hungarian retailer and corporate payment habits, the procyclical effects of IFRS 9, the issues regarding ESG investing, the pricing of responsible and sustainable investments and the essay is about Bosnia and Herzegovina’s economic prospects.
In their study, Beáta Kocsis and László Seregdi analyse the reasons why it was necessary to introduce a leverage ratio applicable from June 2021, as a new prudential requirement of the credit institutions. Based on the examination of Hungarian and European data, the authors concluded that the leverage ratio might be a stricter requirement than the capital adequacy ratio, already in use, if banks operate with a low average risk weight. They also explore the links and interactions between the leverage ratio and some of the prudential rules already applied.
The spread of electronic payments is an important issue also from a social point of view that is why Vivien Deák, László Kajdi and István Nemecskó examine the payment habits of Hungarian retailers and corporations in 2019. Based on their results, the use of cash is more typical for retailers. By contrast, corporations’ use of remittances is more frequent. In addition to costs, card acceptance and the cash ratio to revenue are mostly influenced by the ratio of sales revenue and purchase value in the case of retailers and in the case of corporations, by the ratio of cash wage payments. Instant payment and the corresponding obligation for electronic acceptance of merchants using online cash registers from 2021 onwards could bring about a major change in payment habits.
In his paper, Gábor Szigel explores how the introduction of IFRS 9 in 2018 affected the procyclicality of banking behaviour which is regarded harmful. To this end, the author uses a simulation to model how the capital adequacy, profit and loss of the Hungarian banking system would have evolved in the post-2008 crisis years, if IFRS 9 had already been in effect at that time. The results can be characterised as a “half-empty, half-full cup”: although the introduction of IFRS 9 has significantly increased banking procyclicality, its extent is likely to be tolerable and manageable with the macroprudential policy tools.
The Magyar Nemzeti Bank considers the issue of “Green Finance” to be an important issue and therefore, wants to promote it among university students by launching competitions. In our current issue, we publish two studies based on award-winning studies on this topic.
The application of ESG ratings in the field of ESG investments is in the focus of Balázs Stempler’s study. After presenting the advantages and disadvantages of ESG, the author demonstrates through a European example how an investment strategy, based on such ratings, can be developed using the smart beta method. In addition to revealing the positive benefits of such a strategy beyond competitive returns, it is also presented whether such a fund management approach can be applied in the Hungarian market, taking into account the domestic situation of ESG investments.
Barnabás Timár’s study examines whether investing in responsible, sustainable companies can be financially profitable from an investor’s perspective. The author analyses the impact of the ESG score and its environmental component on future returns based on the data of the New York Stock Exchange. Examining different restrictions and industry breakdowns, the study shows that, with the exception of a few special cases, there is neither a positive nor a negative effect of the ESG score on future returns. However, the temporal decomposition partly also refers to that the importance of ESG is increasing nowadays.
In her essay, Laura Kromják, surveys the economic situation and prospects of Bosnia and Herzegovina, touching upon Hungarian relations. The economic policy of the country is determined by the possibility of financing imports of goods and services. The amount of remittances, which is six times higher than direct capital investment, is the largest source of external financing. The country aims to achieve a balanced trade balance, regardless of international financial contributions, from growing export revenues.
In addition to these, the June issue of the Financial and Economic Review includes three book reviews and one conference report.
This publication is available on the website of the Financial and Economic Review:
We wish you a very pleasant reading.
Magyar Nemzeti Bank