Budapest, 13 June 2022 - The central bank revised its regulation on the mortgage funding adequacy ratio (MFAR). The amendment allows foreign currency mortgage-backed liabilities to be included in the indicator from 1 July 2022, subject to certain conditions. The change will support the broadening of the range of mortgage bond investors and, through this, banks' access to long-term stable financing. In addition, the previously announced tightening in support of financial stability goals will enter into force on 1 October 2023, postponed by 1 year, to ensure time to prepare in the uncertain macroeconomic and financial environment.
The MNB revised the MFAR regulation aimed at the stable financing of retail mortgage loans also in the light of feedback from market participants, with the aim of deepening the mortgage bond market and strengthening the long-term funding of banks.
Pursuant to the amendment, from 1 July 2022, in addition to Hungarian forint mortgage-based funds, mortgage bonds and refinancing loans denominated in other foreign currencies will also be eligible for the calculation of the MFAR. The eligibility of foreign currency mortgage-backed funds will support the broadening of the range of mortgage bond investors by giving foreign investors a more active role. The market for mortgage bonds can thus expand, giving banks access to this long-term stable financing with benefits for financial stability in greater quantities and at more favourable prices. To further encourage banks to raise green funds, but to allow sufficient time for adaptation and the build-up of an adequate stock of green mortgage collateral, eligible foreign currency mortgage-backed funds must also meet sustainability (green) requirements after 30 September 2023.
In addition to the positive effects of the emergence of foreign currency mortgage bonds, financial stability risks will not increase significantly due to regulatory safeguards on these securities. The amendment will not lead to the resumption of retail foreign currency lending, as this is constrained by the generally low consumer demand due to previous negative experiences, the much stricter borrowing limits for these loans in the MNB's borrower-based measures and the proliferation of HUF-denominated Certified Consumer-friendly Housing Loans (CCHL) also.
With the acceptance of foreign currency mortgage-backed funds in the MFAR, other amendments have become warranted to maintain regulatory consistency; thus, the MFAR’s denominator will be extended to the currently negligible amount of foreign currency retail mortgage loans and it will be possible to take into account to a limited extent funds covered by corporate loans secured by commercial real estate in the numerator of the MFAR given the higher share of foreign currency denomination of such loans.
In addition, due to feedback from market participants, the uncertain effects of the pandemic and the war on the financial system, as well as current capital market trends and the longer preparation time for foreign currency issuances, the planned MFAR tightening (increase of the required minimum level from 25% to 30%, stock exchange listing requirement, cross-ownership limitations) will be postponed by 1 year, so these amendments will take effect on October 1, 2023. Furthermore, in the future, the regulation will apply to institutions with a net retail mortgage loan portfolio with a residual maturity of over one year of at least HUF 40 billion (instead of the current HUF 10 billion threshold), in view of the dynamically rising house prices and mortgage loan portfolios in order to reduce the burden on small institutions contributing negligibly to systemic risks.
The text of the MNB decree was published in the Hungarian Gazette.
More information on the central bank's liquidity and funding risk macroprudential instruments can be found here.
Hungarian National Bank