Budapest, 18 October 2023 – The MNB's macroprudential policy has contributed significantly to the banking system fulfilling its role of funding the economy in a stable manner despite the current uncertain macroeconomic environment. The arising cyclical and structural systemic risks can be managed by the continued development of the prudential framework through the following steps: risk-proportional imposition of capital buffers and funding requirement, lower downpayment requirement of first-time home buyers, the incorporation of financial stability risks caused by climate change into the regulatory framework, and increased monitoring of shadow banking activities.

The MNB has published its 2023 Macroprudential Report, which describes the macroprudential measures of the past year, the adaptation of market participants and the effects of regulatory actions. Highlighted topics include the recent and planned development of macroprudential capital buffers, the support of young first-time home buyers' access to housing by reducing the amount of downpayment required for borrowing, the potential financial systemic risks of climate change, as well as the systemic risks of shadow banking and their management.

The key messages of the 2023 report are the following:

1. Among tight monetary policy conditions aimed at restraining high inflation and the still uncertain macroeconomic situation, the indicators examined during the determination of the countercyclical capital buffer rate (CCyB) indicate the easing of systemic risks related to cyclical and housing market overheatedness in the short run. Therefore, the MNB decided to postpone for one year the activation of the CCyB requirement, which was originally planned for 1 July 2023; therefore, the capital buffer will enter into force from 1 July 2024 at the level of 0.5 percent.

2. Despite high inflation and increased loan interest rates, there is no evidence of excessive indebtedness of borrowers. Although the ratio of housing loans granted with a high income stretch within new loans increased, this is mainly caused by the technical effect resulting from the slowdown in lending, as their volume has decreased and still does not indicate a systemic risk. Along with the decline in housing lending, the average residential real estate collateral encumbrance has also decreased significantly. There is still no significant adaptation to the rules in case of borrowers that are close to the regulatory limits of the borrower-based measures. In view of the high inflation and the related rapid nominal wage increase, in order to maintain the effectiveness of the borrower-based measures, the MNB has raised the income and so-called de minimis thresholds of the regulation.

3. Due to the house price growth in recent years, it has become increasingly difficult for young first-time home buyers to raise the downpayment required to take out a housing loan, while their credit risk might be below average. This can have extensive negative second-round effects. In view of this, the MNB is planning to apply a differentiated, 90 precent loan-to-value (LTV) limit for first-time home buyers in the near future, allowing a lower downpayment requirement for these borrowers.

4. Housing loans with interest rates fixed for a long term that have become prevalent in recent years with the support of the MNB's measures increase financial stability by reducing the volatility of instalments. However, in the current high interest rate environment, borrowers may get stuck in high interest rates for a long time due to the low domestic loan refinancing activity, which is why the MNB recommends mitigating by means of legislation the internationally high costs and administrative burdens related to early repayments and borrowing.

5. The risks associated with commercial real estate (CRE) lending cannot currently be considered excessive, but looking ahead, financial stability risks may build up in the market. As a prevention, , the reactivation of the systemic risk buffer (SyRB), which was suspended for an indefinite period at the outbreak of the coronavirus pandemic, has become justified from 1 July 2024, which strengthen banks’ resilience.

6. The liquidity and funding position of the banking system remains adequate. Banks meet the liquidity coverage ratio (LCR) requirement with safe buffers, and no significant changes are visible compared to recent years. In view of the international bank failures at the beginning of the year, the MNB strengthened the banks' liquidity requirements within its supervisory powers. Banks have stably met the net stable funding requirement (NSFR) over the past year. However, the limited, lagging and partial appearance of the high interest rate environment in the pricing of customer deposits may represent a funding risk in the longer term. The banking system continues to meet the MNB's macroprudential funding requirements with adequate buffers and a favourable funding structure; therefore, banks’ funding position does not limit the maintenance of lending.

7. In order to further develop the mortgage bond market, in the summer of 2022 the MNB decided on several amendments to the Mortgage Funding Adequacy Ratio (MFAR) regulation in order to expand the scope of investors and further strengthen the forint maturity consistency, which, however, due to the current uncertain economic and capital market situation were postponed for an indefinite period of time at the end of 2022. In September 2023, due to the administrative time required for issuances and the decline in mortgage lending, the green requirement pertaining to foreign currency mortgage bond-based funds, which would originally enter into force on 1 October 2023, was also postponed by one year. The MNB will decide on the schedule for the introduction of the planned restrictions depending on the development of capital market conditions.

8. The MNB continues to pay special attention to the evaluation and management of financial stability risks arising from climate change. Green risks and climate protection aspects have also begun to be considered in the domestic macroprudential toolbox, in the first instance through the preferential consideration of green mortgage bonds in the MFAR regulation. Apart from this, from April 2023 green loan purposes have also become available within the Certified Consumer-friendly Housing Loans, the achievement of which is supported by the cost bearing of lenders and potential interest rate discounts as well. There are also more and more international examples of the green application of the borrower-based measures, the domestic possibilities of which are also being investigated by the MNB.

9. In the last decade, the size of the shadow banking system, which is less regulated and poses a potential systemic risk, compared to the credit institution sector, has grown significantly globally. The strengthening regulation of the banking sector and the stronger use of new technology solutions by non-bank institutions have also contributed to this. The presence of risks that can be considered as shadow banking in the domestic financial system is currently limited compared to what is seen in the core EU countries. Due to the scale of shadow banking activities and the low exposure of domestic banks to the risks resulting from them, no material systemic risk can be identified.