Economy
Moody’s says new facilities of Hungarian c.bank are credit-positive
“These initiatives are credit positive as they aim to improve banks’ maturity and currency mismatches," Moody’s Senior Analyst and Vice President Simone Zampa said in a note today.
On 15 February, Hungary’s central bank announced its intention to introduce a two-year collateralised credit facility, expand the range of eligible securities for repos, and propose a universal forint-denominated mortgage bond purchase scheme in order to ease bank liquidity pressures and reduce the risk of a credit crunch.
Zampa noted that the NBH’s announcement is a “response to Hungarian banks’ impaired capacity to lend, which is a result of a number of factors." Among these he mentioned
“Although Hungary’s banks have withstood earlier challenges thanks to the liquidity and capital support of their Western European parents, which hold more than 80% of the total capital in the system, the current euro area crisis is jeopardising that willingness and capacity to provide support," Zampa said.
He reminded that a more significant withdrawal of funding between September and December 2011 has caused a decline in loan volumes by the local banks by 6% in retail loans and by 2% in corporate loans.
The NBH’s two-year collateralised loan provides banks access to financing at maturities that are limited in availability in the markets, the analyst noted.
“With a goal of trying to alleviate banks illiquidity, the NBH will also expand the range of eligible repo collateral to bank and corporate bonds rated at minimum Ba1, which corresponds to the rating currently assigned to the Hungarian government."
The central bank is also proposing a universal purchase scheme for forint-denominated covered bonds, and wants to extend to all Hungarian banks the ability to issue mortgage bonds.
Noting that currently, only three Hungarian mortgage banks can issue mortgage bonds, Zampa said that with this measure the NBH aims to “improve banks’ access to longer-term funding for forint mortgage lending via purchases of covered bonds in the primary market."
The NBH expects to introduce the two-year collateralised lending facility and expand the range of eligible repo collateral in March.
“The mortgage bond purchase programme requires approval from the Hungarian Parliament. NBH’s goal is to launch the program a month after lawmakers pass the required amendments allowing all banks to issue mortgage bonds," Zampa concluded.
On 15 February, Hungary’s central bank announced its intention to introduce a two-year collateralised credit facility, expand the range of eligible securities for repos, and propose a universal forint-denominated mortgage bond purchase scheme in order to ease bank liquidity pressures and reduce the risk of a credit crunch.
Zampa noted that the NBH’s announcement is a “response to Hungarian banks’ impaired capacity to lend, which is a result of a number of factors." Among these he mentioned
- growing liquidity strains and weakening capital cushions, exacerbated by
- early repayments of foreign currency (FX) mortgages at unfavourable economic terms as part of a government-imposed scheme; and
- deteriorating loan quality, with nonperforming loans growing to about 16% in 2011, from 13% in 2010.
“Although Hungary’s banks have withstood earlier challenges thanks to the liquidity and capital support of their Western European parents, which hold more than 80% of the total capital in the system, the current euro area crisis is jeopardising that willingness and capacity to provide support," Zampa said.
He reminded that a more significant withdrawal of funding between September and December 2011 has caused a decline in loan volumes by the local banks by 6% in retail loans and by 2% in corporate loans.
The NBH’s two-year collateralised loan provides banks access to financing at maturities that are limited in availability in the markets, the analyst noted.
“With a goal of trying to alleviate banks illiquidity, the NBH will also expand the range of eligible repo collateral to bank and corporate bonds rated at minimum Ba1, which corresponds to the rating currently assigned to the Hungarian government."
The central bank is also proposing a universal purchase scheme for forint-denominated covered bonds, and wants to extend to all Hungarian banks the ability to issue mortgage bonds.
Noting that currently, only three Hungarian mortgage banks can issue mortgage bonds, Zampa said that with this measure the NBH aims to “improve banks’ access to longer-term funding for forint mortgage lending via purchases of covered bonds in the primary market."
The NBH expects to introduce the two-year collateralised lending facility and expand the range of eligible repo collateral in March.
“The mortgage bond purchase programme requires approval from the Hungarian Parliament. NBH’s goal is to launch the program a month after lawmakers pass the required amendments allowing all banks to issue mortgage bonds," Zampa concluded.
