MNB to tighten capital buffer requirements for banks from summer 2025

In line with the practice of European countries and the recommendations of international institutions,

the Financial Stability Board decided to increase the level of the countercyclical capital buffer

in view of the still high geopolitical and macroeconomic uncertainty, the central bank said on its website. According to the MNB, the outstanding bank profitability and the strong capital position of banks create an opportunity to impose the capital buffer in a period without credit overhangs, in a so-called positive neutral manner.

The countercyclical capital buffer rate will be increased to 1% from 1 July 2025.

The MNB will maintain unchanged the Countercyclical Capital Buffer (CCyB) rate for domestic exposures at 0.5% from 1 July 2024 and will apply the 1% rate from 1 July 2025.

In the June 2022 rate review, the MNB decided to capitalise the countercyclical capital buffer rate applicable to domestic exposures at the 0.5% level. This was postponed to 1 July 2024, one year later, in the June 2023 rate review, owing to the easing of cyclical systemic and housing market overvaluation risks.

In recent years, a growing number of European countries have moved to a countercyclical capital buffer with a so-called Positive Neutral Rate of CCyB (PNR CCyB). Under this framework,

authorities set a positive rate even in periods without evidence of overcollateralisation, if bank capital and profitability allow.

This buffer provision thus helps to provide a macroprudential counterbalance to unforeseen systemic shocks. Currently, 11 EEA countries apply a positive neutral or similar early-build-up countercyclical capital buffer framework with rates between 0.5% and 2.5%, but most often 1%.

Domestic cyclical systemic risks have remained low over the past year as lending activity has declined. However, the level of geopolitical and macroeconomic uncertainty remains high, highlighting the importance of maintaining strong banking system capital positions and buffering. In addition, to reinforce the MNB's previous steps in this direction, it is necessary to ensure that the current record high bank profitability adequately supports capital accumulation. In this context, and also in light of the recommendations of international institutions on capital buffer building, the MNB has decided to follow the spreading European practice of applying the positive neutrality framework domestically and to renew the strategy and methodology for the countercyclical capital buffer accordingly, the communication reads.

Given the current strong capital position of banks, imposing a higher capital buffer will not impair the lending capacity of institutions. With the capital buffer at 1%, we expect that banks could still have around HUF 1,900 billion of free capital at sector level, the full use of which could allow for up to HUF 24,000 billion of lending. This suggests that in the current situation, banks' resilience to shocks could be strengthened by increasing the capital buffer requirement without negative lending effects.

The MNB's Financial Stability Board sets the applicable CCyB rate on a quarterly basis, taking into account the positive neutral CCyB rate, the evolution of cyclical systemic risks stemming from credit overhangs and any other relevant factors.

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