Hungary’s central bank unveils new scheme to push lenders into action

By bne IntelliNews November 4, 2015

Hungary’s central bank will extend its cheap loan programme once again, as well as introducing new measures to encourage banks to boost lending to support the slowing economy, it announced on November 3.

The Magyar Nemzeti Bank’s (MNB) Funding for Growth Scheme (FGS), launched in 2013 to help boost the economy, with the battered banks still backing off, was expected to end this year. However, with commercial lenders remaining wary of government policy, the programme will now be gradually phased out in 2016, the central bank said.

Under the extended programme, a total of HUF600bn (€1.9bn) will be allocated next year. The funding will be equally split between local and foreign currency lending, the MNB said in a statement on its website.

The MNB will also launch a new pro-growth programme designed to help local lenders return to market-based lending as it phases out FGS. Banks participating in the Growth Supporting Programme (GSP) will have to undertake to boost their loan stock to small and medium businesses (SMEs) with concrete targets. In return, the MNB may consider lower capital requirements, assume part of the risk on some loans via interest rate swaps, and introduce a preferential deposit facility for qualifying banks.

The MNB said it will provide up to HUF1tn next year in interest-rate swaps. Qualifying banks will also be able to hold excess liquidity in a preferential deposit facility at the benchmark rate. The total amount of the deposit facility is HUF500bn.

“As a result of the above programmes, the stocks of corporate and targeted SME loans are expected to increase by HUF250bn-HUF400bn in 2016, which is equal to an annual growth rate of 5%-10%”, the MNB said.

The measures are a supplement to the government’s efforts to persuade banks to resume lending. Alongside a sharp drop in incoming EU funds, a lack of credit has helped undermine economic growth this year. Hungary is forecast to see growth ease to 3.2% in 2015, from 3.6% last year.

“The aim is to have a lasting turnaround in market-based lending in 2016," MNB Deputy Governor Marton Nagy told a news conference. The official added that the programme is expected to boost GDP growth above the central bank's 2.5% forecast.

The MNB has long criticised lenders for failing to boost lending to the economy since the government signed off on a peace pact early this year. Sevearal central bank officials have insisted that the planned cuts in the bank tax for 2016 and beyond should be linked to increased lending.

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