The Financial Stability Council on the stress tests and the asset quality review of Hungarian credit institutions

Budapest, 18 November 2013 – Misunderstandings have appeared recently in the press about the participation of the Magyar Nemzeti Bank (MNB) in the European asset quality reviews and stress tests performed at the recommendation of the European Banking Authority (EBA) as well as about the approach of the MNB to using the common methodology.

In 2014, the European Central Bank (ECB) conducts a three-pillar Comprehensive Assessment of euro-area banks. The exercise will comprise of i) a supervisory risk assessment addressing key risks in banks; ii) an asset quality review of the asset side of bank balance sheets; and iii) a stress test examining the shock-absorption capacity of banks under stress. The aim of the latter is to test the consequences of a series of low probability, severely adverse but not impossible events on the solvency position of banks. The non-euro area countries will carry out the same assessment programme for large banks according to a timetable agreed with the ECB and in collaboration with the EBA.

The MNB will also participate in the Comprehensive Assessment coordinated by the EBA. Based on the principles, recommendations and methodology drawn up jointly by the ECB and EBA, a comprehensive review on the end-2013 data for a banking group belonging to the 50 largest banks of the EU and subject to domestic supervision, will be conducted. In terms of the risk assessment and asset quality review, the MNB will closely follow the guidelines set out by the EBA. In the case of restructured and non-performing exposures, the MNB will apply the common definitions developed by the EBA, in compliance with the implementation deadlines.

Furthermore it should be noted that the MNB also conducts its own stress tests regularly of the entire domestic banking sector. The results of these tests are published semi-annually in the Report on Financial Stability. The MNB applies two different approaches to perform its stress tests: both a bottom-up method, starting from individual bank level; and a top-down method, deriving from system level financial data.

The criteria of the stress tests conducted by the MNB are stricter than those applied by the ECB-EBA. This is explained by the fact that the MNB takes a more cautious approach and takes into account country-specific factors (e.g. FX loans). Finally, the MNB also performs liquidity stress tests, with the objective of assessing the impact of liquidity shocks on the position of the banking sector.

Vissza a tetejére

The primary objective of the MNB shall be to achieve and maintain price stability. (...) Without prejudice to its primary objective, the MNB shall support the maintenance of the stability of the system of financial intermediation, the enhancement of its resilience, its sustainable contribution to economic growth; furthermore, the MNB shall support the government’s economic policy and its policy related to environmental sustainability, using instruments at its disposal.