MNB brings its regulation on stable FX financing closer to international standards

29 June 2018

By reviewing the FFAR in effect since 2012, the MNB will bring the regulation closer to the prospective EU funding requirements expected to be introduced after 2021. The amendment, taking effect from 1 July 2018, will help banks prepare for the imposition of future Union level requirements. The modified FFAR regulation continues to exist as a tool preventing the build-up of systemic risks related to foreign currency funding, and, together with other elements of the MNB’s macroprudential toolset, it will ensure that funding risks are kept at a low level. The amendment that has been consulted with banks and the European Central Bank does not require considerable adjustment by market participants.

Since its introduction in 2012, the Foreign Exchange Funding Adequacy Ratio (FFAR) regulation has been successful in helping credit institutions to better match the maturity of their foreign currency assets and liabilities and has contributed materially to the decrease of systemic risks related to funding.

The current review of the Hungarian regulation has been justified by the changed balance sheet structures and funding business models following the conversion of household foreign currency loans, as well as by the need to further align it with the EU-level future Net Stable Funding Ratio (NSFR).

The Magyar Nemzeti Bank (MNB) has consulted with the domestic banking sector and the European Central Bank on the reform of the regulation since the spring of 2018. As a result of the negotiations, the MNB’s Financial Stability Board adopted the decree modifying the FFAR in June 2018.

The amended regulation will not impose considerable adjustment need either on individual institutions or on the banking sector as a whole. However, the FFAR regulation, in combination with the MNB’s other liquidity and funding requirements, will support stable funding at a systemic level and will contribute to keeping external vulnerability at its current low level.

The text of the MNB Decree has been published in the Hungarian Gazette.

Magyar Nemzeti Bank