3 July 2018
The MNB in the course of its regular revision in June 2018 – considering the portfolio cleaning performed – reviewed the capital buffer rates required since last year to be maintained by two banks with a persistently high stock of problem project loan exposures. Based on problem stock of the first quarter of 2018, from 1 July of this year, the MNB requires CIB Bank Zrt. to maintain a decreased capital buffer of 1 percent, while Raiffeisen Bank Zrt. – having cleaned the targeted exposures to an appropriate degree – is not obliged anymore to maintain a capital buffer.
The persistently high stock, ratio and concentration of problem project loan exposures resulting from excessive lending in the commercial real estate financing market during the period prior to the 2008 crisis, posed high financial stability risks. To manage those risks, the Magyar Nemzeti Bank (MNB) decided to introduce the systemic risk buffer (SyRB) in autumn 2014, and decided on the details of its application in November 2015.
Considering the stocks of problem exposures, the central bank first prescribed a systemic risk buffer from 1 July 2017 in the case of CIB Bank Zrt. and Raiffeisen Bank Zrt.. In June 2018, the MNB reviewed the buffer rates determined in 2017 in accordance with the general decision constituting the basis for use of the systemic risk buffer.
Following the determination of the systemic risk buffer, banks conducted a significant clean-up of their balance sheets, and this tendency continued after the imposition of capital requirements on 1 July 2017. The stock of problem exposures of 241 HUF billion on 31 March 2017 decreased by 114 HUF billion to 127 HUF billion until the reference date of the current review at the end of the first quarter of 2018. This indicates that the instrument has maintained the incentive for further portfolio cleaning, and therefore the targeted systemic risk has decreased considerably in the course of the last year.
Despite the significant portfolio cleaning carried out during the reference period, the volume of adjustment still justifies the prescription of a capital buffer for CIB Bank Zrt.. Thus, the MNB obliges the bank to set up and maintain a systemic risk buffer of 1 percent of the domestic risk-weighted exposure from 1 July 2018, which is lower than the 2-percent capital buffer required earlier. Due to the portfolio cleaning during the course of the last year, the capital buffer requirement of Raiffeisen Bank Zrt. is reduced from the previous 1.5 percent to 0 percent.
The MNB will review the buffers imposed annually. Until balance sheets are cleaned up adequately, the systemic risk buffers created will ensure an adequate shock absorbing capacity against any remaining systemic risk related to problem exposures.
Magyar Nemzeti Bank