MNB manages the systemic risks related to foreign currency project loans in a preventive manner

Budapest, 16 December 2019 – The MNB has revised the systemic risk buffer rates managing the risks associated with problem and foreign currency denominated project loans of credit institutions. Based on the outstanding amounts at the end of the third quarter of 2019, the MNB does not require any bank to hold a systemic risk buffer from 1 January 2020. The macroprudential instrument continues to disincentivize the emergence of risks from unhealthy project lending in a preventive manner.

According to the decision of the MNB's Financial Stability Council, based on data of 30 September 2019, the central bank does not require any credit institution to maintain a systemic risk buffer (SyRB) after 1 January 2020.

Along favourable commercial real estate market developments and with the support of the systemic risk buffer, the outstanding stock of problem project exposures and the related systemic risk has decreased to a low level. However, with the development in real estate markets since 2016, project lending in the commercial real estate market has been growing dynamically, in an institutionally and geographically concentrated manner, primarily in foreign currency. Foreign currency project loans carry a high risk of becoming problem exposures, especially in cases when firms renting commercial real estate and paying their rents in foreign currency do not have natural foreign currency coverage, and thus the borrowers are indirectly exposed to exchange rate risk.

In view of this, in the autumn of 2019, the MNB amended its general decision on the conditions of application of the systemic risk buffer with a preventive purpose. While calculating the capital requirement effective from 1 January 2020, the MNB, in addition to problem project loans and on-balance sheet held-for-sale real estate also takes into account non-problem foreign currency project loans in order to prevent the re-emergence of systemic risks related to the unhealthy structure of commercial real estate project financing. Following the modification, banks whose targeted exposures exceed HUF 20 billion may be obliged to maintain the systemic risk buffer.

The next annual review of the MNB's current decision will take place in the fourth quarter of 2020 based on data of 30 September 2020.

Magyar Nemzeti Bank