MNB supports lending activity of banking system by releasing capital buffer requirements for systemically important banks

1 April 2020

MNB supports lending activity of banking system by releasing capital buffer requirements for systemically important banks

Taking into account the exceptional circumstances caused by the coronavirus pandemic, the MNB has decided to release capital buffer requirements set for domestic systemically important banks from 1 July 2020. The excess capital freed up as a result will support the banking sector’s lending activity and its contribution to economic growth. To ensure a proportionate and gradual regulatory treatment, the institutions affected must gradually in three years from 2022 onwards rebuild their capital buffer initially prescribed for 2020. By releasing capital buffer requirements, domestic systemically important credit institutions will have up to HUF 4,500 billion additional capacity available for lending.

The Magyar Nemzeti Bank has been identifying the set of domestic systemically important credit institutions since 2015, and since 2017 it has prescribed additional capital requirements for these institutions. The capital buffer requirement limits the severe financial contagion effects stemming from the insolvency or stress situation of systemically important institutions. Due to the extraordinary economic conditions caused by the coronavirus disease, it has become warranted to mitigate systemic risks arising from the effects of the current situation on the credit market, which might be supported by a reduction in capital requirements. Against this backdrop, the MNB’s Financial Stability Council has decided to temporarily suspend the capital buffers prescribed for domestic (so-called other) systemically important institutions (O-SII) to preserve financial stability. According to the decision, capital buffer rates for domestic systemically important credit institutions will be reduced to 0 per cent from 1 July 2020.

By releasing capital buffers, domestic systemically important institutions will have up to HUF 4,500 billion additional capacity available for lending, thereby continuing to support economic growth. The MNB will closely monitor and ensure that, instead of making dividend and capital-related payments, the banks provide for the credit demand of the real economy during the extraordinary circumstances, using the resulting capital freed up while maintaining the loss absorbing capacity of the banking system.

To ensure both a gradual treatment which supports the recovery in lending and the strengthening of loss-absorbency capacity, in three years from 2022 onwards systemically important banks must rebuild the buffers either prescribed earlier for 2020 or those determined as a result of future revisions if needed. In 2022 and 2023, temporary buffer rates will be increased annually by one-quarter of the expected final buffer rates on the planned buffer build-up path. The MNB will require institutions to comply with the planned final buffer rates from 2024. The MNB will modify the amount of the final buffer rates if material future changes in the systemic importance of the credit institutions necessitate adjustments during the annual revisions.

After the capital release, the following capital buffer rates are expected to be prescribed for resident systemically important institutions in the years to follow: