From today, counterparty banks may request the Magyar Nemzeti Bank to accept loans to large companies as collateral in their transactions with the Bank. As a result, the stock of banks’ assets eligible as collateral will increase from the current HUF 7,000 billion by another HUF 2,500 billion at adjusted market value, thereby contributing significantly to the quantity of liquidity potentially available for banks. Also with effect from today, the framework of posting initial margins in swap transactions providing forint liquidity will be changed. Accordingly, the MNB will not require counterparties to post a 4 per cent initial margin in transactions with the Bank. Furthermore, while counterparty banks will continue to be required to provide collateral in forints, the MNB will meet its obligation to provide collateral in euros. The measure is expected to contribute to an improvement in banks’ liquidity position and a simplification of liquidity management.
To mitigate the impact of market turbulence caused by the coronavirus epidemic, the MNB has taken two additional measures to strengthen interbank liquidity. On 17 March, the Bank decided to accept as collateral loans to large companies in its operations. As part of this, from today the MNB awaits initiatives by banks relating to the subject. In accordance with a press notice issued earlier, monetary policy counterparties may offer or provide as collateral loans to large companies, irrespective of the maturity and denomination of loans. The MNB applies a single 30 per cent haircut on loans accepted as collateral. With the extension of the range of eligible collateral, the stock of banks’ assets eligible as collateral will increase from the current HUF 7,000 billion by another nearly HUF 2,500 billion. Today, the MNB modified its Terms and Conditions of the Operations of the Central Bank in Forint and Foreign Currency Markets to include the details of the acceptance of loans to large companies as collateral, and banks received the mortgage loan contract necessary for margining. From today, therefore, the opportunity to post loans to large companies as collateral is available for banks.
For new transactions the terms and conditions of access to FX swaps providing forint liquidity will also change on 23 March 2020, in order to support interbank liquidity and banks’ liquidity management practices. The 4 per cent initial margin requirement for banks, in use until now, will cease. As a result, banks accessing the facility will not be required to meet their obligations to provide a 4 per cent initial margin to the MNB, and therefore they will be free to dispose of the liquidity surplus. The practice of daily marking-to-market will also change. While banks will continue to be required to provide collateral in forints, the MNB will meet its obligation to provide collateral in euros. The aim of this change is to support domestic banks’ liquidity management practices. The operating details of changes to FX swaps providing forint liquidity are set out in the related Notice.
