MNB leaves countercyclical capital buffer rate unchanged at 0.5 percent also in view of slowing lending

Budapest, 21 December 2022 – Although the housing market is still overvalued, in view of the slowdown in housing lending and the shrinking real estate market demand, the Financial Stability Board of the MNB sets the countercyclical capital buffer rate at an unchanged 0.5 percent as of 1 January 2024.

The Financial Stability Board (FSB) of the Magyar Nemzeti Bank (MNB) sets the countercyclical capital buffer rate applicable to exposures in Hungary as of 1 January 2024 at an unchanged 0.5 percent level that comes into force from 1 July 2023.

Although the MNB assesses housing market overvaluation to still be at a historically high level, the worsening growth prospects due to the war developments and the European energy crisis, as well as the rising interest rate environment together point to a slowdown in lending, along with the easing of housing and credit market risks. Taking all of this into account, the FSB decided to leave the countercyclical capital buffer rate unchanged at 0.5 percent from 1 January 2024 for domestic exposures. The FSB may decide depending on the development of risks on a future increase in the rate or a possible reduction in case of a further deterioration of the growth and financial situation on a quarterly basis, or in case of a release, immediately under extraordinary circumstances.

The MNB monitors and annually evaluates the cyclical systemic risks of third countries outside the European Union (EU) that are material for the domestic banking system. On the one hand, the financial processes of these countries may also have an impact on the development of the risks of the Hungarian banking system; on the other hand, the authorities of these countries operate in a different legal and prudential framework from those of EU Member States. During its 2022 review, the MNB did not change the list of material third countries (Albania, Montenegro, Russia, Serbia and Ukraine) for the domestic banking system. According to the assessment of the MNB, the level of cyclical systemic financial risks does not justify the imposition of a countercyclical capital requirement in any of the countries examined. Considering the credit-to-GDP gaps, the composite indicator values calculated from the available additional indicators, and the examined effects of the real economic and financial shocks related to the successive pandemic and war situations, the risk of credit market overheating is low for all the countries examined.

The purpose of the countercyclical capital buffer is to increase the stability and resilience of the financial intermediary system across credit cycles. The MNB reviews the rate of the countercyclical capital buffer applicable to domestic exposures on a quarterly basis and the rates applicable to material third countries annually. In the course of the June 2022 rate review, the MNB decided to increase the capital buffer rate applicable to domestic exposures for the first time since 2016, which was justified by the high and rising level of cyclical systemic risks and housing market overvaluation.

Information about the countercyclical capital buffer and its operation

Magyar Nemzeti Bank