Budapest, 25 June 2024 –
Due to the still high geopolitical and macroeconomic uncertainty, in line with the practice of European countries and the recommendation of international institutions, the Financial Stability Board has decided to increase the countercyclical capital buffer. The notable profitability of banks and their strong capital position enable the application of the countercyclical capital buffer in a so-called positive neutral manner, i.e., in periods preceding overheatedness. The countercyclical capital buffer rate will be increased to 1 percent from 1 July 2025.
The Magyar Nemzeti Bank (MNB) maintains the 0.5 percent Countercyclical Capital Buffer (CCyB) rate effective from 1 July 2024 for domestic exposures and sets the applicable rate at 1 percent from 1 July 2025.
During the rate review in June 2022 , the MNB decided to increase the CCyB rate applicable to domestic exposures to 0.5 percent for the first time since 2016. During the rate review in June 2023, in view of the easing of cyclical systemic risks and those associated with housing market overvaluation, the MNB postponed the activation by one year to 1 July 2024.
In the last couple of years an increasing number of European countries have moved to the application of the countercyclical capital buffer with the inclusion of a so-called positive neutral element (Positive Neutral Rate of CCyB, PNR CCyB). In this framework, in „normal risk environment”, hence in periods when there is no proof of overheatedness, the authorities set a positive rate as well, provided the capital position of banks and their profitability enable it. This method therefore supports the macroprudential counterbalance of unforeseeable shocks. Currently, 11 EEA countries apply a positive neutral or a conceptually similar so-called early-build up countercyclical capital buffer framework setting the positive neutral rate between 0.5 and 2.5, but most often at 1 percent.
In the last year the domestic cyclical systemic risks have remained low due to the fallback in lending activity. However, the geopolitical and macroeconomic uncertainty remained high, which highlights the importance of the maintenance of strong capital positions of banks. In addition, to strengthen the MNB's previous steps in this direction, it is necessary to ensure that the current record-breaking bank profitability adequately serves capital accumulation. In view of all this, also taking into account the recommendations of international institutions relating to the build-up of capital buffers, the MNB in line with the spreading European practice decided on the domestic application of the positive neutral framework, and, correspondingly, on the renewal of the strategy and methodology on the countercyclical capital buffer.
The MNB according to the amended framework sets a 1 percent positive neutral rate in periods of a neutral risk environment, taking effect from 1 July 2025, which henceforth serves as a minimum requirement in non-crisis periods. The MNB depending on the development of cyclical risks could set a capital requirement above 1 percent during its quarterly rate decisions in a manner that the higher of the rate reflecting cyclical systemic risks and the positive neutral rate of 1 percent becomes applicable. In case of a potential stress the MNB would decide on the need to release the entire required capital buffer. With the introduction of the new framework, the banking sector can have a capital buffer of at least 1 percent of the domestic exposure values, which can be released in a crisis, regardless of the state of the financial cycle, except for crisis situations.
In the current strong capital position of banks, the prescription of the higher capital buffer does not deteriorate the lending capacity of the institutions. Considering the prescription of a 1 percent capital buffer rate, according to our expectations banks will still have approximately HUF 1,900 billion free capital on sector level, the entire use of which may enable the placement of up to HUF 24,000 billion in loans. Based on this, in the current situation, the bank's ability to withstand shocks can be strengthened without negative lending effects by increasing the capital buffer requirement.
The Financial Stability Board of the MNB quarterly decides on the applicable CCyB rate taking into consideration the positive neutral CCyB rate, in view of the development of cyclical systemic risks stemming from lending overheatedness and any other relevant factors.
Magyar Nemzeti Bank