Budapest, 28. October 2024 – The macroprudential policy of the MNB has greatly contributed to the fact that banks had stably fulfilled their role of funding the economy despite the current uncertain macroeconomic and geopolitical environment. The capital, liquidity and funding position of banks is adequate. The resilience of banks is strengthened and flexible compliance with emerging challenges is supported by the continued development of the prudential framework with the following steps: the timely build-up of releasable capital buffers, the risk-proportional amendment of funding regulations, the incorporation of green aspects into regulatory measures, and the enhanced monitoring of cyber risks and related international regulatory directions.
The Report includes the macroprudential measures of the past year, the adaptation of market participants and the effects of regulatory actions. It covers the macroprudential capital buffer requirements, the use of more favourable LTV limits for young first-time home buyers, the incorporation of green aspects into the borrower-based measures, the financial stability and regulatory significance of climate and cyber risks, and the effectiveness of the macroprudential management of cyclical risks realized in the last 10 years.
The main messages of the 2024 Macroprudential report are the following:
1. The indicators assessed during the determination of the Countercyclical Capital Buffer rate (CCyB) indicate a reduction in the risks associated with overheating, despite the gradual revival of lending. At the same time, due to the still high geopolitical and macroeconomic uncertainty, it is pivotal to maintain the banks’ strong capital position and to build-up releasable capital buffers in a timely manner. Accordingly, by further increasing the 0.5 percent CCyB requirement applicable from July 1, 2024, the MNB will set a minimum CCyB rate of 1 percent even in a neutral risk environment that is not yet characterized by overheatedness from July 1, 2025. Owing to the strong capital position and outstanding profitability of banks, the measure will not have any significant negative impact on the lending capacity of the banking system.
2. 2. In order to manage the risks related to commercial real estate (CRE) lending, which should be monitored from a financial stability point of view, but which are currently not excessive, the MNB decided in June 2023 on the preventive review and reactivation of the Systemic Risk Buffer (SyRB) as of 1 July 2024, which was suspended at the outbreak of the coronavirus epidemic. Due to the low level of problem portfolios, it was not necessary to impose an effective requirement for any bank as of 1 July 2024. The value of capital buffer rates shall be annually reviewed by the MNB.
3. During the 2023 review, the MNB did not change the composition of domestic systemically important institutions (O-SII). From 2024, systemically important banks must fully comply with the prescribed O-SII buffer-rates; with this, the gradual rebuilding of the buffer following its temporary release at the onset of the coronavirus pandemic has come to an end. The MNB will continue to pay special attention to the risks of medium-sized banks that cannot yet be classified as significant at the system level, but are growing rapidly and playing an important role in certain markets.
4. Despite the increasing lending activity, the excessive indebtedness of households cannot be identified. The average income burden of borrowers decreased in the cheaper interest rate environment. At the same time, the borrowers' collateral burden is rising again, but it does not show excessive risk-taking. This can be partly explained by the increased usage of lower down payment requirements by borrowers available for first-time home buyers from January 2024.
5. Banks fulfil the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) requirements with safe buffers, as in previous years. The liquidity-enhancing effect of the interest income on deposits placed with the central bank, as well as the increase in the deposit stock exceeding the expansion of the loan stock, continued to play a decisive role in the last year's evolution of the sector-level LCR. The LCR requirements strengthened within the supervisory mandate of the MNB responding to the growing interest rate risks and the international banking bankruptcies at the beginning of 2023 have significantly strengthened the prudent liquidity management of banks.
6. In view of the still unfavourable mortgage bond market conditions, the MNB has indefinitely postponed the green requirement for new foreign currency mortgage bond-based funds, which originally came into effect on October 1, 2024, in relation to the Mortgage Funding Adequacy Ratio (MFAR) regulation. In the case of other macroprudential funding limits, the MNB introduced a single de minimis threshold of HUF 100 billion based on the balance sheet total in order to ease the regulatory burden on institutions that do not pose a systemic risk.
7. The credit institutions fulfilled the MREL requirements prescribed by the MNB in its resolution mandate as of January 1, 2024. With the development of the resolution plans and the fulfilment of the MREL requirements, which serve as sources of successful resolution, the resolution preparation has reached a new level.
8. In its consumer protection mandate, which contributes to the maintenance of financial stability through the strengthening of trust in the financial system, the MNB last year drew attention to the shortcomings of institutional practices related to the management of overdue credit transactions and the provision of online personal loans. In addition, by issuing executive circulars for the actors of the domestic payment system, it took further steps to curb cyber fraud.
9. In accordance with its green mandate, the MNB pays special attention to the assessment of financial stability risks and the potential regulatory possibilities concerning climate change. From 1 January 2025, the MNB supports the funding of energy-efficient real estate through the green differentiation of the borrower-based measures (more favourable limits) and from April 2025 through the green review of the Certified Consumer-Friendly framework.
10. With the rise of online banking processes and the technological development, cyber incidents are becoming more frequent and severe both internationally and in Hungary. Although for the time being, in Hungary, it is mostly a consumer protection issue, the financial stability aspect of cyber risks and the related regulatory options are being followed with particular attention by international organizations and the MNB.
11. Since the 2008-2009 economic crisis, macroprudential policy has met challenges in several cases (economic and financial recovery, the coronavirus pandemic, the Russian-Ukrainian war, a high inflationary environment). Owing to the stronger regulatory requirements, the introduced macroprudential regulations and the stricter supervisory practice, the domestic banking system was prepared to face the emerging challenges. Based on experience, the effectiveness of the macroprudential toolbox can be further improved by fine-tuning the borrower-based measures, building-up releasable capital buffers in a timely manner and the funding regulations depending on the market environment.