Banking sector forint liquidity down in February

Narrowing liquidity was evidenced mainly by a drop in banks’ average deposits with the central bank and in the average stock of the MNB’s two-week bills, its main sterilization instrument.

Average stock of the two-week bills fell by HUF 51.0 billion to HUF 5.4504 trillion in February, dropping for the first time since August. Non-residents bought the bills while residents sold them, unlike in January when the opposite was true. Sales and purchases were large.

Non-residents’ average stock of the two-week bills fell by HUF 294.0 billion in January before rising by HUF 231.7 billion in February. In turn, the stock held by residents rose HUF 385.5 billion in January only to drop HUF 282.7 billion in February. Non-residents held on average 11pc of the total stock in February.

Data based on transactions show some rise in the year-end stock of the two-week bills as residents sold HUF 366.9 billion to non-residents who bought HUF 383.8 billion of the papers in February. In January, residents bought HUF 58.8 billion and non-residents bought about double that volume.

The changes in the two-week bill holdings in January-February coincided with a large forint government securities selloff by non-residents starting in the last third of January and bringing the stock held by foreigners down by about HUF 445 billion by the end of last month. The MNB figures suggest that non-residents shifted towards the shortest terms rather than withdrew completely.

The average stock of banks’ overnight deposits fell by HUF 166.4 billion to HUF 87.4 billion in February. The drop followed two months of increases, including a HUF 143.8 billion rise in January.

The average stock of central government deposits was down HUF 98.2 billion in February after dropping HUF 76.8 billion in January. The HUF 987.9 billion February level was down HUF 357.7 billion from November, when the stock started falling.

Average central government deposits have dropped each month since December, as government security issues were kept low before the end of the year in order to reduce Hungary’s year-end state debt-to-GDP ratio, as stipulated in the constitution. Big issues, including large-scale short-term ones started to top up the deposits at the beginning of this year. Part of the drop of the average stock in January and February reflected the repayment of a EUR 1 billion bond from deposits at the end of January. A forint bond expiry also affected both the average and the end-of-February stocks, the MNB noted

There were no FX expiries in February but the central government posted a high deficit which the economy ministry said was in line with the government’s expectations. The February shortfall was a preliminary HUF 407.9 billion and the two-month deficit came to HUF 483.3 billion or 49pc of the full-year target.

In an end-of-month comparison, central government deposits fell HUF 870.8 billion in December, rose HUF 553.2 billion in January – despite the bond repayment – then dropped HUF 310 billion in February. Forint deposits fell slightly more than FX deposits.
Cash in circulation averaged HUF 3,276.5 billion, a new peak, in February, up HUF 102.4 billion from January.

The balance of banks’ current accounts held with the MNB fell just HUF 1 billion, and exceeded their HUF 418 billion mandatory reserve obligation by a modest HUF 5.6 billion.

Average foreign assets of the MNB rose HUF 16.4 billion in February to HUF 10,874.3 billion. Average foreign liabilities fell HUF 36.5 billion to HUF 529.5 billion.

Transactions reduced central bank foreign assets by HUF 72.6 billion and revaluation and other changes cut them by HUF 60.5 billion in February, and the stock fell to HUF 10,733.1 billion at the end of February. Foreign liabilities fell HUF 41.5 billion on transactions and HUF 5.3 billion on other changes, to HUF 395.6 billion.

The foreign liabilities figures do not contain two-week MNB bonds in foreign hands.

Stock of MNB refinancing to banks, which includes the 0pc refinancing provided under the MNB’s Funding for Growth Scheme, rose a moderate HUF 16.3 billion last month to reach HUF 802.2 billion by the end of February. The figure reflects little activity under the scheme in the last week of February. The MNB recently reported that lenders had signed contracts for HUF 50 billion loans to businesses by February 21.