Banks finance three-month deposits with MNB credit

Telco

Hungarian banks financed a “significant part” of their purchases of three-month deposits at the National Bank of Hungary (MNB) using central bank credit at a monthly tender in September, the MNB said in a release of data yesterday, Hungarian news agency MTI reported.

Data from the tender, held on September 21, show banks placed a net HUF 347 billion into the three-month deposits, the MNBʼs main sterilization instrument. At the same time, they borrowed a net HUF 468 bln of collateralized one-week loans from the central bank.

The three-month deposits pay banks the base rate, 0.90%, while banks must pay 1.05% on the one-week loans, suggesting banks expect to refinance them, perhaps with money from maturing three-month deposits. At the last tender for the one-week loans, held on October 12, there was no demand.

The MNB recently reduced the frequency of its three-month deposit tenders to once a month from once a week. The measure was one of several the MNB has taken to move banksʼ liquidity out of central bank instruments and into government securities or the lending market. Another step the central bank announced in August was to limit placements at the three-month tenders from October. Total placements in the fourth quarter have been capped at HUF 900 bln.

Statistical balance sheet data released Wednesday show the stock of three-month deposits at the end of September fell HUF 15.1 bln to HUF 1,765.1 bln. However, the average monthly stock of these deposits rose HUF 213.2 bln from August to HUF 1,767.4 bln in September. At the same time, the average stock of banksʼ overnight deposits at the MNB plunged HUF 108.2 bln to HUF 28.7 bln.

The stock of three-month MNB deposits peaked at HUF 1,976.4 bln on September 21, while expiring deposits reduced the stock by a combined HUF 540.4 bln to HUF 1,436 bln on October 12. Expiring deposits will reduce the stock by a further HUF 221.9 bln on October 19, when the next monthly tender — the first with a limit — is held.

The last three-month deposits placed when tenders were still held weekly will mature on October 26.

The average stock of central bank lending to credit institutions doubled to HUF 287.4 bln in September from August. The stock of one-week loans was behind the increase, climbing by almost HUF 210 bln to HUF 246.6 bln. The stock of three-month MNB loans dropped almost HUF 67 bln to HUF 40.8 bln.

Overall, the banking sectorʼs forint liquidity fell slightly in net terms in September, the MNB said. It noted that the September three-month depo tender coincided with the Q3 expiry of central bank FX swap transactions related to the conversion of FX retail loans into forints, causing forint liquidity to narrow further, the bank added.

These expiring FX swaps totaled HUF 41.7 bln in September, cutting the average outstanding stock to just over HUF 600 bln.

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