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MNB details HUF 300 bln corporate bond purchase program

MNB

Image by Jessica Fejos

The National Bank of Hungary (MNB) on Tuesday announced a HUF 300 billion corporate bond purchase program from July 1, 2019. The Bond Funding for Growth Scheme (BGS) will involve the purchase of bonds issued by domestic non-financial corporations with an "at least B+" rating.

"By introducing a new monetary policy instrument, the Bond Funding for Growth Scheme (BGS), the Council’s specific objective is to promote the diversification of funding to the domestic corporate sector," according to an MNB press release. "Under the program, the Bank will purchase bonds having a good rating issued by non-financial corporations. The MNB will neutralize excess liquidity arising from the bond purchases by using the preferential deposit facility bearing interest at the central bank base rate."

The new program complements the Funding for Growth Scheme Fix launched at the beginning of 2019, the central bank added.

The "B+" credit rating is four notches under the investment grade threshold, noted state news wire MTI.

The program limits the MNBʼs purchases to 70% of a series and caps its exposure to any corporate group at HUF 20 bln. To be eligible for the scheme, companies must issue at least HUF 1 bln of bonds. The bonds may only be denominated in forints and original maturities must be between three and ten years. 

The central bank noted that Hungaryʼs corporate bond market lags behind those in the eurozone and in other countries in the region. It said the new scheme aims to boost liquidity on the corporate bond market and raise the degree to which Hungarian companies can rely on financing other than bank loans.

"This may contribute to improving the efficiency of monetary policy transmission, since healthy competition between the markets supplying companies with funds may raise the effectiveness of the central bank’s interest rate decisions, and thus several channels of transmission will be able to provide efficient support for achieving the inflation target in a sustainable manner," it added.

In a bid to contribute to the spread of securitization in Hungary, the MNB said it would also buy securities backed by corporate loans within the scope of the scheme.

The central bank said the scheme would have "no effect on monetary policy conditions" as surplus liquidity generated in the banking system as a result of the corporate bond purchases would be sterilized with the central bankʼs preferential deposit facility. It noted that the purchase of corporate bonds is a practice of leading European central banks such as the European Central Bank (ECB) and the Bank of England.

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