MNB extends, tops up Funding for Growth scheme
The National Bank of Hungary (MNB) is extending its Funding for Growth Scheme until the end of next year and has added another HUF 2 trillion to the HUF 750 billion of refinancing available since June, MNB governor György Matolcsy said on Wednesday.
Matolcsy said the Monetary Council had decided to continue to the scheme based on its success between the beginning of June and the end of August.
Under the scheme, the MNB made the HUF 750 billion of 0% refinancing available to lenders for new SME loans and the conversion of SMEs' foreign currency-denominated loans into forints. Rates on the loans were capped at 2.5%, well under the 3.80% base rate. Matolcsy said the first and second phase of the scheme could add 1.8%-2.4% to GDP growth. The second phase will start with HUF 500 billion of 0% refinancing made available from October 1. Rates on loans financed from the scheme will continue to be capped at 2.5%. Runs of the loans will be limited to ten years.
The pillars of the second phase of the scheme will be refinancing for new loans, refinancing for converting forex-based loans or replacing forint loans, and forex swaps. The first pillar will account for 90% of the refinancing, and only banks that participate in the first pillar may use the refinancing in the second pillar. There will be no allocation mechanism for the HUF 500 billion available from October. Each bank may be granted refinancing up to 100% of its SME loan stock at the end of September.
When asked whether the large amount of cheap credit would affect the base rate, Matolcsy said there were similar programs that serve as precedents in other countries where credit was offered at rates under the central bank base rate. He added that there was more room for rate cuts in Hungary because of a growth turnaround, low inflation and the continuation of global monetary easing. He said the MNB's stock of two-week bonds, its main tool for soaking up liquidity, would provide the resources for the refinancing in the second phase of the scheme.
Matolcsy said the MNB was waiting for a proposal by the government on solving the problem of FX loans. He said the central bank would not support any solution that works against the MNB's main goals: financial stability, price stability and growth. He said that if the government deems it necessary, the MNB could offer funding to banks for the conversion of forex loans from its international reserves at market rates. The government has given banks until November 1 to come up with a solution to the forex borrower problem or the government will take unilateral steps.
Forex-based loans were once the most popular retail credit product in Hungary, before the weaker forint caused repayments to increase beyond many households' means.
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