MNB introduces Systemic Risk Buffer


Image by Jessica Fejos

The National Bank of Hungary (MNB) said on Wednesday it is introducing a Systemic Risk Buffer (SRB) to manage risks generated by the persistently large number and concentration of problematic project loans held at financial institutions.

The total stock of such loans, valued at more than HUF 700 billion, may be a source of unexpected losses and may adversely affect the banking sectorʼs willingness to lend.

The SRB will be applied individually, between 0% and 2% of the total of domestic risk-weighted assets, and credit institutions will be required to build it up at a consolidated level, from Common Equity Tier 1 capital, in addition to other capital buffers.

The rate of the SRB will be set in proportion to the individual institutionsʼ contribution to systemic risk. Institutions with exposure to problem projects below HUF 5 bln are exempt from the SRB requirement.

The MNB will decide on SRB rates for institutions on an individual basis in the last quarter of 2016. Institutions will be required to comply with the new capital buffer requirements from January 1, 2017.

The central bank is allowing time for banks to clean up their non-performing project loans. Should credit institutions clean out their problem portfolio by January 1, the new capital requirement will not bind them.

If the clean-up of portfolios does not take place, the additional capital requirement may strengthen the stability of the domestic financial intermediary system by improving banksʼ resilience to shocks, said the MNB.

The central bank noted that it had consulted with European authorities and market participants on the SRB.


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