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MNB to offer two-year loans from Apr 3

MNB

The National Bank of Hungary (MNB) on Tuesday said it will offer banks two-year collateralized loans at tenders once a month starting April 3.

The MNB also said it will broaden the range of securities it accepts as collateral and change the acceptance ratios for eligible assets from April 16.

The steps are part of measures announced by the central bank in February that aim to boost banks' lending capacity. The new facility will give banks access to long-term finance without paying a premium which could offset the recent shortening of their liabilities, the MNB said.

"The bank’s new facilities are designed to provide a safety net for the banking sector through enhancing credit institutions’ capacity to lend; however, the facilities cannot, and are not meant to, exert a material influence on banks’ willingness to lend," it added.

The two-year loan tenders will be held on the first Tuesday of every month, with T+1 settlement. The first tender will be held on April 3.

The loans will have floating rates pegged to the central bank base rate. Interest will be paid bi-weekly according to the base rate prevailing in the preceding two weeks. Banks may repay the loan in a lump sum after one year.

The tenders will be invited without a limit on volume, although the bank maintains the right to apply a volume limit depending on the liquidity situation.

Banks that participate in the tenders must agree to keep their gross corporate loan stock -- adjusted for write-offs and classified loans sold -- at levels at or higher than those at the end of 2011 during the run of the loans. The MNB will check whether banks meet the condition based on their balances reported monthly to the regulator, and it expects them to meet the minimum requirement on the six-month average lending stocks.

In addition to the current range of collateral, the MNB will start accepting foreign currency-denominated bonds issued by the State of Hungary or the MNB and foreign currency-denominated corporate bonds meeting specific requirements, also from April 16.

It will ease criteria for corporate bonds used as collateral, accepting bonds introduced on any regulated markets in addition to the Budapest Stock Exchange, and will also accept such bonds if they are introduced on non-regulated markets considered acceptable by the MNB.

Instead of the current minimum rating of "BBB-", it will require the issuer to have a rating no lower than that of Hungarian government securities (at present "BB+") by at least one of the credit rating agencies accepted by the MNB.

The bank will also accept as a collateral forint-denominated mortgage-backed bonds introduced on regulated markets or on non-regulated markets which the MNB accepts.

The MNB noted that it will amend the transaction conditions to include the changes from April 16. And will also modify from that date the values at which it calculates the securities during the daily revaluation of collateral in order to keep risks down.

The statement did not mention the launch a new universal mortgage bond purchase scheme, which was the third planned measure announced in February. The bank said at the time that, based on the experience of its 2010 mortgage bond program, it could effectively support such issues through primary market purchases only if legislation was amended to allow all commercial banks to issue mortgage bonds.

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