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MNB to push for more lending in exchange for tax cut

MNB

MNB headquarters in Budapest (Image by Jessica Fejos)

The National Bank of Hungary (MNB) is planning to push banks to increase lending in the corporate sector, especially to SMEs, as a condition for the reduction of the tax on the banking sector, Deputy Governor Márton Nagy said today at a conference in Vienna, Reuters reported.

“The bank levy can decrease but, on the other side, the (banks) should perform some credit growth, as a condition, in the corporate sector or mainly in the SME sector, to get this bank levy decrease,” Nagy said according to Reuters.

National Economy Minister Mihály Varga earlier promised that tax benefits would be granted to banks that increased their lending activity after the financial crisis

Under an agreement signed by the Hungarian government and the European Bank for Reconstruction and Development (EBRD) on February 9 of this year, the top rate of the bank levy will be reduced to 0.31% of total assets in 2016 from 0.53% this year and will be lowered further between 2017 and 2019. Although the Hungarian government introduced the extraordinary bank levy as a temporary measure, it later became permanent. In the 2016 budget, the government has included a cut in the extraordinary bank levy

“We want to maintain this agreement,” Nagy said. “But you can ... somewhat change the agreement in the direction we are asking for ... in order to really make the agreement more balanced, which means you give something and the other also gives something,” Nagy said, according to Reuters. 

The deputy governor said he expected that banks would be satisfied in the end. “The banks of course say there is no demand, but thatʼs not true. There are still very tight credit conditions,” Reuters quoted Nagy as saying.

Reuters added that the MNB extended its Funding for Growth Scheme (FGS) in April until the end of next year, which provides free funding to commercial banks to lend to small and medium-sized businesses.

Nagy said a complete proposal on ending the scheme and providing incentives for banks to lend more would be unveiled in mid-November, according to Reuters.

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