MNB to raise FX financing adequacy ratio requirement

MNB

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The National Bank of Hungary (MNB) yesterday announced that the minimum foreign exchange financing adequacy ratio requirement would gradually be raised for Hungary-based banks from July 1.  The minimum ratio will rise from 65% at present to 75% from July 1. Thereafter, it will rise by five percentage points every half year until it reaches 100% by January 1, 2017, the bank said. 

MNB introduced the ratio in mid-2012. It is calculated as a quotient of the foreign currency resources qualified as stable and the stock of net foreign currency swaps against HUF with maturity of more than one year to the funded stable assets in foreign currency and the off balance sheet liabilities in foreign currency. MNB said the introduction of the ratio had halted the deterioration in terms of the shortening of foreign exchange resources. But it added that, because of the low required level, the regulation was unable to substantially improve the bank sector’s foreign currency asset-liability maturity mismatch.

MNB managing director Márton Nagy said banks would have to adjust their liabilities by about HUF 1,109 billion by the start of 2017 to comply with the new rules. 

Raiffeisen Bank lead analyst Zoltán Török told national news service MTI that the increase of the minimum foreign-exchange financing-adequacy ratio requirement would entail the positive effect of reducing the MNB’s foreign-currency reserves. Török said that MNB could have prevented the problems connected to FX-denominated mortgages in Hungary had it enacted this measure ten years ago. 

Both Török and K&H Bank lead analyst Dávid Németh said that the conversion of short-term FX loans into long-term FX loans would result in significant costs for commercial banks in Hungary. Németh noted, however, that the majority of commercial banks have already conformed to the stipulations of the measure.

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