Surplus liquidity of Hungary banking sector falls in December

Surplus forint liquidity of Hungary’s banking sector fell in December from a month earlier as currency in circulation rose in the run-up to the holidays and central bank forex swaps increased because banks diverted liquidity into overnight deposits as a cautionary measure, the National Bank of Hungary said in its preliminary statistical balance sheet published on Thursday.

The decline in liquidity was evidenced by a drop in average holdings of two-week MNB bills, the central bank’s main instrument for soaking up liquidity. Average holdings of the bills by residents fell by HUF 578.8bn to HUF 3,509.1bn. Average holdings by non-residents dropped HUF 10.9bn to HUF 318.5bn.

On the assets side, external assets declined HUF 241.0bn to HUF 1,1492bn.

The MNB noted that €2bn due on a loan received from the European Commission in 2008 was paid on November 29, resulting in big declines in December averages of external assets and deposits of the central government. However, it added that end-of-month stock of external assets increased because of the large amount of European Union transfers in December, the stock of market-to-market deposit of the Government Debt Management Agency (AKK) resulting from forex swaps and the end-of-month increase in short-term deposits with the MNB.

The MNB said it accepted €390m in offers in euro tenders supporting liquidity necessary for an early foreign currency-denominated mortgage repayment scheme in December but actually allocated €336m because settlement takes place only when the loans are repaid.

The MNB launched the series of weekly euro-for-forint tenders early in October, just after the government scheme was launched. Under the scheme, borrowers may repay, in full, forex mortgages at a discounted exchange rate, with banks covering the difference.

Since the tenders were launched until the end of December, the MNB accepted a combined €1.6bn of offers and allocated €862m.