Forint liquidity of Hungary banks falls in Feb on repayment scheme

Forint liquidity fell further mainly because of forints paid for euros purchased by banks in the National Bank of Hungary's (MNB) euro tenders organised to support an early foreign currency-denominated mortgage repayment scheme, but also as the result of an increase in the stock of banks' central bank forex swaps, the MNB said in its preliminary statistical balance sheet published on Monday.

Forint liquidity narrowed for the third month in a row.

The decline in liquidity was evidenced in a significant drop of banks' average stock of O/N central bank deposits. The drop was only slightly counter-balanced by a moderate rise in the average holdings of two-week zero-coupon MNB bonds, the bank said.

At the beginning of October, the MNB started selling banks euros for forints in a series of weekly tenders aiming to give lenders the necessary FX liquidity for the repayment scheme, which allowed early full repayment of forex retail mortgages at discounted exchange rates.

The MNB accepted €335 million or HUF 99 billion worth bids by banks to buy euros at the euro tenders in February. It sold €921 million or HUF 279 billion to banks.

Average liabilities of the MNB to banks in the form of FX swaps rolled on euros it sold to banks related to the early repayments but yet not disbursed fell HUF 112.2 billion from January to HUF 149.8 billion as the scheme neared its end.

The average stock of central bank FX swaps outstanding rose HUF 55.1 billion to HUF 561.4 billion. This stock includes swaps the bank has been operating since late 2008 or early 2009, in addition to the swaps supporting the early FX repayment scheme.

The MNB data show residents raised their average holdings of the two-week MNB bonds by HUF 24.2 billion to HUF 3,268.2 billion after a steep reduction in January. Non-residents continued to increase their average MNB bond holdings last month; the increase of HUF 38.5 billion was about a third of the increase in January. Their average holdings rose to HUF 477.8 billion. After steady increases since August, in December and January residents reduced their holdings steeply while non-residents bought the bonds being net sellers in every month since last August.

Banks' O/N deposits with the MNB averaged HUF 238.2 billion in February, dropping a steep HUF 359.1 billion from the previous month. The deposits dropped moderately in January after a steep HUF 420.4 billion rise in December.

Average cash in circulation fell HUF 66.3 billion from January to HUF 2,729.3 billion in the first drop registered since last April.

Average balance on banks' central bank accounts fell HUF 13.3 billion to HUF 454.8 billion in February, exceeding only slightly the HUF 449.2 billion mandatory reserve obligation.

Average foreign assets fell HUF 1,185.9 billion to HUF 10,493.0 billion after rising at about the same pace in January. The main factors behind the drop were an about HUF 180 billion repayment on Hungary's 2008 IMF loan and the payment of euros bought at the euro sales tenders to banks.

Excluding the HUF 477.8 billion two-week MNB bonds held by foreign investors, the MNB's foreign liabilities averaged HUF 1,419.0 billion in February, dropping HUF 60.0 billion in a month.

Average net foreign assets dropped as a result by HUF 1,125.3 billion to HUF 9,074.0 billion.

The forint-term drop in foreign assets and liabilities partly reflected exchange rate movements as the forint firmed an average 5.8% against the euro, 5.4% against the Swiss franc and 8.4% against the US dollar from January to February.

(HUF 100 = €0.3418)