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Hungary external financing requirement to fall in 2009, say Gov’t, MNB

Speaking about policies regarding the financial sector, the government-MNB statement stated that Hungary’s banking system meets the legal capital requirements and is profitable. The recent increase in liquidity risk is due to less global willingness to take risks which increased financing costs and cut the tenor of financing.

The bulk of the external financing of domestic banks comes, however, from eurozone parent banks who already have access to additional liquidity via the European Central Bank, and who has undertaken to provide continuous support to their Hungarian units, the joint statement said. This undertaking was reaffirmed in an October 17 joint statement of the MNB and the leading domestic banks, and has been and will be closely monitored by the MNB and Hungary’s financial market regulator PSzAF.

The statement also recalled the recent increase the guarantee limit of retail deposits from Ft 6 million to Ft 13 million (in line with EU agreements) and an unlimited state guarantee above, undertaken by the government. The government is also working on an agreement with banks to ease households risks stemming from foreign currency denominated loans.

The government is ready to take further steps to ensure the stability of banking finance, if necessary, the joint statement said, adding that the continuity of banking functions must be maintained. Market regulator PSzAF and the MNB will strengthen capacities to be able to identify and mend solvency and liquidity problems in time. They will also follow closely the eventual deterioration of debtors ability to repay, and the two institutions will closely cooperate to manage the pressure on banking finance.

Steps taken under the period of the standby program to improve the regulation and control of the financial sector will include the creation of a so-called positive retail debtor list (now available only for non-retail debtors); an amendment to the central bank law so that the MNB could require individual but non-identifiable data to help it analyze credit risk; to tighten control over insurance and loan brokers; to introduce maximum loan-to-value ratios on new mortgage loans; and a more rigorous control of FX exposure.

Regarding the field of monetary and exchange rate policies, the National Bank remains committed to reduce inflation gradually to the official 3% mid-term target, the joint statement said, noting that the free-floater exchange rate system introduced this spring allows monetary policy to primarily focus on the inflation target.

The government and the MNB will also strive to ensure a wage agreement among social partners which would keep nominal wage growth in harmony with the inflation target. The joint statement recalled the measures taken in the past few weeks to increase liquidity when pressure on the domestic money market increased.

These measures included a new FX swap facility, backed by a €5 billion ECB repo loan line, and two new facilities which serves to increase the forint liquidity of the banking system without influencing the interest rates. The MNB is ready to use additional instruments if the need a rises, including the extension of the assets it accepts from banks as collateral. (MTI-Eco)