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Hungary Financial Stability Council discusses fx mismatch, corporate lending and loan restructuring

Proposed measures to tackle a growing mismatch between Hungarian banks' foreign-currency liabilities and assets, the practice of provisioning related to loan restructuring and guarantees to prop up corporate lending were among subjects discussed at a meeting of the Financial Stability Council on June 28, a summary of the meeting published by the National Bank of Hungary (NBH) on its website shows.

The Council, comprising of the president of the NBH, the head of the Hungarian Financial Supervisory Authority (PSzÁF) and the National Economy Minister (earlier the Finance Minister), decided to publish summaries of the meetings from now on within 15 days following the meetings.

The summary published of the June 28 meeting shows that the members of the Council heard and discussed reports of potential risks to the Hungarian financial system, its profitability, the adequacy of its capitalisation and on the reasons behind the drop of corporate lending among others.

The Council discussed the central bank's regulatory proposal regarding the management of the foreign-currency maturity mismatch in the Hungarian banking system, and agreed that the shortening of banks' foreign liabilities is a major risk. All means that could stop or reverse this process should be carefully considered, the summary said. The NBH will consult the sector concerned on its regulatory proposal, and will later report to the Council on the result.

PSzÁF will analyse loan restructuring and the related banking impairment generation practice and will take measures if necessary, the summary said, noting that the members of the Council established that, with regard to portfolio quality, special attention must be paid to the banking practice of the restructuring of loans, and the practice of impairment generation.

The Council also discussed the flash analysis prepared by the NBH on the home protection action plan based on the agreement reached between the government and the banking association earlier this year, the summary said without going into detail. It only said that "the members of the Council emphasised that it is important that debtors should take a conscious decision on whether they want to use the opportunity to have the exchange rate fixed".

After discussing a central bank's report on corporate lending, the Council agreed that the activity of guarantee institutions encouraging the willingness to lend by taking some of the risks over from lenders should be strengthened. They
established that the decline in corporate lending between the end of 2008 and the present day can be typically attributed rather to the stringent credit supply restrictions than to insufficient credit demand.

The Council also discussed a report presented by the NBH and PSzÁF on the necessity to integrate the savings cooperatives sector and to strengthen its supervision. A joint specialist work group will be set up to analyse the issues raised and to develop proposals.

The Council was established by legislation after the 2008 crisis and started to operate in January 2010.