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Hungary State Treasury saves on changes in settlement of gov't securities expiries

Hungary's State Treasury is saving on average HUF 67 billion in liquidity needs on settlement/redemption days since October 2009, when the repayment of expiring government securities was switched to the National Bank of Hungary's (MNB) real-time interbank settlement system Viber, a follow-up study published in the MNB periodical MNB Szemle revealed.

The settlement of government securities auction sales was carried out in Viber before October, but repayments were settled through the interbank settlement system BKR, operated by interbank clearing house Giro.

Hungarian government securities expiries are timed to coincide with the settlement of new issues, which usually happens on Wednesdays.

The Government Debt Management Agency ÁKK could not, however, take full advantage of the timing before because the BKR system operates overnight and it had to make the gross equivalent of the expiring securities available on the Treasury's unified account KESZ on the day preceding redemption.

Carrying out both the settlement of issues and repayment through Viber allows a technical netting, thereby incoming payments from issues can be directly used to finance repayments. The change has reduced the KESZ balance on average by HUF 67 billion compared to previous comparable balances on the 23 days when expiries coincided with issues between October 7, 2009 and March 10, 1010, the follow-up study revealed.

Overall turnover of the BKR fell by an average 2.6% on the redemption days of the period in question, MNB analysts Levente Habany and Anikó Turján, the authors of the study found.

The change adversely affected the banks which had used the liquidity arising in the BKR from government securities maturity to cover their outgoing transfers on the night preceding maturity day.

While 30 banks had not used this option, some 12 did, mainly those -- both large and smaller banks -- who are active custodians. Even for the hardest-hit group, however, the liquidity shortfall compared to one year earlier was 11%, less than forecast, the analysts found. Part of the reason is that banks significantly increased their BKR credit limits after October 2008 anyway. (MTI – Econews)