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MNB to provide euro liquidity in six-month swap tenders

  The National Bank of Hungary (MNB) on Thursday said it would introduce a six-month FX swap tender, providing euro liquidity for forints to banks as of March 2.

At most a combined €5 billion will be available in the facility, which will operated by the MNB once a week. The new facility is by far the longest-term facility providing foreign exchange liquidity introduced by the MNB since the financial crisis hit Hungary last autumn. Its introduction is likely intended to ease the current pressure on the forint.

The new facility will be available to domestic banks which accept a set of conditions announced by the MNB, and apply with the MNB to be one of its participant by February 25. Under the conditions, bidders must agree to keep their domestic corporate loan stock at least level with the stock at the end of 2008 throughout 2009.

The average 2009 net foreign liabilities of participating banks, adjusted for exchange rate changes, must not fall below the amount outstanding at the end of 2008.

In another conditions, the banks participating in the tender must draw on new foreign resources over a year up to the swap volume they intend to apply for, or/and reduce its total foreign assets, adjusted for exchange rate changes, compared from the level at the end of 2008.

The MNB will calculate among new over-one-year resources any increase of shareholders’ equity by non-resident shareholders as well as over-one-year foreign liabilities borrowed with a state guarantee provided under the act on bank support passed late last year.

The aim of the new facility is to reduce uncertainties arising from occasionally narrow liquidity on the domestic market as well as to ease tensions evident in the field of corporate lending, the MNB said.

Banks may draw on the facility up to the maximum amount set for them until the end of 2009. Afterward, the amount they have drawn must gradually be reduced to nil by the end of 2010. The last auction will take place halfway through 2010.

In a move to further increase forint liquidity, the MNB will accept local government bonds as collateral when granting covered loans to banks as of February 20. The extension will apply to forint, CHF- or EUR-denominated Hungarian municipal bonds which meet the standards set by the MNB. (MTI-Econews)