MNB allots HUF 618 bln of new IRS linked to lending

MNB

The National Bank of Hungary (MNB) allotted HUF 618 billion of a new three-year interest rate swap (IRS) conditional on lending activity at a tender yesterday.

The MNB accepted all bids. Its original offer for the swaps was just HUF 200 bln.

The MNB announced the launch of the IRSs tied to lending activity last November. At the time, the MNB said it would allocate HUF 1 trillion of the IRSs. Banks that avail of the IRSs must raise their SME lending stock, excluding non-performing loans, by at least one-fourth of the IRS allocated volume annually.

Although a large part of the estimated demand had surfaced already at the first tender, the MNB will continue to hold the tender, in line with its earlier commitment, to the end of March, the Bank said in a statement after the tender.

The tender clients pay a fixed interest rate to the MNB while the Bank pays them a floating rate pegged to the six-month BUBOR in six-month interest periods, with net settlement.

The average fixed interest rate payable by clients was 0.13% and the minimum was 0.10%, equal to the minimum fixed rate set by the MNB for the tender. The MNB will pay them a floating interest rate of 1.35% for the first interest rate period which starts on February 1.

The MNB accepted all bids of the 11 participating banks in order to support a targeted increase in lending, the MNB said, noting that through their accepted bids, these banks undertook to raise their lending stock to small and medium-size companies (SME) by a combined HUF 155 bln a year.

Information regarding the tenders on the MNB website shows that the MNB will hold the tenders bi-weekly with at least five such tenders to be held. All IRSs signed at these tenders will mature on the same day: on February 28, 2019. Clients may close the swaps voluntarily twice during the three-year run: by the February 28, 2017 and the February 28, 2018 value day.

The MNB will check how banks met their lending commitments for 2016 in the first quarter of 2017. Those failing to meet their commitments must pay a fine equal to the realized gain.

Participation at the tender is open to domestic credit institutions who are direct members of the real-time settlement system VIBER or the interbank clearing system BKR and who have an obligation to hold mandatory reserves, except for the specialized state-owned institutions Hungarian Development Bank MFB and Hungarian Eximbank.

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