Hungary Central Bank Expands Lending Plan to Boost GDP

Hungary’s central bank will expand its Funding for Growth program through the end of 2014 in a bid to boost the economy after last year’s recession.

The Magyar Nemzeti Bank will provide as much as 2 trillion forint ($8.9 billion) in interest-free funding to commercial lenders, President Gyorgy Matolcsy told reporters today, extending a 750 billion-forint initiative that began in June. It will offer 500 billion forint starting October, with 90 percent earmarked for new loans to small and medium-sized companies.

Central banks around the world are looking for ways beyond interest rates to stimulate economic growth. Hungarian policy makers, who cut the benchmark rate to a record 3.8 percent last month, have further room to ease monetary policy, Matolcsy said today. Gross domestic product expanded 0.1 percent from the previous three months in the second quarter.

“The Funding for Growth program will substantially strengthen the country’s return to growth in the coming years,” Matolcsy said. The funding, which banks must lend at an interest rate not exceeding 2.5 percent, may boost GDP by as much as a cumulative 2.4 percent through 2014, he said.

The forint dropped 0.1 percent to 299.6 per euro by 4:10 p.m. in Budapest, paring a 0.3 percent gain yesterday. OTP Bank Nyrt., Hungary’s largest lender, rose 1.3 percent, the largest gain among 15 eastern European banks tracked by Bloomberg.

The first phase of the Funding for Growth plan expires Sept. 30. Lenders extended 32 percent of interest-free funding for new investments, with an additional 40 percent going to loan refinancing, the central bank said today, based on data after 60 percent of the available funds were used.

OTP competes mostly with units of international banks including Erste Group Bank AG (EBS), Raiffeisen Bank International AG (RBI), UniCredit SpA (UCG), Bayerische Landesbank AG, KBC Groep NV (KBC), and Intesa Sanpaolo SpA. (ISP) The central bank has said it will allocate the zero-rate funding to help smaller domestic banks gain market share.

To contact the reporters on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net; Marton Eder in Budapest at meder4@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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