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Hungary Central Bank Unveils Plans to Help Boost Lending

Hungary’s central bank will take steps to help boost lending, including providing corporate credits and creating a plan to aid the mortgage industry, as economic growth may stall this year.

The Magyar Nemzeti Bank will offer a two-year collateralized credit facility to commercial banks, start a universal mortgage bond-purchase plan and expand the range of eligible collateral to increase lending, the Budapest-based bank said today in a statement on its website.

Lending to companies in Hungary has been declining since the fourth quarter of 2008, raising the threat of a “creditless recovery,” the central bank said on Sept. 23. It warned that Hungary’s recovery from its worst recession in 18 years is in peril as the lack of corporate credit may hamper economic growth.

“The Magyar Nemzeti Bank will stand ready to offset the recent weakening in banks’ capacity to lend,” the bank said today. The drop in lending is partly the result of “banks’ limited lending capacity and in large part by their reduced willingness to lend.”

The two-year credit facility, available only to banks that pledge not to reduce corporate lending through the maturity of the loan, will serve as a “veritable safety net,” central bank Governor Andras Simor said in an interview with news portal Portfolio today.

‘Feel Safer’

“Banks can feel safer with respect to funding supply, the maturity mismatch between assets and liabilities and they can extend credit more bravely,” Simor said.

The government expects the expansion to slow to 0.5 percent this year from a preliminary 1.7 percent in 2011 while the International Monetary Fund may cut its 0.3 percent growth forecast for Hungary because of the euro area’s deteriorating outlook, IMF representative Iryna Ivaschenko said on Feb. 9.

“In terms of lending dynamics we expect muted impact in the near term as the banking sector as a whole already has a significant amount of excess liquidity,” Gyula Toth, a Vienna-based strategist for emerging markets at UniCredit SpA, wrote in a report today.

The two-year variable-rate refinancing to banks at the central bank’s prevailing policy rate against securities delivered as collateral is designed to help corporate lending, according to the statement.

Financing Access

The new facility, available as of next month, allows banks access to financing at maturities of limited availability in the market without the need to pay a term premium on longer-term funding, the statement said.

The plans presented today may support ending, however the central bank’s tools “aren’t sufficient on their own to revive corporate lending,” Simor said. The bank has yet to decide the amount it will allocate in two-year collateralized loans to banks, he said.

The new two-year facility will likely support short-end government bonds,’’ UniCredit’s Toth said, adding that any “direct impact will largely depend on the finally agreed re-pricing period.”

The central bank is seeking to revive household lending with the mortgage bond-purchase plan, which can help improve the maturity match between assets and liabilities, according to the statement. To help the purchase plan’s success, it’s necessary for lawmakers to pass legislation allowing all credit institutions to issue mortgage bonds, the bank said.

The mortgage note purchase plan is expected to start within one month after the necessary legislation is passed. The expansion of the range of eligible collateral can alleviate liquidity constraints potentially impeding corporate and household lending through an increase in banks’ liquidity buffers, the bank said.

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