Hungary’s central bank will offer two-year, collateralized base rate-indexed loans to domestic lenders and widen the range of collateral it accepts starting next month to boost corporate lending as the economy falters.
Interest on the loans, to be offered beginning on April 3, will be equal to the benchmark interest rate prevailing during their term, the Magyar Nemzeti Bank said in a statement posted on its website today.
“The bank’s new facilities are designed to provide a safety net for the banking sector through enhancing credit institutions’ capacity to lend,” the central bank said. The facilities “cannot and are not meant to exert a material influence on banks’ willingness to lend.”
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.
Banks that try to keep from reducing their adjusted outstanding loans to corporations to below December 2011 levels during the term of the two-year loan will be eligible to bid at the auctions to be held on the first Tuesday of every month, the statement said.
The central bank announced Feb. 15 it would provide a credit line to local lenders and set up a plan to aid the mortgage industry to combat the decline in lending.
The government expects the economy to slow to 0.5 percent this year from 1.7 percent in 2011 while the Organization for Economic Cooperation and Development sees a contraction of 0.6 percent. The forint advanced 0.4 percent to 290.51 per euro by 11:08 a.m. in Budapest.
The bank also said it will broaden the range of securities it accepts as collateral and change the acceptance ratios for eligible assets starting from April 16 to avert potential forint liquidity shortages.
The range of collateral will include foreign currency- denominated government bonds and foreign currency-denominated corporate bonds meeting certain eligibility criteria, according to the release.
The bank will accept corporate bonds issued in any regulated market or non-regulated markets accepted by the central bank and the Budapest Stock Exchange.
Forint-denominated mortgage bonds issued in regulated markets other than the Budapest bourse and non-regulated markets accepted by the central bank will also be accepted as collateral, it said.
The central bank is seeking to revive household lending with a mortgage bond-purchase plan that can help improve the maturity match between assets and liabilities, it said on Feb. 15. 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.
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