According to the announcement on Wednesday, according to the agreement concluded between the MNB and the Hungarian Banking Association on 19 August, the MNB will make available the amount of the Swiss franc needed for the conversion into forint. The MNB will hold its first tender on August 24, where partner banks will be able to obtain the required amount of Dollar at the latest official MNB exchange rate available at the time of the tender.
What to do to maintain the rate
According to the announcement, the MNB played a significant role in the conversion of retail foreign currency and foreign currency-based mortgages, which resulted in the successful elimination of the majority of retail foreign currency loans. However, greater volatility in the exchange rate of the Swiss franc indicates that the remaining HUF 300 billion of retail currency loans related to 250 thousand contracts – mainly Swiss franc-based car and personal loans –
Carries significant risks due to its wide social impact.
All this has been highlighted by the MNB several times in its Financial Stability Report and other forums. In preparation for the conversion of the remaining consumer foreign currency loans into Forint, the Monetary Council decided at its meeting on 9 June this year to provide banks with the full amount of foreign exchange needed for conversion, which is facilitated by favorable reserve compliance.
Wednesday’s agreement between the MNB and the Banking Association regulates the most important business conditions of forint-related transactions. As part of this, the MNB will make available its Swiss franc tender offer to all financial institutions. Credit institutions belonging to its counterparty can directly access the assets of the MNB, while financial institutions not affiliated to the counterparty have indirect access to the MNB’s assets through umbrella banks.
The first date for the Swiss franc sale tender is 24 August at 10 am. During the tender process, credit institutions may execute foreign exchange conversions with the central bank at the most recent official MNB exchange rate available at the time of the tender, on an unconditional and immediate basis, up to an amount of CHF 0.9 billion, fully covering their pre-arranged needs.
The MNB is prepared for a quick and orderly withdrawal of the remaining retail foreign currency loans.
Within the framework of the agreement, the Banking Association undertook to meet its members’ demand for hedging (foreign exchange borrowing) arising from the conversion of the remaining foreign currency loans into forint on the tenders of the MNB. Both the MNB and the Banking Association are committed to converting the remaining foreign currency loans as soon as possible, while maintaining the stability of the financial system and without material impact on the forint exchange rate.
The program does not jeopardize the adequacy of central bank reserves, the reserve level is satisfactory, while the foreign currency loan portfolio in question is not considered to be significant, as it corresponds to only one-tenth of the foreign currency mortgage loan withdrawn through forint and settlement.
The era of retail foreign currency lending began in the early 2000s with car financing, and cancellation of retail foreign currency loans can be ended by converting these loans into forint – reads the central bank’s announcement (MTI).