07/01/2021 | News release | Distributed by Public on 07/01/2021 01:56
Budapest, 1 July 2021- In line with its Green Program, the MNB supports the financial system's contribution to mitigating climate change-related risks. As part of this, the central bank revised its regulation on the Mortgage Funding Adequacy Ratio (MFAR). According to the amendment, from 1 July 2021, green mortgage-backed funds can be taken into account in the calculation of the ratio with a preferential weighting. The amendment encourages the future domestic issuance of green mortgage bonds, which are becoming more and more widespread internationally, and through this the spread of mortgage loans financing green buildings. Other amendments to the MNB's decree strengthening financial stability objectives will enter into force on 1 October 2022.
The contribution of the financial intermediary system to the mitigation of risks related to climate change is an important goal for financial stability and the public interest, which the MNB also supports through its measures. The MNB has been working on a comprehensive project covering a wide range of green finance initiatives since 2019, which also includes a development program for the green mortgage bond market, which promotes the financing of green, energy-efficient real estate. The domestic appearance of green mortgage bonds would also support the spread of green mortgage loans (dedicated to financing energy-efficient real estate). On the one hand, they help improve the energy efficiency characteristics of the housing stock; on the other hand, they may have more favourable risk characteristics based on preliminary international experience. Due to the growing interest in green investments, green instruments may also provide a new, more diversified stable funding opportunity for the banking sector in the future. One pillar of supporting the green mortgage bond market will be the MNB's green mortgage bond purchase program as a demand-side incentive, while the other pillar will be the amendment of the Mortgage Funding Adequacy Ratio (MFAR), which encourages the issuance of green mortgage bonds from the supply side.
Based on the decision of the MNB's Financial Stability Board (FSB), from 1 July 2021, green mortgage-backed funds with an original maturity of more than 5 years may be taken into account with a higher weight of 1.5 when calculating the MFAR. This could steer issuances towards green mortgage bonds, which also supports the greening of mortgage loan portfolios that serve as cover assets for these. With regard to the labelling of mortgage bonds as green, the MNB requires banks to follow standards that are widely accepted and employed internationally to support banks' adjustment and investor orientation.
In addition to the preferential treatment of green mortgage-backed funds, the FSB also made changes in the regulation supporting the reduction of the sector-level HUF maturity mismatch: raising the required minimum level of the ratio from 25 to 30 percent, expecting newly issued mortgage bonds to be listed on a stock exchange, and reintroducing the restrictions on cross-ownership of mortgage bonds by banks suspended because of the pandemic in an amended form, from which a discount may be obtained in the case of ownership for market making purposes. These changes will take effect on 1 October 2022 in order to ensure adequate preparation time for banks and are not expected to cause significant adjustment difficulties for them, given the preferential weighting of green liabilities, as well.
The text of the MNB decree has been published in the Hungarian Official Gazette.
Further information on the macroprudential instruments of the central bank addressing liquidity and financing risks can be found here.
Magyar Nemzeti Bank