"The Monetary Council of Hungary’s central bank (NBH) has held a non-rate-setting meeting on Monday where it announced a new programme to foster domestic forint mortgage lending and mortgage bond markets.According to the decision taken by the MPC today, the central bank has announced a new monetary policy tool to support the development of the domestic forint mortgage lending and mortgage bond markets.
The objective of the programme is to eliminate the barriers to the autonomous development of the mortgage bond market and thereby to enhance financial stability and the efficiency of the monetary transmission mechanism.
Under the programme, the Bank will purchase forint mortgage bonds and undertake regulatory initiatives to develop the domestic forint mortgage lending market.
As a positive development, there has been a significant narrowing in the interest differential between newly granted forint and foreign currency loans in recent months, resulting in improved competitiveness of forint mortgage loans. As an indication of this, a number of banks have introduced new forint-based mortgage lending products. The NBH intends to support this process by announcing a mortgage bond purchase programme.
Improving the conditions for forint-based financing for banks and their customers by encouraging a reduction in liquidity premia in the mortgage bond market marks the first step of the programme designed to support the development of the forint mortgage lending and mortgage bond markets. This may contribute to an increase in the supply of forint mortgage loans and a further reduction in the interest differential against foreign currency loans.
Under the scheme, the Bank will start buying domestically issued mortgage bonds listed as eligible collateral first in the secondary market and then in the primary market up to a total notional value of HUF 100 billion.
Purchases by the Bank will be subject to meeting certain conditions aimed at enhancing the liquidity and transparency of the market. Taking this into account, the Bank is willing to buy parts of adequately sized mortgage bond issues in the primary market if the issuer proves that continuous market making in the bonds in the secondary market is granted.
For credit institutions undertaking market making in mortgage bonds the Bank offers a mortgage bond lending facility on demand. All domestic credit institutions subject to reserve requirements are allowed to participate in the programme, provided that they satisfy the relevant technical requirements.
The mortgage bond purchase programme is expected to be completed on 31 December 2010 at the earliest. Further details on the implementation of the mortgage bond purchase programme will be published in a press release on 28 February 2010.
The NBH expects to undertake a number of other initiatives within the framework of the programme to support the development of the forint mortgage lending market in 2010. These will aim at enhancing the transparency of mortgage loan products and widening the range of institutions eligible to issue mortgage bonds.
Portfolio.hu viewpoint:
The NBH decision is not out of the blue for banks, as it is an entirely Europe-conform set of measures. The European Central Bank (ECB) also has a similar programme in place to the tune of over EUR 60 bn. Purchases already exceed half of what was set out in the programme. Via the NBH decision, OTP and Land Credit and Mortgage Bank (FHB) will have easier access to forint funds that - indirectly - could be a stabilising factor for their respective bond markets, as well.
Although Dec data provided by the NBH show that the ratio of forint loans increased within total new lending, the amount remains extremely small. The central bank’s initiative to boost lending is definitely a welcome step. We could only guess what other measures the c.bank has in store, but the whole notion is very good."
Source: Portfolio Online Financial Journal
09.02.2010