Hungary to nudge banks towards mortgage bond financing

MBH Jelzalogbank Nyrt

08/04/2015 16:42

BUDAPEST, April 8 (Reuters) - Hungary plans to require banks 
to issue mortgage bonds to finance 15 percent of their 
outstanding home loans, to reduce risks to lenders, a central 
banker said on Wednesday. 
    Marton Nagy, the central bank's managing director, told an 
economic conference that the reform was under consultation with 
the European Central Bank and could take effect sometime around 
the middle of 2016 to give banks enough time to prepare. 
    The move is aimed at improving the quality of banks' balance 
sheets by encouraging them to use longer-term funding to finance 
lending.  
    Hungarian banks' combined stock of retail mortgages totals 
around 3 trillion forints ($10.9 billion), according to the 
central bank. That is after the government ordered banks to 
convert foreign currency retail loans, mostly in Swiss francs, 
into forints as part of measures to help households who were 
caught out when the Swiss currency appreciated during the global 
financial crisis.  
    "If the central bank prescribes that 15 percent of the 
existing mortgage stock will have to be backed by mortgage bonds 
... that will mean issuance of about 500 billion forints," Nagy 
said. 
    The reform could spark a mortgage bond issuance spree, but 
banks would have to set up mortgage units to make such issues, 
he said. 
    Only three banks in Hungary already have mortgage units and 
have issued such bonds: local lenders OTP Bank  OTPB.BU  and FHB 
Bank  FHBK.BU , and Italy's UniCredit  CRDI.MI . 
    Other major banks in the country include Belgium's KBC 
 KBC.BR , Austria's Erste Bank  ERST.VI  and Raiffeisen 
 RBIV.VI , as well as Italy's Intesa SanPaolo  ISP.MI . 
    Nagy said that forint loans with a long maturity, averaging 
12-13 years but up to 20 years, tended to be backed by 
short-term funding because that was less expensive for banks 
than longer-term funding. But it was also more risky, supporting 
the case for mortgage bonds. 
    "The banking system does not do this by itself because 
shorter funding is cheaper than longer funding," Nagy said, 
adding that the difference could be as much as 100-150 basis 
points. 
    "The balance sheet would be healthier if this maturity gap 
is reduced," Nagy said. "Funding may become more expensive, but 
it will also become safer." 
    Nagy said the average interest rates on mortgage bonds were 
above comparable government bonds, but a liquid market could 
help reduce that premium, making such financing more affordable. 
($1 = 275.1000 forints) 
 
 (Reporting by Gergely Szakacs; Editing by Susan Fenton) 
 ((gergely.szakacs@thomsonreuters.com; +36 1 327 4748; Reuters 
Messaging: gergely.szakacs.thomsonreuters.com@reuters.net)) 
 
Keywords: HUNGARY BANKS/