Hungary’s central bank aims to boost corporate bond market
by Graham Buck
The National Bank of Hungary (MNB) wants to help double or even triple the size of the country’s corporate bond market to help diversify company funding and better prepare for a possible crisis, says NBH deputy governor Marton Nagy.
He notes that Hungary’s current level of about 1.6% of gross domestic product (GDP) is below central European peers such as the Czech Republic and Polish corporate bond markets, which are both at about 6-7% of GDP.
The central bank wants to see increased competition with bank funding, which currently covers about 99% of Hungarian corporates’ funding needs, and the NBH could also better step in to the corporate bond market to help companies in the event of a crisis, he adds.
$1bn stimulus
In late March, the MNB announced a forint (HUF) 300 billion (US$1.05 billion) corporate bond purchase programme commencing July 1, 2019. the Bond Funding for Growth Scheme (BGS) will involve the purchase of bonds issued by domestic non-financial corporations with an “at least B+” rating.
“By introducing a new monetary policy instrument, the BGS, the Council’s specific objective is to promote the diversification of funding to the domestic corporate sector,” the bank announced at the time.
“Under the program, the Bank will purchase bonds having a good rating issued by non-financial corporations. The MNB will neutralise excess liquidity arising from the bond purchases by using the preferential deposit facility bearing interest at the central bank base rate.”
The programme complements an earlier programme, the Funding for Growth Scheme Fix, launched at the start of 2019, the central bank added.
The “B+” credit rating is four notches under the investment grade threshold, noted state news wire MTI.
Eligibility rules
The BGS programme limits the MNBʼs purchases to 70% of a series and caps its exposure to any corporate group at HUF 20 billion. To be eligible for the scheme, companies must issue at least HUF one billion of bonds, which must be denominated in forints with original maturities between three and 10 years.
The central bank noted then that Hungaryʼs corporate bond market lags behind those in the eurozone and in other countries in the region. It said the new scheme aims to boost liquidity on the corporate bond market and raise the degree to which Hungarian companies can rely on financing other than bank loans.
“This may contribute to improving the efficiency of monetary policy transmission, since healthy competition between the markets supplying companies with funds may raise the effectiveness of the central bank’s interest rate decisions, and thus several channels of transmission will be able to provide efficient support for achieving the inflation target in a sustainable manner,” it added.
In a bid to contribute to the spread of securitisation in Hungary, the MNB said it would also buy securities backed by corporate loans within the scope of the scheme.
The scheme would have “no effect on monetary policy conditions” as surplus liquidity generated in the banking system resulting from the corporate bond purchases would be sterilised with the central bankʼs preferential deposit facility. The MNB noted that corporate bonds purchases are well-established among leading European central banks such as the European Central Bank (ECB) and the Bank of England (BoE).
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