The 2008 financial crisis underlined that, on the one hand, the operation of the banking sector is highly procyclical and, on the other hand, household borrowers are unable to assess their long-term ability to repay realistically. The resultant excessive risk-taking and inadequate risk assessment by banks brought, in Hungary as well, substantial losses for banks and a high rate of distressed customers. Through the enforcement of debt cap rules, the MNB as a macroprudential authority has been limiting the recurrence of excessive household indebtedness in a preventive manner since 2015. Focusing on international practices and the results of Hungarian regulations in the first two and a half years, we reviewed the Hungarian experiences with regard to the debt cap rules. Although we can only draw preliminary conclusions due to the shortness of the period elapsed since the introduction of the debt cap rules, our analysis demonstrates that, in line with their calibration, Hungarian debt cap rules currently do not restrict sustainable lending processes, and contribute significantly to promoting a healthy lending structure by restraining excessively risky loans.
After the crisis, more than 50 per cent of project exposures related to real estate financing became problem exposures at the largest Hungarian banking groups. With a view to managing macroprudential risks, the Magyar Nemzeti Bank introduced a systemic risk buffer, the rate of which has been calibrated in proportion to the individual contribution to systemic risk. In this paper, based on the data available in the project exposure database at contractual granularity, we analyse certain characteristics of these transactions in the third quarter of 2015, immediately prior the announcement of the capital buffer requirement, as well as the adjustment by the institutions until the end of the first quarter of 2017, i.e. the start date of the mandatory recognition of the capital buffer. We found that banks typically cleaned the larger problem exposures, and there is no indication that institutions gave preference in the cleaning process to problem exposures that defaulted more recently. In fact, when examining the institutions preliminarily affected by the announcement about the intended capital buffer quite the opposite was seen. The analysis also revealed that cleaning was stronger at those institutions which, based on the 2015 Q3 data, would have been preliminarily affected by the systemic risk buffer.
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