MNB introduces a Green Preferential Capital Requirement Programme

Budapest, 18 December 2019

The MNB announces a preferential capital requirement programme for credit institutions to support the growth of green financial products and to improve the energy efficiency of the Hungarian building stock. The preferential regulatory treatment will be available for green housing loans granted between 1 January 2020 and 31 December 2023. A consultation with the banking sector will also be launched on the possibilities of introducing green covered bonds in Hungary.

In its Green Programme, the Magyar Nemzeti Bank (MNB) has set itself the objective to ensure that the Hungarian financial intermediary system makes a significantly greater contribution to ecologically sustainable convergence and to the reduction of risks arising from climate change. The banking sector can best support this objective by its lending activities and rechannelling funding sources.

In Hungary, the building stock is responsible for nearly 40 per cent of national energy consumption. At the same time, the technical and thermotechnical condition of a large part of constructions is obsolete, and therefore large amounts of energy could be saved by reducing the energy consumption of buildings.

In their lending activities, banks typically do not take the energetic characteristics of buildings into consideration, although the average overhead costs of energy efficient (green) properties are lower. Consequently, consumers taking out a green loan have a higher disposable income available for monthly repayments, and more favourable energetic properties may improve the ability of the given property to retain its value. For this reason, green housing mortgages can have lower risks than similar but not energy efficient loan products. Lower risk in turn could be realised in the pricing of products and the capital requirements on this type of loan transactions.

In Hungary, the volume of green financial products is still low despite their favourable characteristics. The MNB’s aim is to ensure that the systematic collection of energy efficiency data related to loan transactions becomes standard in the domestic banking sector and that such data are incorporated into risk analysis and management models.

The Bank’s programme supports the development of the green financial market by promoting dedicated green products. Under the Green Preferential Capital Requirement Programme, credit institutions may receive a capital requirement deduction on loans serving energy efficient home purposes and consumers may receive an interest rate subsidy. Credit institutions may have access to the capital requirement deduction for a four-year transitional period. The MNB will decide on the continuation of the Programme after the period ends.

The MNB has also decided that it would support the introduction and spread of so-called green covered bonds in Hungary. The Bank, in consultation with credit institutions, will develop its measures in which it will also examine the possibility of the scope for adopting a preferential treatment in the Mortgage Funding Adequacy Ratio (MFAR).

In addition, using educational and information programmes, the MNB intends to ensure that an increasing number of consumers recognise that their finances may also serve sustainability purposes. The conditions of the Green Preferential Capital Requirement Programme are available here. The MNB has published a detailed background material on green lending to households available here.

Magyar Nemzeti Bank