Hungary's central bank to provide 0-percent credit

The National Bank of Hungary (MNB) has announced on Thursday that its Monetary Council discussed the possible means of fostering economic growth and launches the Funding for Growth Scheme (FGS) of the Bank to boost the economy.

MNB Governor György Matolcsy announced that HUF 250 billion (that is, currently, over EUR 800 million) worth of refinancing loans will be provided to small and medium-sized enterprises via the banking system for investments and co-financing EU projects.

Further funding will be provided for banks at 0% interest rate in scope of the program that is scheduled to decrease foreign currency reserves of the MNB by EUR 3 billion. The FGS program aimed at credit extension is built on the British 'funding for lending’ scheme, he added.

As portfolio.hu reports, under the FGS – a program to run between June and August this year - , local banks can provide loans at 2% interest. The central bank can decide at the end of the program whether to continue it or not.

Regarding the size of the program, Matolcsy claimed that this will create a substantial excess credit supply since it equals 4% of corporate loans and 7% of loans to micro businesses.

He was of the view that SMEs may have access to cheap forint loans and also take part in the pillar aimed to converting FX debt to forint.

The second pillar of the scheme is aimed at converting SMEs foreign currency debt (54% of the total debt of some 15,000 companies) to cheap forint debt. This means credit extended at a 2% interest, i.e. a 0% refinancing loan for the companies with a maximum 2% margin allowed for the banks.

Thirdly, the bank aims to reduce the vulnerability of the banking system. It wants to achieve this by lowering the short-term external debt, while observing the Guidotti-Greenspan rule.

There are foreseeable benefits and risks attached to the three steps, but every risk is within range of tolerance, Matolcsy claimed.