Portfolio Cleaning of Problem Project Loans in Hungary : Experiences Related to the Systemic Risk Buffer, as a Targeted Macroprudential Instrument

Fáykiss, Péter and Rariga, Erzsébet-Judit and Zsigó, Márton (2019) Portfolio Cleaning of Problem Project Loans in Hungary : Experiences Related to the Systemic Risk Buffer, as a Targeted Macroprudential Instrument. FINANCIAL AND ECONOMIC REVIEW, 18 (3). pp. 52-82. ISSN 2415-9271 (print); 2415-928X (online)

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Abstract

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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