The Covid-19 pandemic has been challenging for many businesses. In response, Magyar Nemzeti Bank introduced a series of coordinated measures to support micro, small and medium-sized businesses. As a first step, the MNB announced flexible restructuring options and a moratorium on repayments of existing loans, granted under the funding for growth scheme until the end of this year. The Hungarian government issued a decree concerning a wider scope of debtors and loans on 18 March in line with the MNB’s proposal. This resulted in savings of around Huf2tn (€5bn) for citizens and companies.
The FGS, launched in 2013, was instrumental in supporting SMEs after the 2008 financial crisis, and had a major impact on growth and employment. Under this programme, the MNB provides zero-rate refinancing for credit institutions specifically for lending to SMEs, allowing a maximum 2.5% interest rate margin to be applied. In the last seven years, almost 50,000 businesses have accessed close to Huf3.4tn (€9.8bn).
While the FGS has been popular with Hungarian SMEs and financial institutions since its creation, the Covid-19 crisis has underlined the importance of reliable funding at favourable interest rates.
In April, the MNB launched a new phase, ‘FGS Go!’, which will provide Huf1.5tn (€4.3bn) in additional loans. This addresses companies’ changing needs in times of crisis, in terms of loan purposes, size and maturity. It offers even more favourable conditions for domestic SMEs than before. The scope of loan purposes available under FGS Go has widened significantly. In addition to investment loans and leasing transactions, businesses can take out working capital loans to cover operating expenses as well as to redeem existing loans accessed earlier at market rates. The maximum loan amount increased to Huf20bn (€57m) to support larger SMEs and investment projects. The maximum 20-year maturity ensures reliable funding for investments with slow returns.
The MNB also changed the conditions of the bond funding for growth scheme introduced in July 2019. This programme offers an alternative to bank loans. The central bank intends to encourage domestic companies suited for bond issuance to rely on this method of fundraising by increasing the liquidity of the Hungarian corporate bond market. So far bonds have been issued by 26 companies, raising a total of Huf480bn (€1.4bn). The interested or issuing companies are diverse in both sectoral and geographical terms.
At the start of the crisis, the MNB transformed and expanded its monetary policy toolkit and changed its operational framework. It extended the range of eligible collateral to large corporate loans. A long-term, fixed-rate collateralised loan instrument was introduced. To improve monetary transmission, the monetary council announced a government securities purchase programme and relaunched its mortgage bond purchase programme. To ensure price stability and restore economic growth, at the end of June and in July the monetary council cut the policy rate by 15 basis points to 0.60%.
Overall, the MNB’s targeted measures and moratorium on loan repayments have proved extremely helpful for economic agents struggling through the pandemic. The FGS and BGS are likely to play an important role in restarting the Hungarian economy. The transformed central bank toolkit may lead to a general easing of monetary conditions to support price stability, financial stability and economic growth.
György Matolcsy is Governor of Magyar Nemzeti Bank.