Budapest, July 7 (MTI) – Hungary’s central bank is introducing a new foreign exchange coverage ratio and tightening up banks’ foreign exchange funding adequacy ratio with the aim of reducing reliance on short-term foreign funding and thereby moderating the country’s external vulnerabilities.
The National Bank of Hungary said in a statement on Tuesday that its Financial Stability Council approved the new rules after coming to an agreement with the domestic banking sector and the European Central Bank. The NBH decree will come into force on January 1 next year.
The decrees will exclude long-term swaps and raise the required minimum level for the Foreign Exchange Funding Adequacy Ratio to 100 percent to mitigate maturity mismatches in foreign currency positions.
It is expected that the new regime will shrink the sector’s external debt by 2-3 billion euros, though it is possible the reduction could amount to as much as 6-7 billion by the end of 2016.