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Measures to Boost Hungarian Green Lending

Measures to Boost Hungarian Green Lending

Hungary
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The MNB has launched its Green Program early 2019 to mitigate the risks associated with climate change and other environmental problems, to expand green financial services in Hungary, to widen the related knowledge base in Hungary and abroad, and to reduce financial market participants’ and its own ecological footprint. The Green Program relating to green financial services consists of several initiatives from analyzing the current situation of green financing to incentivizing the financial market participants to operate greener and engaging in green financial services (mainly loans and bonds).

The first step towards promoting green finance in Hungary was when the Hungarian Government issued green government bonds in June 2020, which primarily collected dedicated funds for government investments related to climate and environmental objectives defined in Hungary’s Clean Development Strategy. Since then, many other measures have been introduced to support the financing of green projects.

MNB capital relief

In order to encourage green lending in the banking sector, the green preferential capital treatment for energy efficient mortgages came into force at the beginning of 2020.  Under the new rules, banks can apply a significantly reduced capital requirement for loans financing purchase and construction of energy-efficient properties, including rebuilds.  The capital discount is 5% or 7% of each eligible gross exposure, which reduces the Pillar II capital requirements of the participating institution. The discount rate varies between industries and the type of standards adhered to. In exchange, it is expected that the clients are offered reduced interest rates and fees. 

At the end of 2020, the MNB introduced the Green Preferential Capital Requirement Program for loans financing renewable energy production, but its scope has been extended later on and now it covers solar power plants, sustainable agriculture, energy efficiency, electromobility and green real estates. 

Green know-how

The European Investment Bank (EIB) — the bank of the European Union — and Magyar Fejlesztési Bank (MFB), will cooperate to help MFB's advisory unit to provide advisory services to Hungarian project promoters. The agreement will enable Hungary's national development bank to offer support for the investment activities of businesses (small and medium-sized enterprises (SMEs) and mid-caps), municipalities and state-owned companies. The EIB grant to MFB is being provided through the European Investment Advisory Hub (EIAH), part of the Investment Plan for Europe.

MFB's advisory unit (Üzleti Tanácsadás Csoport), established with the support of a previous EIAH grant, will provide technical assistance and advisory support for preparing, implementing, financing and monitoring investment projects in key sectors of the Hungarian economy, including information and communication technologies (ICT), the environment and resource efficiency. To achieve these goals, MFB will develop an online advisory platform and a financial product map to help project promoters navigate the financing opportunities available to them at the national and EU level. 

Green housing

The Green Home Program was launched during the summer of 2021 as part of the MNB's Green Program to facilitate the development of green homes and establish a green home loan market. According to the Green Home Program, the MNB provides refinancings to the banks for financing the construction and purchase of green homes. In addition, the MNB launched a Green Mortgage Bond Purchase Program for the purchase of green-rated mortgage bonds with the aim to promote green housing lending from another angle.

Operation

In April 2021 – also as part of the MNB's Green Program - the MNB issued a Green Recommendation for the banking sector. In this recommendation, the MNB sets out expectations regarding – among others - strategy making, corporate governance, risk management, etc. The goal of the Green Recommendation is to encourage the Hungarian credit institutions to change their operation towards sustainable ways and to prepare for mandatory regulatory changes relevant to climate change and environmental risks. 

Conclusion

In the near future, it is expected that sustainability will become a cornerstone of the regulatory environment. In parallel, the non-financial aspects of an investment will be more and more emphasized during the decision-making process. Greenwashing will no longer be sufficient; the environmental and social aspects will really matter in the market as the investors and the society turns its attention to the matter. This will challenge the current ways of operation of the lending sector and the transition must be well prepared and must start as soon as possible. 

By Gergely Szaloki, Partner, Schoenherr

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