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Annual Report Annual Report 2015 Annual Report 2015 BUSINESS REPORT AND FINANCIAL STATEMENTS OF THE MAGYAR NEMZETI BANK Published by the Magyar Nemzeti Bank Publisher in charge: Eszter Hergár H-1054 Budapest, Szabadság tér 9. www.mnb.hu ISSN 1216-6197 (print) ISSN 1585-4604 (on-line) Contents Part A 2015 Business Report of the Magyar Nemzeti Bank 5 1 The Governor’s foreword 7 2 A brief overview of the Magyar Nemzeti Bank 12 2.1 Objectives, basic and other tasks of the MNB 12 2.2 Bodies and management of the MNB 13 2.3 Organisation of the MNB 16 2.4 The MNB as a member of the European System of Central Banks 16 3 Review of the MNB’s performance in 2015 22 3.1 Monetary policy 22 3.2 Stability of the financial intermediary system 28 3.3 Supervision and consumer protection 32 3.4 Resolution 39 3.5 Payment and securities settlement systems 41 3.6 Foreign exchange reserves management 44 3.7 Cash logistics activity 47 3.8 Statistical services 51 3.9 The MNB’s activity in the area of social responsibility 54 3.10 Factors shaping the communication of the MNB 55 3.11 The MNB’s income in 2015 56 Published by the Magyar Nemzeti Bank 3.12 Financial performance of the MNB 58 Publisher in charge: Eszter Hergár 3.13 Introduction of the ESCB Committees 63 H-1054 Budapest, Szabadság tér 9. 3.14 The MNB’s research activities in 2015 65 www.mnb.hu 3.15 Publications and conferences organised by the MNB in 2015 66 ISSN 1216-6197 (print) 4 Additional information on the supervisory activity of the MNB in 2015 71 ISSN 1585-4604 (on-line) 4.1 Institution oversight 71 4.2 Inspections completed 71 4.3 Authorisation and legal enforcement 72 4.4 Market surveillance 75 4.5 Consumer protection 76 4.6 Administrative representation at proceedings 79 5 Explanation of abbreviations and terms specific to central banking 80 ANNU AL REPORT • 2015 3 MAGYAR NEMZETI BANK Part B) Audited financial statements of the Magyar Nemzeti Bank 83 1 Independent auditor’s report 84 2 Balance sheet of the Magyar Nemzeti Bank 86 3 Income statement of the Magyar Nemzeti Bank 87 4 Notes to the financial statements 88 4.1 The MNB’s accounting policy 88 4.2 Effects of macroeconomic trends on the 2015 balance sheet and income statement of the Magyar Nemzeti Bank 93 4.3 Forint receivables from the central government 94 4.4 Foreign currency receivables from the central government 94 4.5 Forint and foreign currency liabilities of the central government 94 4.6 Net positions vis-à-vis the central government 95 4.7 Forint receivables from and liabilities to credit institutions 96 4.8 Net positions vis-à-vis credit institutions 97 4.9 Gold and foreign exchange reserves of the central bank 98 4.10 Other forint and foreign currency receivables 99 4.11 Other deposits and liabilities 100 4.12 Invested assets 102 4.13 Impairment losses and provisions 108 4.14 Prepaid expenses/accrued income and accrued expenses/deferred income 109 4.15 Changes in equity 109 4.16 Revaluation reserves 110 4.17 Off-balance sheet liabilities and other significant off-balance sheet items of the MNB 111 4.18 Net interest income and realised net income of financial operations 113 4.19 Components of income from the revaluation of foreign exchange holdings 115 4.20 Cost of issuing banknotes and coins 115 4.21 Other income/expenses 116 4.22 Income other than fees and commissions 116 4.23 Income from supervisory activities 117 4.24 Operating income and expenses 118 4.25 Information on wages and number of staff 119 4 A nnuAl REpoRT • 2015 Part A) 2015 Business Report of the Magyar Nemzeti Bank ANNU AL REPORT • 2015 5 1 The Governor’s foreword Upon assessment of the inflation and macroeconomic the FGS will commence from the beginning of 2016. developments, in March 2015, the MNB’s Monetary As part of the GSP, the third, phase-out stage of the Council decided to further lower the key policy rate FGS allows narrower financing sources compared and re-start the easing cycle. In line with the money with previous phases. The programme also comprises market environment, since March 2015, the Monetary the Market-Based Lending Scheme (MLS), which is a Council reduced the central bank base rate by a total package of instruments containing positive incentives of 75 basis points, in gradual steps of 15 basis points, for banks to boost their lending activities. to 1.35 per cent, which is a historically low level. After a review of the inflation target, the Monetary Council Pursuant to a Monetary Council decision of 2 June designated a ±1 percentage point ex ante tolerance 2015, the central bank renewed its monetary policy band, while maintaining the 3 per cent inflation target, instruments in order to help continue the self-financing and thus created a more flexible inflation targeting programme. As a centrepiece of the reform, a three- framework. Along with gradual interest rate cuts, month fixed-rate deposit became the MNB’s main the MNB also applied other targeted, monetary policy instrument, replacing the former two-week policy instruments to address the monetary policy deposit from 23 September 2015. The two-week transmission difficulties caused by the crisis and to deposit remained part of the central bank instruments, reduce Hungary’s external vulnerability. According to but quantity restrictions were imposed on it using the central bank projections, loose monetary conditions auction method. Certain elements of the forint market are consistent with the medium-term achievement monetary policy instruments – such as the mandatory of the inflation target and a corresponding degree of reserve system, the interest rate corridor, covered credit support to the real economy. instruments and interest rate swap tenders – were also restructured in conjunction with the self-financing The contract period of the second phase of the concept. The transformation of the set of monetary Funding for Growth Scheme (FGS) launched in October policy instruments encourages credit institutions to 2013 and the Funding for Growth Scheme Plus (FGS+) use central bank credit instruments in a more intensive launched in spring 2015 expired on 31 December 2015. manner than previously, taking the overnight unsecured Under the two programmes, 95 per cent of the overall interbank rate closer to the base rate. available amount of HUF 1,500 billion was utilised. 95 per cent of the loans concluded in the second phase The central bank’s foreign currency tenders which of the FGS, in the total amount of HUF 1,402 billion, were launched in the autumn of 2014 in connection were new loans, including new investment loans with with the settlement of foreign currency consumer a share of 61 per cent. The share of micro-enterprises loans and the conversion of household foreign in the facility reached almost 40 per cent. Since the exchange mortgage loans were completed during the launch of the FGS nearly 31,100 enterprises obtained year. At these tenders, the MNB sold a total of EUR financing in an amount of some HUF 2,126 billion, 9,127 million to credit institutions. Of this amount, which not only played an important role in stopping the share of settlement and conversion was EUR the decrease in the outstanding loan amount, but also 1,081 million and EUR 8,046 million, respectively. In had a material impact on economic growth. addition, the MNB also held foreign currency tenders in connection with the conversion of foreign currency Introduced as a temporary instrument, the FGS consumer loans other than mortgage loans in 2015. successfully fulfilled the market development and At these tenders, the MNB sold Swiss francs to growth objectives established upon the announcement counterparty credit institutions in exchange for forints, of the programme. Therefore, simultaneously with allocating a total of CHF 605 million. the Growth Supporting Programme (GSP), which was launched with the aim of ensuring a smooth return In 2015, the vulnerability of the Hungarian financial to market-based lending, the gradual phase-out of system decreased considerably. Settlements of ANNU AL REPORT • 2015 7 MAGYAR NEMZETI BANK mortgage loans and the conversion of FX loans into local 45 market surveillance procedures, completed 80 currency loans were able to mitigate the systematic risk prudential inspections and 25 market surveillance stemming from households’ foreign currency loans, procedures, and thus fulfilled its obligations prescribed while the self-financing programme of the central bank by law and specified in the annual supervisory plan. significantly reduced the external vulnerability of the country. The shock-absorbing capacity of the domestic In 2015, microprudential supervision of the financial banking sector is solid, and the capital and liquidity sector was characterised by a shift towards a more position is currently adequate. However, the banking proactive, process-oriented operation based on wider- system still remains contractionary, i.e. it has a negative scale, structured information. In this respect, it was a contribution to economic growth. highlighted aspect to comply with legislative provisions and to react quickly to the sector’s risks. In order to Currently, the financial system is essentially facing align supervisory activities to the risk profile of credit three major challenges which need to be addressed: institutions, the MNB placed its surveillance strategy on restoring market-based corporate lending, reducing new foundations, broken down by type of institution. high NPL rates and improving the persistently weak Thanks to the introduction of business model analyses, profitability of the sector.
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