Green Finance In Hungary
Law Firm | Schoenherr Attorneys at Law |
Subject Matter | Finance and Banking, Environment, Capital Adequacy/BASEL, Financial Services, Environmental Law |
Author | Mr Gergely Szalóki |
Published date | 13 April 2023 |
The Central Bank of Hungary (MNB) is encouraging the banking sector to increase the level of green loans. To this end, significantly reduced capital requirements have been put in place when applying for loans, and green company bonds were introduced in summer 2020 as part of the MNB bond funding for growth scheme. The Hungarian government is now ready to intervene to achieve climate neutrality.
Green lending trends in the banking sector - a breakthrough in Hungary
When it comes to sustainable development goals, Hungary ranks 19thin Europe. While it faces major challenges in areas, such as affordable and clean energy, climate protection and protection of terrestrial ecosystems, the country's financial system has recently begun to consider issues of environmental sustainability.
It is important to note that most of the credit institutions sector in Hungary sees the greatest commercial potential in the financing of renewable energy production. Therefore, the MNB is currently encouraging the banking sector to increase the level of green loans. In April 2021, the MNB issued a green proposal to encourage Hungarian credit institutions to adapt their operations to sustainable development, including strategy formulation, corporate governance and risk management.
Preferential capital requirements
The MNB has published new regulatory guidelines (Green Preferential Capital Requirement Programme for Corporates and Municipalities) for credit institutions on climate and environmental risk management, which came into force in June 2021. The new guidelines encourage banks to evaluate environmental risks when assessing their impact on operations and their financing portfolios using measurable and reliable indicators and methods in accordance with the recommendations of the task force on climate-related financial disclosures. However, the guidance goes well beyond climate information, requiring banks to create a dedicated unit to manage environmental risks and develop climate-neutral plans in line with the goals of the Paris Agreement.
Therefore, Hungarian banks are entitled to request significantly reduced capital requirements for loans for the purchase and construction of energy-efficient properties. This also applies to solar power plants, sustainable agriculture, energy efficiency and electromobility. The capital discount is 5% or 7% of each eligible gross exposure, which reduces the participating institution's Pillar II capital requirement. The new capital requirements...
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