EBA finds Hungarian waiver for covered bonds justified

  • Press Release
  • 28 November 2024

The European Banking Authority (EBA) today published an Opinion addressed to the Central Bank of Hungary following the Competent Authority's notification of its decision to introduce a partial waiver of the provision under the Capital Requirements Regulation (CRR) in relation to the eligibility conditions for covered bonds to benefit from a risk weight preferential treatment. Given the significant potential concentration problem in Hungary, the EBA is of the opinion that the application of a partial waiver is adequately justified.

The EBA has assessed the evidence provided by the Central Bank of Hungary to support the measure, namely the current classification of Hungarian credit institutions in relation to the credit quality steps (CQSs) assigned, the current composition of the Hungarian covered bond market, and the type and nature of exposures to credit institutions that covered bonds regularly assume.

On the basis of the evidence provided, the EBA is of the opinion that Hungary has a significant potential concentration problem stemming from the application of the minimum CQS requirement of step 2for exposures to credit institutions in the form of derivative contracts to be used as eligible collateral. This would result in no Hungarian bank being eligible to act as derivative counterparty and, therefore, the partial waiver is adequately justified.

Legal basis and next steps

The EBA's competence to deliver the Opinion is based on Article 29(1)(a) of Regulation (EU) No 1093/2010. In accordance with Article 14(5) of the Rules of Procedure of the EBA Board of Supervisors, the Opinion has been adopted.

Article 129(1)(c) of the Capital Requirements Regulation (CRR) specifies that covered bonds eligible for risk weight preferential treatment can be collateralised by exposures to credit institutions that qualify for credit quality step 1 and 2 (CQS1 and CQS 2). This requirement may be partly waived by a Competent Authority, after consulting the EBA, if significant potential concentration problems in the Member States concerned can be documented. The partial waiver allows for exposures to institutions that qualify for credit quality step 3 (CQS3) in the form of derivatives to be included in the cover assets.

The Central Bank of Hungary will be monitoring the situation and on the basis of information that documents the concentration problem will assess the need for the waiver to be in place. If the concentration problem is no longer significant, the measure will be repealed.

Documents

Opinion on a decision to grant the permission Article 129(1)(1a) of the CRR – notification from Central Bank of Hungary (MNB)

(338.24 KB - PDF)

Press contacts

Franca Rosa Congiu