Hungary Takes Extraordinary Measures to Protect Financial Institutions During Pandemic
In an effort to mitigate the economic impact of COVID-19, the Hungarian government has introduced a series of extraordinary measures to protect financial institutions and debtors.
Moratorium on Loan Payments
Under these new measures, all retail and corporate financings will be subject to a moratorium until December 31st, 2020. This means that:
- Capital, interest, and fee payment obligations for all loan, credit, and financial leasing agreements will be suspended during this period.
- Debtors are free to continue fulfilling their contractual obligations if they choose to do so.
Extensions on Contract Expirations
The moratorium also applies to contracts expiring during the national emergency, which will now be prolonged until December 31st, 2020. Additionally:
- The annual percentage rate of consumer credit agreements not secured by mortgages or pledges concluded from March 19th onwards will be limited to a maximum base rate plus 5% of the central bank.
Funding for Growth Scheme (FGS)
The Hungarian National Bank (MNB) has also introduced a moratorium in its Funding for Growth Scheme (FGS) and changed certain terms of the FGS, allowing banks to restructure their financings provided for small and medium-sized enterprises (SMEs).
Relief for Employers and Employees
The government has decided to release employers in sectors such as:
- Tourism
- Hospitality
- Entertainment
- Sports
- Cultural services
- Passenger transport
from social contribution payment obligations until June 30th. Additionally:
- Employees in these sectors will also be exempted from paying pension contributions.
- Their social healthcare contribution will be reduced to a minimum.
Expert Analysis
Experts say that these measures are necessary due to the unprecedented economic challenges posed by COVID-19. Many companies, particularly those providing non-essential services or products, are struggling to stay afloat due to decreased revenue and cash flow issues. Without these measures, many businesses may be forced to dismiss employees, leading to a significant increase in unemployment.
Challenges for Banks
Banks face their own set of challenges, including:
- Protecting their capital
- Maintaining liquidity
- Securing their operations
While the moratorium will not automatically result in a loss of capital for banks, it is expected that their lending activity will drop significantly, leading to reduced fee and commission income. Nevertheless, experts say that the Hungarian banking sector’s robust capital position and heavy investment in digitalization will help mitigate these challenges.
Conclusion
As Hungary navigates this unprecedented crisis, it remains to be seen whether these measures will be sufficient to protect financial institutions and debtors. One thing is clear, however: Hungary is taking bold steps to ensure its economic stability and protect its citizens during these uncertain times.