MNB seeks partners among banks to reduce external debt

National Bank of Hungary deputy-governor Ádám Balog has sent a letter to banks asking them to partner with the central bank in an effort to reduce the country's short-term external debt, MNB managing director Márton Nagy told MTI. Banks could either pay back their short-term external debt, with the MNB's international reserves used to ensure the lenders foreign exchange through swap transactions; or banks could take out money from the MNB's two-week bills – the central bank's main tool for soaking up liquidity – and place it in forint government securities, from which the state could pay off its own external debt, using the MNB's international reserves, Nagy said. The latter option would require the Government Debt Management Agency (ÁKK) to increase issues of forint debt, he added. Reducing external debt is a pillar of the MNB's recently unveiled "Funding for Growth Scheme". Under the scheme, the central bank aims to cut international reserves by €3 billion by reducing short-term external debt, thus lowering the stock of two-week bills from HUF 4,500 billion to HUF 3,600 billion. The MNB will make a combined HUF 500 billion of financing available to banks for SME lending and the conversion of foreign currency-denominated corporate loans into forints. The MNB will lend the money at 0% and banks interest margin will be limited to 2%.