Hungary keeps bank capital buffers at 1 per cent as cyclical risk edges up

Hungary's central bank has left its main capital buffers for banks unchanged, keeping the countercyclical capital buffer (CCyB) and the two real estate systemic risk buffers at 1 per cent each, a statement dated 30 September said.

The two sectoral buffers are on residential and commercial real estate exposures. The Magyar Nemzeti Bank (MNB) said the decision strengthens banks' resilience to cyclical and real estate shocks "in a targeted manner" without materially hindering their lending capacity. The 1 per cent CCyB rate, which has applied to domestic exposures since 1 July 2025, will remain in place from 1 October 2027, the statement said. Because the buffer is set with a long lead time, the decision effectively locks in the current requirement for another full year.

Risk readings edge up

The wording of the September decision differs from the previous quarter's in one respect. The MNB's cyclical systemic risk map and the index that summarises it now indicate a "slowly increasing, but still low, neutral level" of cyclical systemic risk, the September statement said. In its release of 30 June, the bank described the same indicators as showing "a low, neutral level" when it confirmed the 1 per cent rate from 1 July 2027.

Both statements said real estate risks were rising because of overvaluation in the housing market and increased collateral encumbrance. The MNB said in the September statement that it addresses that risk through the 1 per cent sectoral systemic risk buffers on residential and commercial real estate exposures that took effect on 1 January 2026, and that a CCyB above 1 per cent was therefore not justified in a neutral risk environment. It reviewed the sectoral buffers and kept them because risks in both property segments "have not changed significantly" since their introduction.

The MNB reviews the CCyB quarterly and the sectoral buffers at least once a year. In June it also confirmed its list of third countries that are material for Hungarian banks' exposures: Albania, Montenegro, Russia, Serbia, Ukraine and Uzbekistan, the June release said.

The housing numbers behind the buffers

The central bank's most recent Financial Stability Report set out why it is watching property. House prices rose 23.5 per cent in nominal terms in 2025 and the MNB estimated housing market overvaluation at 22.5 per cent, its summary of the report showed. The average loan-to-value ratio of borrowers rose from 59 per cent to 68 per cent, which it linked to the Home Start Programme launched in September 2025.

Household loans outstanding grew 15 per cent in 2025 and corporate loans 7.3 per cent. The bank estimated that about two-thirds of the loans disbursed under the Home Start Programme were additional contracts. It noted that the average debt-service-to-income ratio did not rise despite larger loans, and that instalments are fixed for the full maturity, which mitigates default risk, the report summary said.

Capital and profitability

The sector enters the decision with substantial headroom. Return on equity was 18.9 per cent at the end of 2025, the capital adequacy ratio was 20.1 per cent on preliminary data, and free capital reached HUF 2,025 billion. The liquidity coverage ratio averaged 172 per cent on an individual basis in February 2026, and the bank's forward-looking stress test found that a capital shortfall would affect only a small number of institutions even under severe stress, the MNB said.

The report summary also flagged a source of earnings volatility. The fair-value measurement of interest-subsidised loans, a growing share of household lending, makes bank profits more sensitive to the yield environment, and most banks hedge that risk fully or partially in the interest rate swap market, it said.

Governor Mihály Varga told the Hungarian Banking Association's annual general meeting in July that the banking system's capital adequacy ratio stood at a historic high of 21 per cent, an MNB statement said. With capital at that level, the September decision leaves banks' buffer requirements where they are while the MNB monitors whether the slow rise in its cyclical risk indicators continues.