"The European Commission has on Thursday approved a plan by the Hungarian government to provide liquidity support to the country's financial institutions to help them support lending to the economy."[...] the measure is appropriate, necessary and proportional to support the Hungarian financial system against the exceptional turbulence encountered by Hungarian banks in the midst of the global financial crisis, while limiting distortions of competition," the EU executive said in a statement.
"Despite its late notification, I am satisfied that the Hungarian liquidity support scheme has been instrumental in helping financial institutions withstand the exceptional turbulence on the financial markets without unduly distorting competition," said Neelie Kroes Competition Commissioner.
Background
In late 2008 to early 2009, the Hungarian financial markets and economy were particularly affected by the global financial crisis. Liquidity sources completely dried out for both financial institutions and the Hungarian state itself, leaving the state with limited financing options and having to resort to external support in the form of a financing package provided jointly by the International Monetary Fund (IMF), the European Union and the World Bank in November 2008.
In this context, in March 2009 Hungary enacted a liquidity scheme aimed at providing loans to Hungarian financial institutions to enable them to maintain lending to the real economy in spite of the severe liquidity shortage.
The liquidity support takes the form of non-subordinated, non-structured loans, with a maximum maturity and an entry window open until 30 June 2010. To date, three Hungarian banks have benefited from the liquidity scheme since its implementation in March 2009.
"[...] the loans address acute liquidity problems of Hungarian financial institutions. The liquidity measures were necessary, in light of the exceptional turbulence that the Hungarian economy and financial institutions experienced, to avoid even greater disturbance to the economy," the EC added.
In the context of the IMF sponsored external financing package received by Hungary, the remuneration, which covers the cost of funds of the state and the risk premium of the institutions, can be considered appropriate, it also noted. In particular, the level of remuneration of the loans is consistent with the pricing of the Hungarian guarantee scheme."
Source: Portfolio Online FInancial Journal
15.01.2010