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By Gergely Szakacs
BUDAPEST, Nov 12 (Reuters) - Hungary’s central bank will launch a 300 billion forint ($1.22 billion) bad asset manager company, which will start buying up commercial real estate loans from banks on a voluntary basis in the first half of next year, it said on Wednesday.
It said the asset manager, MARK Group, would probably buy assets below book value, however, the exact pricing mechanism would be determined later. The planned lifetime of the company will be a maximum of 10 years, the central bank said.
The bank said the size of the potential portfolio involved was about 800 billion forints ($3.2 billion) on book value, adding that the majority of that could be covered by less than 500 transactions.
“The advantage of the asset manager is that a significant amount of resources, including capital and liquidity can be released in the bank system... while the ratio of non-performing corporate loans would drop considerably,” it said.
In the second quarter that figure was over 18.5 percent, the bank said, adding that commercial real estate loans accounted for nearly half of all distressed corporate loans.
The bank said it was also considering the introduction of a so-called systemic risk capital buffer (SRB), which can be set depending on the contribution of individual banks to systemic risk. It said there was no decision about this measure so far.
It said the settlement of billions of euros worth of past cost hikes on household loans, deemed by Hungarian courts and the government as unfair, as well as other related measures, would weaken banks’ resilience and willingness to lend.
“But the banking system has adequate buffers to absorb losses and remain stable,” it said.
“The stability of the banking system will be further reinforced by the planned capital increases of HUF 350 billion by owners in 2014 H2, after capital injections totalling HUF 150 billion during the first six months,” it said.
It estimated the net loss arising from the settlement process at 731.4 billion forints for the financial sector.
The central bank said under a stress scenario, which also takes the results of the European Central Bank’s Asset Quality Review into account, additional capital needs of about 90 billion forints would arise, which it considered “manageable.”
The bank added that profitability in the heavily taxed sector would decline due to cuts in interest rates on household loans and the lower outstanding amount of loans. (1 US dollar = 246.2 Hungarian forint) (Editing by Jeremy Gaunt)