March 16, 2020 / 4:22 PM / 15 days ago

UPDATE 2-Hungary takes emergency steps to shore up businesses, liquidity against coronavirus

BUDAPEST, March 16 (Reuters) - Hungary’s central bank announced emergency steps on Monday to shore up the economy against coronavirus fall-out, widening the range of collateral it accepts from banks and urging lenders to apply a loan repayment moratorium for stricken firms.

Nationalist Prime Minister Viktor Orban, facing the biggest challenge in his decade-long rule, said Hungary would need monetary and fiscal tools to mitigate the likely grave economic impact, including big job losses, from the viral pandemic.

The National Bank of Hungary imposed a moratorium on repayments on loans extended under its massive Funding for Growth Scheme that had provided small businesses with cheap loans.

The NBH also injected forint liquidity into the banking system via its fx swaps on Monday, and announced new, daily swap tenders to provide even more short-term liquidity.

The NBH said performing corporate loans in domestic bank balance sheets totalled close to 3.6 trillion forints, and it would apply a 30% haircut on those, broadening the range of permissible collateral and thereby lifting banks’ lending potential.

“As a result, the total value of collateral that can be used...will expand by more than 2.5 trillion forints ($8.10 billion),” the NBH said in a statement.

“Accepting corporate loans as collateral substantially supports corporate lending and raises its value from the standpoint of liquidity...and (the measure) also improves banks’ liquidity situation.”

The NBH, Central Europe’s most dovish central bank, announced the steps as the forint fell to new record lows of 344.90 to the euro, and the region’s stock markets plunged across the board as investors offloaded assets in alarm over the negative impact of coronavirus on balance sheets.

Hungarian interest rates are the lowest in Central Europe, with the base rate at 0.9% and the overnight deposit rate in negative territory at minus 0.05%.

Hungary’s finance minister last week flagged the possibility of a recession as a worst-case scenario. Assessing the economic impact, some investors said recession in the Hungarian economy — which expanded by a robust 4.9% last year - could prove worse than after the 2008 financial crisis.

Zoltan Torok, an economist of Raiffeisen in Budapest, said the economy had come to a “sudden stop” and he projected shrinkage exceeding the 6.7% fall recorded in 2009, with a massive spike in unemployment.

Peter Virovacz at ING said his worse-case scenario was a 1% decline in the economy, depending on supply-chain problems.

Hungary has registered 39 coronavirus infections, among whom one has died. ($1 = 308.65 forints) (Reporting by Gergely Szakacs and Krisztina Than Editing by Mark Heinrich)

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