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The Role of Prudential Requirements in Fostering Green Bond Markets: The Experience of Hungary

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Greening the Bond Market

Part of the book series: EBI Studies in Banking and Capital Markets Law ((ESBCML))

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Abstract

While there has been a rapid growth in recent years in the green bond segment globally, this growth has been geographically uneven, with—among others—Central-Eastern Europe as a region lagging behind. While there is consensus that central bank policies and financial regulatory measures can play a role in building sustainable finance markets in general and the green bond market specifically, there is much more debate about whether and if so, how prudential requirements could be used to jump-start the green bond market and help its further development. In Hungary, capital requirement incentives and other measures have been introduced to foster the green corporate and the green covered bond segment. The chapter analyses the theoretic considerations about the pros and cons of such policies and provides a preliminary analysis of the market developments in Hungary, with a view also to enriching the European academic and policy debate.

The author of this chapter used to be the Central bank of Hungary’s Head of sustainable finance department between 2019 and 2022 and was responsible for the design of many of the policy steps discussed in the chapter.

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Notes

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  7. 7.

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    Baranović, I. et. al. 2021. The challenge of capturing climate risks in the banking regulatory framework: is there a need for a macroprudential response?. Macroprudential Bulletin, European Central Bank, vol. 15.

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    See BILL S-243—An Act to enact the Climate-Aligned Finance Act and to make related amendments to other Acts—https://www.parl.ca/DocumentViewer/en/44-1/bill/S-243/first-reading

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    Ibid.

  20. 20.

    Dombrovskis, V. 2017. Greening finance for sustainable business. Speech by Vice-President for the Euro and Social Dialogue, Financial Stability and Financial Services Valdis Dombrovskis. https://ec.europa.eu/commission/presscorner/detail/fr/SPEECH_17_5235. Accessed 23 December 2022.

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    European Banking Federation. 2017. Towards a Green Finance Framework: 38 https://www.ebf.eu/wp-content/uploads/2017/09/Geen-finance-complete.pdf. Accessed 23 December 2022.

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    Schoenmaker, D., Boot, A. 2018. Climate change adds to risk for banks, but EU lending proposals will do more harm than good. Blog Post. https://www.bruegel.org/blog-post/climate-change-adds-risk-banks-eu-lending-proposals-will-do-more-harm-good. Accessed 23 December 2022.

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    EeDaPP. 2020. Final report on correlation analysis between energy efficiency and risk. www.aaa-h2020.eu/sites/default/files/2020-09/EeDaPP_D57_27Aug20.pdf. Accessed 23 December 2022.

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    Billio M. et al. 2022. Buildings’ energy efficiency and the probability of mortgage default: the Dutch case. The Journal of Real Estate Finance and Economics 65: 419-450.

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    Nederlandse Vereniging van Banken. 2018. Position paper on the prudential treatment of climate-related assets. https://www.nvb.nl/media/1318/nvb-position-paper-on-the-prudential-treatment-of-climate-related-assets_september-2018.pdf. Accessed 23 December 2022.

  26. 26.

    Dankert, J., L. et. al. 2018. A green supporting factor—the right policy? SUERF Policy Note, Issue No 43. https://www.suerf.org/policynotes/3473/a-green-supporting-factor-the-right-policy. Accessed 23 December 2022.

  27. 27.

    IFC. 2021. Emerging market green bonds report 2020. https://www.ifc.org/wps/wcm/connect/industry_ext_content/ifc_external_corporate_site/financial+institutions/resources/emerging+market+green+bonds+report+2021. Accessed 20 August 2022.

  28. 28.

    Includes corporate, municipality and bank issuances.

  29. 29.

    Becsi et.al. 2022. First steps—the nascent green bond ecosystem in Hungary. Cognitive Sustainability 1: 1.

  30. 30.

    Deloitte. 2022. Designing recommendations for a sustainable capital markets strategy and action plan for Hungary. https://www.mnb.hu/letoltes/recommendations-report-deloitte-sustainable-capital-market.pdf. Accessed 23 December 2022.

  31. 31.

    MNB. 2019. Green Program. https://www.mnb.hu/letoltes/mnb-green-program-en.pdf. Accessed 22 April 2022. MNB. 2019. Considerations behind the launch of the bond funding for growth scheme and main features of the programme. https://www.mnb.hu/letoltes/no-vekede-si-ko-tve-nyprogram-eng-0326-2.pdf. Accessed 23 December 2022.

  32. 32.

    MNB. 2021. Green Finance Report 2021. https://www.mnb.hu/letoltes/20210303-zold-penzugyi-jelentesangol.pdf. Accessed 23 December.

  33. 33.

    Ibid.

  34. 34.

    Eurobarometer. 2021. Special eurobarometer 513—Climate change. https://ec.europa.eu/clima/system/files/2021-06/hu_climate_2021_en.pdf. Accessed 22 April 2022.

  35. 35.

    Scale Research. 2021. Bankindex research 2021 February. https://scale.hu/wp-content/uploads/Scale-Resarch_Sajtokozlemeny_Bankindex_Zold-penzugyek_2021_02_17.pdf. Accessed 30 November 2022.

  36. 36.

    MNB. 2020. Opportunities to jump-starting the green bond market in Hungary. https://www.mnb.hu/letoltes/opportunities-for-jump-starting-the-green-bond-market-in-hungary.pdf. Accessed 22 April 2022.

  37. 37.

    SREP stands for Supervisory Review and Evaluation Process.

  38. 38.

    MNB. 2021. The MNB takes a further step towards a green economy and a modern real estate market. https://www.mnb.hu/en/pressroom/press-releases/press-releases-2021/the-mnb-takes-a-further-step-towards-agreen-economy-and-a-modern-real-estate-market. Accessed 18 April 2022. MNB. 2019. MNB introduces a Green Preferential Capital Requirement Programme. Press Release. mnb.hu/en/pressroom/press-releases/press-releases-2019/mnb-introduces-a-green-preferential-capital-requirement-programme. Accessed 23 December 2022.

  39. 39.

    MNB. 2019. Green retail lending in Hungary. Background Material about MNB’s decisions and planned actions. Available at: https://www.mnb.hu/letoltes/green-retail-lending-in-hungary.pdf. Accessed 23 December 2022.

  40. 40.

    MNB. 2020. MNB introduces preferential capital requirements for green corporate and municipal financing. Press release. https://www.mnb.hu/en/pressroom/press-releases/press-releases-2020/mnb-introduces-preferential-capital-requirements-for-green-corporate-and-municipal-financing. Accessed 18 April 2022.

  41. 41.

    MNB. 2021. MNB supports future issuance of green mortgage bonds and spread of green mortgage loans by amending regulation on forint maturity mismatch. Press release. https://www.mnb.hu/en/pressroom/press-releases/press-releases-2021/mnb-supports-future-issuance-of-green-mortgage-bonds-and-spread-of-green-mortgageloans-by-amending-regulation-on-forint-maturity-mismatch. Accessed 18 April 2022.

  42. 42.

    For insights about green securitization, please also see Chapter 6 by Elia Cerrato and Federica Agostini.

  43. 43.

    MNB. n. 40.

  44. 44.

    See also Chapter 12 by Basil Scouteris and Elli Anastopoulou on FX portfolios.

  45. 45.

    MNB. 2022. Zöld kötvény kibocsátási útmutató. Green bond issuance manual. https://www.mnb.hu/letoltes/mnb-zold-kotveny-utmutato.pdf. Accessed 23 December 2022.

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    Bokor, L. 2021. Bank Carbon Risk Index—A Simple Indicator of Climate-Related Transition Risks of Lending Activity. MNB Occasional Papers 141. https://www.mnb.hu/letoltes/mnb-op-141-final.pdf. Accessed 23 December 2022.

  47. 47.

    Gyura, G. 2021. Central banks can help finance renewables. OMFIF Sustainable Policy Institute Journal 4.

  48. 48.

    See also Chapter 6 by Federica Agostini and Elia Cerrato on the issue of green defaults.

  49. 49.

    MNB. 2022. Green Finance Report 2022. https://www.mnb.hu/letoltes/20220718-green-finance-report-2022-3.pdf. Accessed 23 December 2022.

  50. 50.

    See also Chapter 4 on Climate Bonds Initiative.

Author information

Authors and Affiliations

  1. Department of Finances, Budapest University of Technology and Economics, Budapest, Hungary

    Gabor Gyura

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  1. Gabor Gyura
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Correspondence to Gabor Gyura .

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Editors and Affiliations

  1. Derecho Privado, Carlos III University of Madrid, Getafe, Madrid, Spain

    David Ramos Muñoz

  2. Institute of Law Studies, Polish Academy of Sciences, Warsaw, Poland

    Agnieszka Smoleńska

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Gyura, G. (2023). The Role of Prudential Requirements in Fostering Green Bond Markets: The Experience of Hungary. In: Ramos Muñoz, D., Smoleńska, A. (eds) Greening the Bond Market . EBI Studies in Banking and Capital Markets Law. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-38692-3_10

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  • DOI: https://doi.org/10.1007/978-3-031-38692-3_10

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