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MNB’s goal when it started the Bond Funding for Growth Scheme (BGS) in July 2019 was to diversify the sources of debt finance for corporates based in Hungary beyond bank loans, aiming to encourage investment through the provision of long-term funding and to underpin economic growth.

“Hungary’s debt capital market has now caught up with its regional rivals so that, today, it is more in line with the Czech Republic, Poland and Slovakia, measured in terms of issuance volume as a percentage of GDP,” says Olaf Tölke, head of corporate ratings at Scope Ratings.

“The programme also proved unexpectedly well timed as it provided long-term fixed rate funding to corporates in a low interest rate environment before interest rates soared in H2 2021,” Tölke says.

The Covid-19 shock in 2020 and its severe economic consequences prompted central banks in Europe, including the European Central Bank, to provide emergency extra liquidity for government and companies through new and extended bond-buying programmes. MNB, which entered the Hungarian domestic market as the largest individual investor, was equally able to provide crucial support for Hungarian business amid the slump in growth and subsequent recovery this year.

The MNB’s total purchases under its programme of quantitative easing stand at HUF 1.55trn (EUR 4.22bn) – equivalent to around 2.2% of GDP. As of 31 October 2021, 66 Hungarian companies had issued 85 bonds with a notional total value of around HUF 1.7trn. Scope Ratings has rated more than 90% of the issuers – with ratings ranging from CCC to AA – though most of the issuers fall between B and BB.

“Pricing has inevitably reflected the unusual circumstances in which Hungarian companies have issued often their first-ever bonds as well as the enterprises’ individual credit quality,” says Barna Gáspár, analyst at Scope.

Low liquidity, linked to pandemic and uncertainties associated with an underdeveloped debt capital market, the MNB’s willingness to inject liquidity directly into the market, combined to ensure average initial pricing equivalent to around a 2.0-3.0% fixed coupon for a 10-year bond.

“Average coupons have since risen closer to 5% as the MNB has tightened monetary policy in the face of rising inflation,” says Gáspár. The central bank raised interest rates for the fifth time in less than a month on 9 December 2021 - the one-week deposit rate is 3.3% - and has now closed the BGS.

Scope Ratings has rated close to 100 Hungarian issuers, of which 68 are public ratings, providing ratings for more than 90% of issued bonds.

“We have, as a result, gained a comprehensive overview of the market and different sectors,” says Gáspár. Real estate companies made up most of Scope’s ratings of Hungarian firms as particularly active bond issuers, followed by construction companies, consumer products suppliers, holding companies and chemicals companies.

For economic forecasts for Hungary and the rest of Central and Eastern Europe, please see Scope’s CEE Sovereign Outlook 2022