More clarity about the MNB's balance sheet and its impact on the government budget

HUNGARY - In Brief 15 Jun 2023 by Istvan Racz

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Even though the MNB reports what is called its statistical balance sheet monthly, it is essentially impossible to tell from that by how much the government will have to recapitalise the Bank and when, in view of the latter's losses suffered because of its current sterilisation policy. The reason is that the statistical balance sheet is not the same as the one that forms the basis of the MNB's official reporting, that is the one that has legal consequences. The main difference is that the official balance sheet does not work on the basis of the mark-to-market principle. Unrealised gains or losses stemming from the movement of market prices do not go into the P&L. Such gains or losses are accounted for as P&L items only if/when those are realised through transactions. The issue has been an increasing concern for a while, as according to the statistical balance sheet, the MNB's own funds decreased by HUF996bn in 2022, to a negative HUF392bn in December. This in itself would suggest that there is a need for recapitalisation, and more is to come in a year's time, an extra burden for the government, which is the sole owner of the Bank. The good news in this regard is that the MNB officially reported only HUF402bn as its annual loss in 2022, leading to a still positive HF256bn stock of own funds in December. So, there is no immediate need for recapitalisation. The bad news is that the annual loss, a result of the unmatched extreme high expenditure on maintaining the MNB's sterilisation rate, was held relatively low only by a HUF806bn gain from the depreciating forint in 2022. This year, the net expenditure on interest will be surely higher, whereas the forint has been actuall...