European Commission approves Hungarian liquidity support scheme

The European Commission on Thursday said it approved under EU state aid rules a Hungarian measure aimed at providing liquidity to eligible financial institutions in Hungary to support lending to the economy.

“The Commission is satisfied that the measure is compatible with Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU). In particular, the measure is appropriate, necessary and proportional to support the Hungarian financial system against the exceptional turbulence encountered by Hungarian banks in the midst of the global financial crisis, while limiting distortions of competition,” the Commissions said.

In late 2008 to early 2009, the Hungarian financial markets and economy were particularly affected by the global financial crisis. Liquidity sources completely dried out for both financial institutions and the Hungarian State itself, leaving the State with limited financing options and having to resort to external support in the form of a financing package provided jointly by the IMF, the European Union and the World Bank in November 2008.

In this context, in March 2009 Hungary enacted a liquidity scheme aimed at providing loans to Hungarian financial institutions to enable them to maintain lending to the real economy in spite of the severe liquidity shortage. The liquidity support takes the form of non-subordinated, non-structured loans, with a maximum maturity and an entry window open until 30 June 2010. To date, three Hungarian banks have benefited from the liquidity scheme since its implementation in March 2009.