The National Bank of Hungary (NBH) on Monday announced a programme to support growth on the forint-denominated mortgage loan and mortgage bond market through bond purchases up to HUF 100bn and regulatory initiatives based on a decision by rate-setters.

In the framework of the programme, the NBH will buy forint mortgage bonds and take regulatory initiatives in the interest of encouraging forint mortgage lending, the central bank said. The NBH aims to clear obstacles in the way of autonomous growth on the mortgage bond market, thus supporting financial stability, it added.

The NBH will buy up to HUF 100bn of mortgage bonds issued domestically and listed by it among securities eligible as collateral, first on the secondary market, then on the primary market. In the NBH's hope the purchases will help to bring down the liqudity spreads on the forint mortgage bond market and thereby could promote the growth of supply of forint mortage loans and could help the interest gap between forint and foreign currency based mortgage loans to narrow.

The bank said it will set conditions for its purchases in a way to enhance the liquidity and the transparency of the market.

In one condition, the NBH will make primary market purchases of mortgage bonds which are parts of sufficiently large series and in which the issuer ensures a continuous market making.

On demand, the NBH will operate a mortgage bond lending facility for credit institutions (banks) which act as market makers for mortage bonds.

All banks with mandatory reserving obligation and meeting the necessary technical conditions may parttake in the scheme.

The NBH expects to operate the programme at least until December 31, 2010, and will announce details of the scheme by February 28.

As part of the programme the NBH plans to take additional steps to promote mortgage lending in forints in the course of 2010. These steps will aim at making mortgage loan products more transparent and widening the range of institutions eligible to issue mortgage bonds.

At present there are three banks operating a mortgage unit in Hungary: FHB Bank, OTP Bank and Unicredit.