Hungary govt officials propose new corporate lending benchmark
Government says proposal could cut borrowing costs for companies
S&P Global says proposed move could undermine investor sentiment
Forint eases amid weaker global mood, S&P comments -traders
Adds comments from S&P, market reaction
By Anita Komuves and Gergely Szakacs
BUDAPEST, Jan 22 (Reuters) -Hungarian government officials on Monday proposed applying Treasury bill yields as the benchmark lending rate for corporate loans to cut borrowing costs as part of Prime Minister Viktor Orban's efforts to revive the economy.
A surge in inflation last year to 25%, the highest in the European Union, pushed Hungary's economy into recession and while growth is expected to resume in 2024, a Reuters poll last month suggested it would miss the government's 3.6% forecast.
Orban's government, which faces European Parliament and local elections this year, has been calling on the central bank, which has cut interest rates by a combined 725 basis points since May, to do more to help the economy recover.
"Although the government has already taken several measures against the drop in lending, it is still below the level that is needed for growth," two officials at the Economy Ministry said in a study published on financial news website portfolio.hu.
Variable rate corporate loans are tied to money market rates which in turn track central bank's benchmark rate, now at 10.75%, while Treasury rates better reflected supply and demand of funds and market expectations, the authors argued.
A switch to a new benchmark could boost economic growth and investments, they said. The three-month Budapest Interbank Offered Rate (BUBOR) was quoted at 9.53% on Monday, while Hungary sold three-month Treasury bills at an average yield of 6.92% last week.
The central bank did not immediately respond to a request for comment. Last November, it said bank sector profitability was "remarkably high", with interest income on central bank deposits a significant contributing factor.
S&P Global Financial Institutions Analyst Lukas Freund told Reuters the proposal, while its implementation was uncertain, represented another example of Budapest's unconventional policy, which aimed to boost the economy, but posed a risk to the financial sector.
"Governmental interventions (e.g., the introduction of one-off windfall taxes on bank revenue in 2022 and 2023 and capping of interest rates) pose a material risk and markedly reduce domestic banks' profitability," he said in an emailed reply.
"They could also undermine foreign investor sentiment, which just started to recover from a series of populist measures that targeted the financial sector."
The comments from S&P, which came amid weaker global market sentiment due to the Red Sea shipping crisis, pushed the forint EURHUF= near its lowest levels for 2024 against the euro, traders said.
Writing by Gergely Szakacs
Editing by Bernadette Baum and Tomasz Janowski
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