Review of the MNB’s performance in 2020
Net interest and interest-related income in forint showed a gain of HUF 10.7 billion, i.e. the profit decreased by HUF 19.9 billion compared to the previous year. As a result of the new and expanded old central bank programmes (provision of collateralised loans, purchase of mortgage bonds, government securities and corporate bonds), interest income increased, but at the same time this was outweighed by the increase in interest expenditures related to the absorption of forint liquidity (one-week deposit, preferential deposit) and the increase in interest paid on forint deposits of the central government. Interest paid on the preferential deposit with a banded (4-per cent) interest rate related to the FGS Go! and the Bond Funding for Growth Scheme accounted for a growing share of interest expenditures, as the take-up of the programmes increased. The decrease in forint interest and interest-related profit was also due to the fact that, as a consequence of market forint interest rates being higher on average than in the previous year, the profit on interest rate swaps concluded with credit institutions was lower. Foreign exchange interest and interest-related income amounted to HUF 30 billion, which was HUF 11.2 billion higher than in 2019. The slight decline in interest income on international reserves in the low, partly negative international interest rate environment was more than offset by the favourable evolution of the income of forward transactions concluded to cover the risk of reserves and the decrease in foreign exchange interest expenditures. Realised gains from financial operations contain, for the most part, gains and losses arising from changes in the market price of securities realised on the sale of securities. In 2020, a profit of HUF 5.1 billion was realised on financial operations, largely due to the decline in US dollar yields in the first half of the year; this was HUF 2.2 billion lower than the profit in 2019. Income arising from exchange rate changes is determined by the difference between the forint’s official exchange rate and its cost rate on the one hand and by the volume of foreign currency sales on the other hand. In 2020, foreign currency sales – which were high compared to the previous years – were related to the debt management operations of the Government Debt Management Agency, the state’s expenditures on protection against the pandemic and the management of international reserves. In addition, due to the weakening of the forint, the difference between the official exchange rate and the cost rate increased. Compared to 2019, the realised income from exchange rate changes increased by HUF 57 billion to HUF 286.1 billion.
Other income factors include banking operating incomes, costs and expenditures, costs of issuing banknotes and coins, accounting for provisions and impairment, incomes from supervisory activities, and income/expenses from fees and commissions and other income/expenses. Net expenditures resulting from these items amounted to HUF 76.5 billion in 2020, an increase of HUF 45.4 billion compared to the previous year. This increase is mainly due to the impairment created for monetary forint securities on the basis of prudential considerations, as well as to the rising operating costs. The MNB’s equity amounted to HUF 1,112.7 billion on 31 December 2020. Based on the decision of the Executive Board, the MNB paid a dividend of HUF 250 billion from its retained earnings to the state budget in 2020, which reduced the amount of equity, while at the same time the revaluation reserves and the developments in the profit/ loss for the year increased it. The positive difference between the official forint exchange rate and the average cost rate widened compared to the end of 2019, causing the revaluation reserves due to forint exchange rate changes to grow by HUF 398.6 billion, coming in at HUF 586.4 billion on 31 December 2020. On 31 December 2020, unrealised gains on foreign currency securities marked to market amounted to HUF 58 billion, which exceeds the previous year’s level by HUF 25.8 billion.
3.13 THE MNB’S FINANCIAL MANAGEMENT IN 2020 Actual operating costs in 2020 amounted to HUF 47,974 million, which is 2.5 per cent below the approved budget (excluding central reserves) and 14.8 per cent above the expenditures incurred in 2019. The increase compared to the previous year was principally observed in general operating (mostly other) costs, mainly related to the communication on central bank measures taken to mitigate the economic impacts of the coronavirus, as well as to the ramp-up of the FGS Go! and BGS campaign activities. Successful implementation of the MNB’s strategic objectives and the safeguarding of its reputation and assets are crucially important values. An efficient operational risk management system plays an important role in the protection of these objectives and values. With this in mind, the identification, assessment and continuous in-house monitoring of operational risks and the implementation of the appropriate response measures constitute an integral part of the MNB’s corporate governance.
ANNUAL REPORT • 2020
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